With February knocking on the door and a mid-March deadline to complete the process of crafting proposed budgets for the Fiscal Year 2026 (starts July 1, 2025), the debates over the numbers are ramping up.
On the school side of the ledger, the School Committee holds a 7 p.m. budget public hearing on Tuesday, February 4th at Essex Elementary School. The Manchester Finance Committee continues its weekly meetings (usually Wednesdays) as they review both Town and School budget requests (see agenda postings on the Town’s website.) Similarly, Essex’s Finance Committee meets regularly as well. As always, these meetings are open to the public.
FY26 is shaping up to be a challenging year for budgets. Due to the budget cycle where estimates are crafted up to 18 months before being needed, municipal budgets often play catch up to inflationary pressures. While Inflation has calmed considerably from its recent highs, municipal budgets are still catching up to higher costs. Wage pressures also are making balancing budgets more challenging. What have traditionally been 2-2.5% wage increases for town employees have turned into 3%+/- increases. School wage increases are currently in the 5% range with recent union settlements.
Medical expenses are one cost center that has not calmed down. In fact, the opposite is happening. Medical expenses are increasing at about 10% annually. Combined with higher utilization rates, the introduction of very expensive, new popular prescription drugs, and needing to close current deficit gaps, health insurance premiums are set to increase between 15 and 25%. (A trend that is expected to last for a few years.)
Absorbing these higher wage increases and benefit costs within the confines of property tax increases that do not exceed 2.5% is not possible. Something must give – either reductions in services, squeezing out more efficiencies, or raising taxes beyond 2.5% (which requires a ballot override vote unless a community has untapped taxing capacity.)
Because schools are more labor intensive than town operations, they feel the wage and benefit pressures more acutely. The School District will need to increase their revenues 9% next year to maintain their current operations and stop using reserves. This would require a similarly large tax increase in both Essex and Manchester that could only be done if overrides were approved. The School District has crafted an alternative budget that relies on spending down reserves and making some operational changes that comes in at a 5.42% overall increase. With the continued changes in relative enrollments between the two towns this translates to a 4.5% increase for Manchester and a 5.7% increase for Essex. Manchester has untapped taxing capacity and thus could approve the higher taxes needed for this without an override vote. Essex would require an override vote (one failed last year.) Both the original and alternative budget proposals are significantly higher than the 3.28% average increase the District has needed over the past 12 years. While it would be preferred by all to continue at this historical rate, the realities of today’s circumstances seem to dictate otherwise.
Relying on reserves to balance an operating budget is a temporary solution that merely delays the need for a corrective override vote. It actually digs the hole even deeper, eventually requiring a larger override. The District has used a host of strategies to avoid overrides for many years but has exhausted such strategies. Most high performing districts require an override every 5 years of so. The last school operational override in Manchester was back in 2016 and for Essex back in 2005.
Stalling as long as possible before approving an override has its drawbacks. It creates a bigger jump all at once compared to smaller, more frequent increases and it creates uncertainty in the budgeting process with the stakes much higher. At this point it is likely too late to use the “slow and steady” approach of small overrides but it is something the communities might want to consider once the need for the current correction is resolved. (The original imposition of Proposition 2 ½ was done back in the 1980’s, in a very different budget climate. Particularly during inflationary times, the 2 ½ limitation is a rather arbitrary threshold for requiring the two-step process for budget approvals – Town Meeting and Ballot.)
The next two months will be critical in determining what the proper funding request to take to voters should be. You can give your input at the upcoming School Committee and Finance Committee meetings. Ultimately voters will make the final call at each town’s Annual Town Meeting. Should either town fail (twice) to approve the requested District amount, a “super” town meeting with both towns in attendance will need to be held.
