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STATE OF THE CITY William F. Scanlon, Jr.

February 6, 2012

With the cooperation of the City Council, the School Committee and the community at large coupled with outstanding performance by municipal employees on both the school side and the city side, Beverly has made distinct progress over now nearly two decades. Our infrastructure is markedly improved including our schools, our parks and playgrounds and our storm water drainage handling capacity. We have managed the provision of services cost effectively paying particular attention to manpower and expense levels. Despite this progress, there remains much to be done. Before I turn my attention to the tasks facing us, I wish to discuss one recent decision which is very important to the City’s future. First let me provide a little background. In 1994, my first year in office, the City’s share of municipal health care costs amounted to 7% of the General Fund Budget. By 2011, the City’s share had risen to 17% of that budget meaning that an additional 10 cents on every dollar of city revenue had to be diverted to meet that cost. On a

2 $100 million budget, the city cost had risen to $17 million and that was true despite increases in employee co-pays and an increase in employee contributions from 10% to 20% of the total annual premiums for health care. After several false starts, in 2011 the State Legislature finally passed a health care reform act which gave the cities and towns of Massachusetts two options aimed at reducing health care costs, one was to join the Group Insurance Commission known as the GIC which insures Massachusetts State employees. The other known as Plan Design Change, altered the financial characteristics of existing plans by broadening the use of co-pays and increasing their amount while introducing annual deductibles. Previously, municipal heath care plans contained no deductibles. Because the GIC approach would cause some employees as well as retirees and their dependents to have to change doctors and hospitals, we chose to pursue the plan design approach which changed only subscriber cost sharing. Plan Design was recently successfully negotiated with the Public Employee Committee made up of union presidents, a retiree representative and management. The Plan Design changes go into effect this coming April 1st except for the deductible features which begin on July 1, 2012. As a result, the City anticipates its health care costs for next fiscal year will be $1,200,000 less than they would otherwise have been. We expect that health care costs will continue to rise yearly but that they will be lower each year than they would have been without the reform act and their percentage of the total General Fund budget will reduce somewhat. In my opinion, this change is important and necessary and will help the City to focus on improved service to our citizens which is our major goal in the upcoming year.

3 In recent years continued Local Aid cuts, have not allowed us to invest sufficient funds in our streets and sidewalks to prevent their overall condition from worsening. As you may know the condition of every street in Beverly has been measured and a Road Surface Rating, known as an RSR, has been assigned. The map showing the condition of every street is available on the web by going to the City’s home page at and then clicking on the Engineering Department page. Alternatively, a copy of the map is located on the wall outside my office on the third floor on City Hall. For any given street, the lower the number on the map on a scale of 1 to 100, the worse the condition of the street. Generally, we will repair streets in the order of worst first. In FY 2013, we intend to invest up to $2,000,000 in street and sidewalk upgrades to be financed half from our annual Chapter 90 funds as forecast in the Governor’s proposed budget and the other half by refinancing existing debt service on elementary schools taking advantage of very low current interest rates which are at or below historic lows. It is essential that we invest heavily in our streets and sidewalks over the next several years because left unattended increased deterioration of our roads will rapidly increase the cost of repairs. As it turns out, better roads when seen together with many improvements we have made to schools and drainage as well as parks and playgrounds will add to the value of real estate throughout the City and thus add to the equity of all Beverly property owners. Hand in hand with our investment in roadways is the need to rehabilitate our underground infrastructure. Many millions have been spent in the last 18 years on improving our storm water system to eliminate chronic flooding throughout the City. There has been a steady pace of improvement in our water and sanitary sewer networks. We have recently identified several needed major water and sanitary sewer projects. Some are routine, such as painting of our water

4 tower while others are upgrades identified by using sophisticated computer models of our water system. The major water projects we have planned are geared toward enhancing our ability to fight a large and sustained fire in the eastern part of the City. With the furthest reaches of our City over four miles from main water tower, it takes a robust system of pipes to move the large quantity of water needed to fight a sustained duration fire. History does show that the current configuration has provided adequate water over the years but our models have identified areas that should be reinforced. Many of the streets we plan to pave will require upgrades to the water mains below them. We have employed a complete approach to paving for many years and will continue that philosophy as we go forward. Overall this approach adds time and money to the projects but it protects our investment in the roadways by reducing the likelihood they will need to be excavated in the near future. Parts of the sanitary sewer system are over 150 years old. It is perhaps obvious to most people but unlike our water system which is pressurized, the sanitary sewer system and the storm drainage system are generally not and are thus susceptible to having water leak into them. There are many points where groundwater is leaking into our systems adding to the burden on our transportation and treatment works. This is particularly important during periods of heavy rain and high groundwater. We have had instances where the excess water has overwhelmed the system and caused it to overflow. While it is rare, the occurrence of an overflow must be considered unacceptable. We must continue to invest in upgrades to the sewerage system to provide reliability for our existing customers and capacity for future ones.

