FY2025 Proposed Budget

The proposed FY2025 City budget reflects the values and priorities of our community by advancing the three pillars of the FY2025 Strategic Plan: livability, improving services, and transparency. Focusing on affordability, sustainability and resilience, and equity will help us ensure a more livable and vibrant community for all. We want to provide municipal services, policies, and projects that are forward-looking, open to innovation and new approaches, and delivered efficiently and effectively. And City actions should be open, honest, evidence-based, and inclusive.

The FY2025 proposed budget is $204,106,637, an increase of 4.1% over the previous year’s budget. Most of the budgetary increase is due to increases in fixed costs. Fixed costs on the City side of the budget are increasing in FY2025 by $3,383,766, exceeding the historical average of the past decade by nearly 30% over what we typically see. Fixed costs include health and retirement benefits for employees, debt payments, charges by the state, costs obligated by prior contracts, and utility costs. Many fixed costs have been driven up substantially by inflationary impacts and while our energy services contract and related sustainability work for City buildings and vehicles have lessened the impact of energy cost spikes (and will hopefully continue to do so), those overall costs have increased, as well. Our largest single fixed cost increase, however, is health insurance for our employees, which will go up in FY2025 by $1,655,721, almost 10% over FY2024. On the School side of the budget, fixed costs are increasing by $3,156,472. Combined with the City amount, the total increase in fixed costs is $6,540,238, which represents 81.4% of total budget increase. Put another way, for every dollar the budget increases, around 81-cents of that are from costs that are fixed and must be paid.

This is no doubt a challenging year for Salem and for many communities across Massachusetts. Balanced against these increases in fixed costs, the impacts of inflation, and rapidly increasing cost of personnel to ensure competitive wages and benefits, one-time revenues derived from federal funding related to the pandemic are ending. Salem wisely took steps earlier in FY2024 to mitigate the effects of that to an extent, but we will continue to feel some consequences from it into FY2025, particularly related to pandemic funding for public schools. The proposed FY2025 budget accounts for and manages these changes strategically and without compromising our focus on critical services and programs for our community and for our schools.

While the pressures are significant in this coming fiscal year, along with uncertainties related to local aid from the state – which is not finalized by the legislature at the time the budget is being filed – and the on-going negotiations for new contracts with five of our City’s eight public employee unions, there are reasons for optimism.

A strong local economy has bolstered revenue projections for several of our local receipts and receipts reserved categories, and we are estimating a conservative, but positive, change in new growth for FY2025. Growth of our tax base is critical to mitigating the impact on existing property taxpayers and must remain a shared priority for City government. For context, our anticipated new growth is just slightly less than the increase in our health insurance costs alone. Without growth, fixed cost increases such as that will fall to existing property taxpayers.

The combination of high interest rates and large federal allocations in City accounts generated healthy levels of investment income in FY2024; while this is not a recurring revenue source, it is aiding in reducing the impact that from abruptly ceasing federal pandemic funding. Lastly, a debt analysis exercise by the Finance Department has identified opportunities to redirect unused bond authorizations and remaining ARPA dollars to shovel-ready capital projects. That will greatly reduce the amount of borrowing necessary for the FY2025 capital program, helping the City avoid the impact of higher interest rates for debt (even with our record bond rating from Standard & Poor’s reaffirmed earlier this year, overall interest rates remain challenging), reduce future years’ debt payments, and potentially favorably impact water/sewer rates in the years ahead.

Our schools’ budget is $74,592,616, an increase of $3,438,474 or 4.83%, over the FY2024 school budget. This does not include school-related costs that appear elsewhere in the budget, such as school employee health insurance increases, unemployment costs, and debt for school building projects. It also does not include charter school tuition assessments or our assessment for the Essex North Shore Agricultural and Vocational Technical High School, which are also education-related expenditures by the City. When those factors are included, a substantial amount of Salem’s budget is tied to our schools and our students, easily the largest single area of spending. The direct appropriation increase proposed for FY2025, however, $3,438,474, is nonetheless 72% more than the average increase over the past decade. The 4.83% boost to the City’s appropriation to our schools exceeds the average increase of 3.26% of the previous decade and reflects a strong commitment to our public schools, our educators, and, most importantly, our students.

