Beverly Financial Forecasting Committee December 2025: Budget Deficit, Fee Increases, and Infrastructure Challenges

The Beverly Financial Forecasting Committee convened for a comprehensive 177-minute meeting on December 2, 2025, to address the city's mounting fiscal challenges and review both school and municipal budget projections. The meeting revealed a structural budget deficit requiring difficult decisions about service cuts and revenue increases.

Meeting Overview and Conservative Forecasting Approach

The Financial Forecasting Committee began by establishing its conservative approach to financial planning. As one member emphasized, "We're really bound by a conservative forecasting process because if we put aspirational figures in a forecast, we're kind of setting ourselves up for disaster." The stark reality facing Beverly was summarized succinctly: "The two choices are cut services or raise revenues." ▶ Watch opening discussion

The committee approved meeting minutes from November 13th and agreed to include YouTube recording links in future minutes to improve public accessibility.

Beverly Public Schools Budget Analysis

Salary and Benefits Structure

The school budget presentation revealed that 83% of Beverly Public Schools' budget consists of salaries and benefits. ▶ Watch school budget presentation The district employs approximately 900 total staff members, including 464 instructional staff, 19 administrators, and 144 paraprofessionals.

The salary structure operates on a "steps and lanes" system, where steps recognize years of teaching service and lanes reflect educational credits earned. ▶ Watch salary structure explanation As explained during the meeting, "If they have taken additional continuing education... Master's level credits, they can move in more than one direction," meaning teachers can receive both cost-of-living adjustments and step/lane progressions simultaneously.

The forecast notably does not assume any changes in Full-Time Equivalents (FTEs), maintaining current staffing levels for projection purposes.

Health Insurance Costs and Projections

Of the district's 900 employees, 725 are eligible for health insurance, with 543 currently enrolled. ▶ Watch health insurance discussion The average district cost is approximately $28,000 for family plans and $11,000-$12,000 for individual coverage.

The committee projected a 6% annual health insurance rate increase, though historical data shows 7.1% over five years and 5.1% over ten years. ▶ Watch insurance projections Beverly's self-funded insurance model has helped reduce costs compared to peer communities. One potential cost-saving development mentioned was that "weight loss drugs are likely to no longer be covered, which might reduce insurance increases."

Special Education Tuition Challenges

Out-of-district special education tuitions represent a significant and unpredictable cost driver. ▶ Watch special education costs Tuition rates are set by the state's Operational Services Division (OSD) and have seen substantial increases—14% in 2024, followed by 4% compounding increases—far exceeding the expected revenue growth of 2.5-3%.

The costs vary dramatically based on student needs, with private residential placements potentially costing "as much as 400 or $500,000 for the year," while other placements range from $50,000 upward.

School Revenue Sources and Funding Mechanisms

Municipal and State Funding

Beverly Public Schools receives revenue from multiple sources including municipal funding, Chapter 70 state aid, federal grants, and revolving funds. ▶ Watch revenue sources Federal entitlement grants are forward-funded, though the federal budget for grants was currently on continuing resolution at the time of the meeting.

An important restriction noted was that federal funds "have to be supplemental and additional to the city appropriation," preventing their use to supplant local funding.

Revolving Funds and Fee Structures

Revolving funds operate under strict Massachusetts general law guidelines. ▶ Watch revolving funds overview As explained, "Mass general law governs the administration of and the allowable uses for revolving funds, namely that the funds can really only be used for the purpose in which they were brought in."

These funds include:

• Transportation fees
• Facility rentals
• Preschool tuition
• Athletic fees

Transportation Fee Limitations

Transportation fees currently offset only 12% of total transportation costs. ▶ Watch transportation discussion The committee learned that "about 50% of students who take the bus are mandated and about 50% of students who take the bus are fee paying non mandated students."

This 50/50 split creates a practical ceiling on fee increases—fees can reasonably only cover about half of transportation costs since mandated students cannot be charged. The current fee structure is $315 per student with a $630 family cap.

Preschool Program Constraints

Preschool tuition covers approximately 20% of program costs. ▶ Watch preschool funding The program operates under legal requirements to maintain an integrated model with both peer and special education students. As noted, "We are required to have peer students... not to raise it to a point where peer students may not elect to come and participate in the program."

This creates a delicate balance where fees must remain affordable enough to attract peer students necessary for the program's legal compliance.