5 At the same time that we are determined to improve our streets and our underground systems, we are also well aware that the cost of living for all municipal employees is steadily rising and that in the current fiscal year, no employees have received general salary increases. In the case of salaried employees, no increases have been granted for two full years. With the High School project all but complete, Beverly is at a pause point in terms of actual municipal facility construction. Rather, we will spend the next year planning extensively for future projects. The most ambitious of these will be the Middle School of the future. We have recently submitted a Statement of Interest (SOI) to the Massachusetts School Building Authority (MSBA). We expect to interact with MSBA over the coming months and then mutually agree on a Feasibility Study which will result in schematic drawings of the school to be. The SOI was necessarily submitted as a Priority 7 which calls for and I quote “Replacement of or addition to obsolete buildings in order to provide for a full range of programs consistent with State and approved local requirements.” As you would expect those projects with higher priorities in other communities such as conditions seriously jeopardizing the health and safety of children, or severe overcrowding will be dealt with first, thus our project will have to take its turn. We have, however, projected a schedule in the SOI which calls for the middle school of the future to open its doors for classes in September 2017. I might add that we did tour the Briscoe School within the past month with the newly appointed Executive Director of MSBA and he clearly recognizes our need. Two other projects which will be in the planning stage throughout calendar 2012 are repairs to City Hall and the Main Library. These projects’ total investment requirement will be

6 approximately $4,000,000. City Hall needs new windows, complete brick re-pointing, a new roof, an improved heating system and more. Rain frequently comes into the building through the exterior walls thus ruining interior walls. The last major improvement to City Hall was made in 1933. The library has problems with leaks, energy usage controls, its front stairs on Essex Street and it needs increased flooding protection. We anticipate construction on both projects in calendar 2013. Recently Beverly was designated as a Green Community by the State. That acceptance qualifies us for $206,000 in grant funds at this time and hopefully more in the future but we also take on the responsibility to reduce total municipal energy consumption by 20% over 5 years as measured from the year 2009. As energy becomes ever more costly it is in our self interest to reduce consumption as much as is effectively possible. Reductions in usage are much easier to cost justify than alternative energy sources such as solar panels which currently can only be justified with grant funding. As many of you know, the coming fiscal year will see construction begin on the 500 car MBTA commuter rail parking garage with an estimated completion date in the Fall of 2013. Already a residential housing development is underway on Rantoul Street at the former Kelly Infiniti site while another at the former Enterprise Rental site is in the permitting process. These developments are in keeping with a concept of Smart Growth which is living within walking distance of commuter rail stations or close to a bus line. Clearly smart growth is alive and well in Beverly and will contribute to needed new growth. For the past fifteen years Beverly has averaged more than $1,000,000 each year in new growth and that revenue has allowed us to make many improvements, especially to our schools. Despite this progress and beyond the projects mentioned earlier -- the Middle School, City Hall and the Library -- there are two major

7 projects which will not be possible without continued appropriate new growth. These are the Public Safety Facility and the Public Services Facilities. While the desirability of living in Beverly and commuting to Boston will result in residential new growth primarily through the construction of rental apartments, a significant portion of the needed revenue is expected to come from the Brimbal Avenue Interchange improvement on which we are working diligently. This project is special in that it will take traffic off our local roads, improve safety by reducing accidents, reduce time spent waiting in queues and save gasoline wasted while idling. It will do these things by creating access to and from both sides of Route 128 without driving on local roads. The project should create many jobs and bring significant revenues to both the City and the State. While I cannot yet guarantee success delivering this project, I am increasingly optimistic. We are working with the Executive Secretary for Housing and Economic Development to justify this $20 - $25 million project to be paid for by the State of Massachusetts. Projects such as the commuter rail parking garage and the Brimbal Avenue project take time, but the garage is proof they can happen. With success, we will be able to further develop a first class infrastructure in our city. Across America at all levels of government there has not been sufficient investment to maintain and upgrade necessary infrastructure. Looking globally for a moment, China is spending 9% of its Gross Domestic Product on infrastructure improvements, Europe is spending about 4.5% while the United States is investing just over 2 percent and some people are trying to cut that. With interest rates at historic lows, it is the time for investment in America.