The FY2025 Capital Improvement Plan (CIP) is also included as part of this budget. I am proud that we continue to a offer forward-looking capital plan in our budget each year, as a responsible and transparent way of planning for future obligations while meeting present-day needs. The CIP reflects projects across most City departments and our public schools, and is funded through a wide diversity of funding sources. We are minimizing future debt costs by using less bonding for capital projects this year than normal, in order to reduce future debt payment amounts and ease rate increases for water and sewer users. The proposed FY2025 CIP is supported by $8,028,761 in bonding, which is $15,353,239 less than the total derived from bonding for the FY2024 CIP. The FY2025 CIP additionally aligns with our on-going energy service plan implementation to improve the sustainability of City facilities. These facts reflect the City’s goal of investing in our critical capital needs to ensure a vibrant, resilient, and accessible community, but doing so in a strategic, thoughtful, and efficient manner.

Salem should be proud of our record stabilization levels, bond rating, and levy capacity. We have also enjoyed a low average tax bill increase relative to our region. This budget recognizes and respects the impact of property taxes on residents. Salem’s average tax bill change over the last decade has been well below the average for our region and bolstered by the adoption of as many exemptions and abatements as practical, particularly focused on our neediest taxpayers, including lower income residents, seniors, veterans, and those living with disabilities, as well as through maximizing diversification of revenue streams. We continue to tax below our allowable levy limit; for FY2025, we will maintain excess levy capacity of $7,816,157 – a further demonstration of our prudence and care with taxpayer dollars.

The financial challenges presented by fixed cost centers and the many externalities pressuring our fiscal conditions are very real and have a very real effect on our budget. Despite those pressures, I am proud that the FY2025 budget maintains our dedication to fiscal responsibility while making important investments to strengthen our community. Our fiscal practices have resulted in not only affirmation of our historic high AA bond rating for the last eleven years in a row, but also our regular receipt – for sixteen years in a row – of recognitions and awards from the Government Finance Officers’ Association (GFOA). In its affirmation of the AA bond rating, S&P Global Ratings specifically cited Salem’s “strong financial management environment with a focus on long-term financial and capital planning…to support stable finances.”

Lastly, another key factor in enhancing our local economy and contributing to new revenues to help meet our budgetary needs are the public and private investments we continue to see in our community. These projects enhance our short- and long-term economic growth, create much needed housing, add to our tax base, and generate jobs. We are projecting the value increase of new growth for FY2025 at $1 million. That is $1 million less burden on existing Salem taxpayers. Without responsible new growth we cannot provide the services and improvements that our constituents rightly demand and deserve. With appropriate new growth comes much needed housing, commercial enterprises with jobs, and new revenues to support the needs of Salem taxpayers and the ability of local government to deliver critical services.

In FY2025 we will continue to strive to exceed the service level expectations of our constituents, while simultaneously ensuring fiscal responsibility in all expenditures. The mission of City government in Salem is to provide open, honest, and pro-active services effectively and efficiently, focusing on the needs of today, with a vision for the future. To accomplish this, the proposed budget aligns operations with strategic goals and objectives, while maintaining necessary fiscal controls and careful attention to our financial forecasts in our budgeting.

I appreciate the hard work and cooperation our department heads have put into the preparation of this year’s budget. I cannot say enough about the efforts made by our Finance Department especially. The department’s work ensured that the budget was ready for submission and in compliance with the high standards we set for ourselves pursuant to GFOA Distinguished Budget guidelines. This year the department was tasked with having the budget prepared earlier in May than usual, to afford Councillors and the public as much time as possible to review this important document. This goal, which the department achieved, put added pressure on the staff in that office and they stepped up to the challenge with incredible professionalism and dedication.

Salem is one of only a handful of Massachusetts communities who annually qualify for both a Certificate of Excellence for our Comprehensive Annual Financial Report and a Distinguished Budget Presentation Award from the GFOA. In furtherance of the GFOA’s prioritization of improving transparency in public budgets, we are offering a “Budget in Brief” summary that highlights the most important parts of the FY2025 City budget.

The proposed FY2025 budget represents a strong commitment to the people we are fortunate enough to have been elected to serve. It continues our balanced and responsible approach to City finances. It invests in the critical services that make Salem a vibrant city and one with schools in which we can all take pride – in short, a livable, equitable, and vibrant city, with excellent municipal services and a commitment to transparency. The FY2025 budget will help ensure that Salem remains a financially strong and professionally led city that strives to work for all.

Dominick Pangallo

Mayor, City of Salem