The O’Neil Formula

What is the O'Neil Formula?

Former Chairman of the Finance Committee, Robert F. O’Neil, developed the O’Neil formula. Mr. O’Neil served as Chairman of the Finance Committee for 17 years during the 1970’s and 1980’s. During the latter period he worked to develop a formula that would fairly distribute the available revenues of the Town among the various appointing authorities. He believed that if such a formula could be agreed to by all parties it would avoid battles among these groups and encourage people to work together for the good of the entire community. He worked with all of the various groups, listened to their concerns, and finally developed a formula that all the appointing authorities agreed to.

The formula is fairly simple in concept, but complex in implementation. The basic ingredients are described below. The first and most difficult is the estimation of the revenues available to the Town. These estimates change constantly and are not finalized until the tax rate is set in November of each year. Unfortunately, the Finance Committee has to make a recommendation to the Town Meeting during the prior April, so Town Meeting can vote in May for the fiscal year, which begins in July.

Once the best estimate of revenues is made, the so called “fixed costs” are determined. They were determined after discussion and negotiation with all parties. Some, such as health insurance, apply to virtually all authorities in the Town while others, such as out of district tuition (education), apply only to certain departments. The fact that they are labeled as fixed does not mean they are not thoroughly reviewed. However, once they are reviewed to make sure they are as accurate as possible, they must be paid.

At this point the fixed costs are deducted from the available revenues and the remaining funds are distributed among the various appointing authorities according to the percentage they received during the previous year. Each appointing authority can distribute its allocation among its sub-budgets as it sees fit.

The Finance Committee reviews all of the budgets in view of the available revenues and makes its recommendations to the Town Meeting, which is the final decision-maker.

This formula has been used during the 1980’s and during the most recent difficult years when revenues have declined significantly.

Here is an example of the Distribution Model used by Fincom. (MS Excel spreadsheet).

Revenues

These are the main sources of revenue for Arlington, and a ballpark estimate of the percentage each contributes to the total available revenues. They, of course, change from year to year - particularly state aid and the amount available from reserve and stabilization funds.

• 70% property tax levy
• 15% state aid
• 10% local receipts (excise taxes, fees, etc.)
• <1% hotel/motel tax
• Stabilization and reserve funds

In addition, unused funds from the previous years can be allocated to the next fiscal year, typically comprising 1-2% of the total.

See each year's budget for the exact forecast amounts from each source of revenue, the the Town's Annual Reports for the actual amounts.

Fixed Costs

The expense items designated as "fixed costs" include all items which are obligations of the Town: repayment of debts, contractual obligations, and expenses and payments mandated by the state and federal governments. These fixed costs comprise roughly half of the annual budget.

These are the major fixed costs, with a ballpark percentage of the total budget, which of course changes year to year:

• 15% insurance
•   9% capital plan, debt & interest
•   8% pensions
•   4% education (out of district)
•   3% MBTA assessments
•   3% regional school assessment (Minuteman Tech)

The line items comprising the remaining 5-6% include trash tipping fees, unemployment payments, street lighting, snow and ice (deficit from the previous year), retiree health insurance fund, election costs, court judgements, and other state assessments.

Refer to each year's budget for the exact amounts allocated to each of these fixed costs items, and the Annual Reports for the amounts actually spent.

Distribution of the remainder

The revenues available after reduction by the fixed costs are distributed according to the O'Neil formula allocations. The major shares are allocated as follows:

• 29% Schools
•   5% Public Works
•   5% Police Department
•   5% Fire Department
•   2% Libraries

The remaining 5-6% of the budget is allocated among Town offices— Town Manager, Planning, Selectmen, Treasurer, Legal, Comptroller, Human Resources, Assessors, Clerk, Comptroller—various boards, authorities and committees, and incidental expenses such as postage. The amounts budgeted for each fiscal year are included in the budgets approved by Town Meeting, and the amounts actually spent are reported in the Annual Report.