8 In recent years, a number of prominent Beverly individuals and institutions have joined together to form an organization known as Main Streets whose objective is to help inject vitality and vibrancy into our downtown. Downtowns all across America have suffered at the hands of large malls. In Beverly, our downtown is quite active at night. Reference the fact that meals tax revenues now indicate that total restaurant business city-wide amounts to $80,000,000 annually, yet it is true that Beverly is less active in the daylight hours. To aid in these efforts, the City recently invested more than $1,000,000 substantially upgrading four downtown parking lots and with good results, and soon we will install new way finding signs in the downtown. We believe that more can be done. Recently the City began taking steps to staff an Economic Development resource with the objective of encouraging appropriate growth in Beverly with special emphasis on the downtown. We believe that we can make the prospect of doing business in Beverly better understood, more streamlined and more productive. We also believe that we can make Beverly more attractive to businesses considering locating here. We expect work will be done on the tasks just mentioned as well as marketing the City to prospective businesses and also taking advantage of State assistance available for economic development. During the current fiscal year, this effort is being paid for with funds available from the Community Development Office. My intention is to include funding for this ongoing effort in the budget for next fiscal year. Our goal is of course to make Beverly the best that it can be. The new commuter rail parking garage is testimonial to the Beverly Depot Station being the second busiest station in the entire commuter rail network with many riders from surrounding communities northeast of Beverly. That station is expected to be even busier once adequate parking is available. Similarly the recent affiliation of Beverly Hospital and Lahey Clinic is a signal that our hospital will serve

9 the area to the north and east of our city for many years in the future and I personally anticipate seeing greater investment at the hospital site as a result of the affiliation between Beverly and Lahey. You may know that Beverly Hospital is currently Beverly’s largest employer. No state of the city address would be complete without comment on the year in progress. Now seven months through the year, we anticipate once again ending the year with modest favorable variances. Certainly contributing to this expectation is the relatively mild winter weather to date and its impact on the Snow and Ice budget. Other positives are better than expected building permit revenues and a modest savings in health insurance costs due to the implementation of the Plan Design changes in the fourth quarter of this year. As we look to develop the General Fund budget for Fiscal 2013, we are buoyed by the fact that after four successive years of reductions in State Aid revenue, the proposal for next year is essentially unchanged from the current year. We also will see the benefit of a full year’s impact on the budget of the health insurance Plan Design changes. These two pieces of “good” news will make the development of the new budget somewhat easier than in the past few years. Turning to the waterfront, you will recall that we invested $2.5 million in State grants to improve the recreational marina and the nearby area. We will receive in the new fiscal year another $1.4 million to improve the commercial marina. Last year Beverly was granted the necessary permits to allow construction of the Black Cow Restaurant along the recently improved water’s edge behind the former McDonald’s restaurant. The direct abutters who have fought the project from its beginning have appealed the DEP decision which granted Beverly the necessary permits. We believe the appeal has been made on weak grounds and that it will be

10 rejected by the Superior Court. We will continue to pursue this project to a successful conclusion. I have often said that volunteers are essential to the success of any community. The work people are willing to do without financial compensation is telling. Beverly has over 250 citizen volunteers on Boards and Commissions but we can always use more competent volunteers. If interested, please drop me a note or an e-mail expressing your interest and qualifications. One project which has made real progress but needs more help is the Carriage House at Lynch Park. It represents a tremendous opportunity to have a first class indoor location for weddings and other celebrations. If you would like to help with its upgrading, please let me know. I am very pleased to advise you that Endicott College has recently agreed to donate to the City of Beverly the sum of $500,000 to be spread equally over the next three years. Endicott makes this powerful gesture principally as a good community citizen while in part specifically providing the City sufficient additional funds to match what the real estate taxes would have been on two residential properties which Endicott purchased and thus removed from the tax rolls. The positive impact of Endicott’s remarkable growth over the past 25 years under the direction of President Richard Wylie is unmistakable. The College has gone from a two-year women’s institution facing financial difficulties to a vibrant four-year co-ed institution with a master’s program. Dick Wylie has been an ongoing friend of the City these many years in many ways ranging from donating sophisticated cameras to our fire department that can see through smoke, to providing over 450 good jobs, to generating hundreds of thousands of dollars in building

11 permit fees and more in ongoing hotel and meals taxes. Later this year his 25 year achievements will be suitably celebrated as well they should be. One last point, our trash contract is due to expire on June 30th and we are actively pursuing our options. We intend to pursue proposals which would price out weekly recycling as well as our current bi-weekly approach to allow effective comparison. There is much that is good in our city but there remains much to do. We will continue to need appropriate new development but we must remember that some development is not appropriate. As I mentioned at the outset, Beverly is fortunate to have a terrific workforce in both our schools and on the so-called city side. All of us thank you, the citizens of Beverly, for the opportunity to serve you. Rest assured that we will continue to do our best. My door is always open and I am just a phone call away. Good night.