Athletic and Other Fees

Athletic fees have remained unchanged for at least 10 years. ▶ Watch fee structures Non-resident tuition is set at $21,150 for international students. The committee later discussed that current athletic-related costs are approximately $250,000, while fees generate around $285,000 annually. ▶ Watch athletic fees

Circuit Breaker Reimbursement Program

The special education Circuit Breaker reimbursement program provides variable annual funding but requires districts to first spend over $53,000 per student before reimbursement begins. ▶ Watch Circuit Breaker explanation The program primarily reimburses out-of-district tuition and transportation costs.

Millionaire's Tax Impact

The supplemental budget created by the Millionaire's Tax totaled $1.3 billion for education and transportation statewide. ▶ Watch Millionaire's Tax discussion Of this, $241 million went to circuit breaker reimbursement. For Beverly specifically, the tangible benefit was $327,000 in additional transportation funding.

These supplemental funds, received in July, can offset special education tuition costs. ▶ Watch Circuit Breaker funding details Due to special state permission, Beverly can carry these funds forward through the end of FY26 or FY27, providing budget relief in FY27.

Municipal Budget Projections and Challenges

Collective Bargaining and Labor Costs

The city has seven different collective bargaining units with contracts running through FY27. ▶ Watch municipal budget discussion The committee used a 3% placeholder assumption for future salary and spending increases. Notably, the capital outlay budget for FY26 was zeroed out to close the budget gap—a strategy with long-term infrastructure implications.

Sanitation Enterprise Fund

The total trash program cost for FY26 is just under $4 million, with $1.27 million coming from trash fees and the remainder from the general fund. ▶ Watch sanitation discussion Projected cost increases include:

• 4% for curbside pickup
• 8% for compost site operations
• 3.5% for incineration

The sanitation enterprise fund maintains a certified retained earnings balance of $303,981. ▶ Watch enterprise fund discussion These retained earnings can offset future costs and reduce potential rate increases, but must remain within the enterprise fund and cannot be transferred to the general fund.

Health Insurance Trust Fund Management

Beverly operates as a self-insured city, paying healthcare bills directly through a trust fund. ▶ Watch health insurance funding The city maintains reinsurance and stop-loss insurance, paying $1 million annually for coverage that caps individual case costs at $175,000.

The committee is projecting 5-6% annual healthcare cost increases. A significant achievement mentioned was restructuring the prescription drug program, which "saved us over a million dollars annually."

The health insurance trust fund operates as a rolling balance with regular employee deductions. ▶ Watch trust fund discussion When the balance exceeds 40% of the annual amount, the city may implement rate reductions or premium holidays. The total fund represents approximately a $30 million annual revolving fund.

Debt Management Strategy

Beverly attempts to layer debt strategically to maintain consistent budget lines while funding infrastructure improvements. ▶ Watch debt strategy Upcoming major projects include city hall renovations and school roof replacements.

Current debt represents approximately 5% of the budget, down from a historical high of 9%. ▶ Watch debt capacity discussion The city aims to increase debt capacity to around 7% to prepare for the potential City Hall project. As one member emphasized, "We can't ignore the infrastructure of the community" and "Ten years from now, if we let this thing drop any lower... you're not going to be able to do projects."

Long-Term Liability Management

Pension Obligations

Beverly is required to fully fund its pension liability by 2040 but is currently on track to achieve full funding by 2032. ▶ Watch pension discussion Once fully funded, the annual pension fund deposit will drop to $5.7 million.

Key pension metrics include:

• Current funded ratio: 75.3%
• Unfunded liability: $65.6 million

As emphasized during the meeting, "If we don't take seriously the long term liabilities... it can reflect poorly on us." ▶ Watch pension liability funding Pension funding is mandatory and non-discretionary—the Department of Revenue can withhold tax rate certification if funding is not properly managed.

OPEB Trust Fund

The Other Post-Employment Benefits (OPEB) trust fund presents a more challenging picture. ▶ Watch OPEB discussion The current trust fund value is approximately $3 million against an estimated $200 million liability.

Beverly transfers 2% of its certified free cash balance twice yearly into the trust fund, plus the value of one sick day from municipal collective bargaining employees annually. Unlike pension obligations, OPEB funding is not legally mandated, making it a lower priority during budget constraints.

Cost Allocation Across Funds

The Housing Authority pays its proportional share of pension liability, and enterprise fund employees' pension costs are allocated back to the general fund. ▶ Watch cost allocation The city conducts a thorough indirect cost allocation plan annually as part of the budget building process, following proper accounting fundamentals.

Budget Reserves and Financial Flexibility

Current Reserve Levels

The city maintains reserves totaling approximately 19% of the budget, including:

• Free cash: $10.4 million
• Stabilization fund: $22 million

▶ Watch reserves analysis However, reserves are expected to drop to 12-13% due to planned expenditures. As noted, "Between now and the end of the fiscal year, we could see as much as $7 million of our reserves drop."

The committee maintains $710,000 in reserves to cover retiree expense compensation, with an additional $250,000 set aside for unforeseen costs before mid-fiscal year. ▶ Watch budget reserves Unspent reserves return to the general fund or are reallocated.

Free Cash Management

Free cash represents underspent budget allocations and revenue above anticipated levels. ▶ Watch free cash explanation As explained, "It's like the savings account at the end of your year, what's left over that you haven't spent."

Beverly's free cash typically ranges between $9-11 million annually, with approximately 50% coming from unspent budgeted items and 50% from revenue overages. The city intentionally maintains this balance for financial stability and rating agency considerations.

The committee discussed that the city has built these reserves over the past 12 years after emerging from the Great Recession. ▶ Watch budget and reserves discussion The current 19% reserve level may represent a "high water mark," with historical context showing that previous recessions without reserves led to school closures and service eliminations. As emphasized, "In each of the last two recessions, there were no reserves to speak of."

Family Dollar Building Purchase

The purchase of the Family Dollar building was made with free cash. ▶ Watch Family Dollar discussion This is considered part of reserves rather than operating expenses and would not be used to close the current budget gap.

Infrastructure and Capital Investment Concerns

Roads and Sidewalks Funding

No funding for roads and sidewalks appears in the operating budget for FY26. ▶ Watch roads funding Instead, the city plans to fund these needs through free cash, a strategy that allows flexibility to assess available funds after revenue and expense variances.

However, this approach raised concerns among committee members. ▶ Watch infrastructure concerns One member noted, "If the percentage of roads in Beverly that needed to be paved were 10% or 15 or 20%, then I wouldn't necessarily have an issue with it," implying that with an estimated 70-80% of roads needing paving, eliminating this budget line is problematic.

Essex North Shore Vocational School Budget

Enrollment Projections and New Admissions Process

The committee discussed student enrollment projections for the next three years at Essex Tech. ▶ Watch Essex Tech discussion A potential enrollment increase from 223 to 240 students was considered, with Beverly potentially allocated 60 freshman seats per year under a new admissions process.

The new admission protocol allocates seats per community based on historical trends. As explained, "With a true random lottery, a number of smaller communities would get totally swamped and would have no students admitted in any given year." ▶ Watch admission policy This system aims to ensure fair representation for all 17 member communities.

The committee tentatively agreed to use the 60-student enrollment projection for budget planning while awaiting final decisions on the new admissions protocol.

Admissions Process Concerns

Historically, Essex Tech receives approximately 150 applicants for 130-150 seats. ▶ Watch admissions process However, the application process has been simplified to just checking a box, resulting in a yield of typically 40-50% of applicants actually attending.

As one member questioned, "Why wouldn't you check that box if you're an 8th grader attending school somewhere in Beverly?" The concern was raised that "The admissions process at the Tech is really excluding a lot of students who might be ideal candidates for vocational technical education."

The committee noted that vocational education costs have seen increases "as much as 25% increase in vocational education costs. That's just not sustainable."

Structural Budget Deficit and Mitigation Strategies

The Core Problem

The meeting's central challenge was addressing Beverly's structural budget deficit. ▶ Watch deficit analysis The city faces a situation requiring either cutting 35-45 Full-Time Employees (FTEs) or raising $3.7 million in revenues.

As one committee member emphasized, "Behind every number, whether it's an expense or a revenue, there's a human being and there's a human impact to it." Another added, "No matter what recommendations we make, because we have a structural deficit, there is going to be pain."

The committee reviewed last year's budget forecast, which showed a growing deficit from $3.9 million to $10.2 million. ▶ Watch budget deficit analysis Previous budget gap closure methods are no longer available, including:

• Stripping road and sidewalk budget
• Using excess levy capacity
• Eliminating capital spending

As one member stated, "We've been saying now, I've been saying for at least a year, this is going to be when the rubber meets the road."

Proposed Revenue Solutions

The committee explored several revenue-generating options as part of a comprehensive mitigation strategy. ▶ Watch mitigation strategies

Trash Fee Increase

The most significant revenue proposal involves raising trash fees substantially. The current trash fee is $100 per household. ▶ Watch trash fee discussion Raising the fee to $325 would generate $2.7 million in recurring revenue. As calculated, "For every hundred dollars it goes up, that would generate an additional 1.27 million."

The committee discussed potential abatements for elderly residents and composting households. This proposal appeared to have strong support, as "If you were to raise the trash fee... that would be a permanent revenue base into future years." ▶ Watch trash fee agreement

Parking Fees

Current parking meter revenue is approximately $600 annually, with $400 transferred to the general fund. ▶ Watch parking fees The committee discussed potentially adjusting the parking rate from $1 to $2, noting "It's not Boston rate, but can generate a significant amount of revenue."

School-Related Fees

The committee agreed to explore potential school-related fee increases, though with careful consideration of equity impacts. This included revisiting athletic fees, which haven't been updated in over a decade, and examining other school fees.

However, concerns were raised about fully covering athletic costs, which would require doubling current fees and might reduce student participation. As noted, "There are some students for which the ability to participate in athletics is a primary driver for why they come to school."

Labor Cost Considerations

Approximately 75% of city costs are labor-related, limiting flexibility in budget reductions. ▶ Watch labor costs As one member explained, "Your flexibility is labor... there are restrictions... you've got to spend X amount of dollars per kid."

The committee acknowledged that addressing the structural deficit would likely require examining Full-Time Employee (FTE) reductions, though members appeared reluctant to pursue full service cuts without also exploring revenue increases.

Long-Term Sustainability Concerns

A critical concern raised was the sustainability of any solution. ▶ Watch sustainability discussion With expenses growing at a 6% rate while revenues grow at a 4% rate, even revenue increases may only provide temporary relief.

As one member cautioned, "As we look to revenue as being the only solution, you raise up that floor and maybe you close the gap in the immediate near term, but the spending trends will continue."

Meeting Amendments and Final Decisions

The committee made several technical amendments to the budget forecast. ▶ Watch amendments This included:

• Adjusting capital outlay numbers with a 2.5% annual increase
• Agreeing to use 6% for health insurance increase projections

The committee unanimously accepted the current revenue and expenditure projections and agreed to explore potential solutions including:

• Raising trash fees substantially
• Reviewing school fees for potential increases
• Considering targeted service reductions
• Potentially recommending a future ballot override

▶ Watch final decisions

Report Preparation and Next Steps

The committee discussed preparing its report for city policymakers. ▶ Watch report preparation The report draft was due by Thursday at 5 PM and would capture the discussion and potential revenue/cost-saving ideas.

As emphasized, "We are not setting the policy. We are not making the final decisions here." The committee's role is to present options, with the recommendation that "policymakers consider these types of sources of revenue."

▶ Watch report drafting discussion One committee member committed to drafting the report, stating, "My intention is to lock my door and start writing Friday morning and not let the dog or my wife in the room." The plan was to submit a draft by Saturday morning for review at the next Tuesday meeting.

Revenue Growth Limitations

The committee acknowledged that proposed revenue sources may not grow proportionally to expenses. ▶ Watch revenue analysis As noted, "These revenues are less likely to grow at a rate proportionate to the growing expenses." Even if fees grew at 6%, "we can only charge sanitation related costs" to the trash enterprise fund, creating inherent limitations.

Human Impact Considerations

The meeting concluded with thoughtful reflections on the human impact of financial decisions. ▶ Watch decision-making considerations As one member stated, "Each one of these decisions has trade-offs" and "When we are sitting here just counting beans, it's really easy to just count the beans."

The committee emphasized that "The nuance and difficult conversation begins when you weigh in those other factors," recommending that policymakers consider the full context beyond numerical calculations.

Key Takeaways

Beverly's Financial Forecasting Committee meeting revealed:

1. Structural Deficit: The city faces a growing structural deficit requiring approximately $3.7 million in solutions
2. School Budget Constraints: 83% of school spending is salaries and benefits, with limited flexibility
3. Special Education Costs: Out-of-district tuitions growing faster than revenue (14% vs. 2.5-3%)
4. Fee Increase Proposals: Trash fees could increase from $100 to $325, generating $2.7 million
5. Reserve Concerns: City reserves expected to drop from 19% to 12-13% of budget
6. Infrastructure Needs: 70-80% of roads need paving, but capital funding has been eliminated
7. Pension Progress: City on track to fully fund pensions by 2032, eight years ahead of mandate
8. OPEB Challenge: Only $3 million funded against $200 million liability
9. Sustainability Question: Expenses growing at 6% while revenues grow at 4%
10. Human Impact: Committee emphasized that "behind every number... there's a human being"

The committee's work provides Beverly's policymakers with a comprehensive analysis of the city's fiscal challenges and potential solutions, though difficult decisions remain ahead.

For complete meeting details, video recordings, and additional Beverly municipal information, search CivicIndex.io. Stay informed about your local government's financial planning and budget decisions.