City Manager Gives Outlook on Watertown’s Budget, Philosophy on Contract Negotiations

This week, School officials announced an agreement on the Watertown teachers’ contract, but even when that is signed Watertown has six unions on the municipal side yet to be settled. This week, the City Manager revealed his philosophy when approaching these negotiations and how the City budget could impact the talks.

He released a memo to the City Council outlining the contracts and the Watertown budget at Tuesday’s Council meeting.

While making the budget, Proakis said he and his team are following the Council’s budget priorities, which include creating walkable neighborhoods and small business programs, improving infrastructure, using green vehicles, and upgrading parks and playgrounds.

“For these efforts to be successful, we need a staff that can deliver these investments and to have fair and competitive wage and benefits packages for our employees,” Proakis said. “But I will not be able to deliver on these goals if we provide significant new adjustments to wages that put our total salaries in excess of surrounding competitive communities.”

In the memo to the City Council, he added:

“If you are asked by our residents why we don’t just put more funds into schools or into other departments so that they can pay higher salaries, I hope you will share this information. Meanwhile, I assure you that both the City and School administrations will continue to negotiate in good faith with the collective bargaining units that represent our hard-working staff. We look forward to continuing fruitful discussions and eventual completion of these bargaining processes.”

The memo he addressed the ongoing contract negotiations, but did not include details of the proposals. Proakis did share his thoughts on how he is approaching the discussions.

“I first want to be clear about the philosophy around compensation that I have established on the City side, which is focused on ensuring that we provide competitive wages for all our employees,” Proakis wrote. “This strategy requires fair and straightforward cost-of-living increases for all employees combined with market-based salary adjustments focused on the aspects of our compensation and classification system that are out of sync with our peer communities.”

He also described the current budget outlook in Watertown. Both the City departments and the Schools face tight budgets, with an estimated shortfall of $700,000 on the municipal side, and a gap of about $1 million for the schools in their respective preliminary budgets. The projections, he said, are based on $6 million in new growth for Fiscal Year 2024 (the 2023-24 School Year), and also would not add new positions, a 3.5 percent increase to the school budget, a 2.5 percent increase for all other City departments, and funding the FY24 capital projects laid out in the FY24-28 Capital Improvement Plan.

Proakis said that some of the discussions he has heard around the teachers contract do not reflect the reality of the City’s budget.

“I have become aware of a recent perception amongst some community members and union members that the City has more financial resources available to settle contracts than we do,” he wrote. “… Specifically, there is a suggestion that we increase our commitment to the School Department beyond the 3.5 percent annual increase that we have pledged for coming years. The reality is that an increase beyond 3.5 percent for schools would put significant pressure on our fiscal resources and exacerbate the pressures we already face.”

One item that will increase sharply in coming years is paying off the debt from the money borrowed to pay for the three elementary school projects. In Fiscal Year 2026, the debt service payments will increase by $18 million, he said.

“(O)ur projected growth – which assumes a continuing strong economy – will increase revenues by $25 million compared to FY24, meaning an estimated 74 percent of our revenue growth over the next three years must go towards paying for debt service and capital expenses. Approximately 2/3 of that growth in debt is paying for the new schools,” he wrote.

During contract talks, Proakis said comparisons to other communities must be looked at closely, and not just focus on the wage increases. As an example, he pointed to Melrose, where teachers received a 10 percent cost-of-living increase over three years, but he noted that under the prior contract Melrose started $14,800 below Watertown. The contract he refers to is Watertown’s teacher contract before the new deal, details of which have not been announced.

“A suggestion that we need to provide a similar cost-of-living wage increase is not based upon a fair comparison,” Proakis wrote. “We will continue to focus on total wage packages at each year in the contract term and will not accept simplistic comparisons of wage increase to communities that are not currently competitive with Watertown.”

Cost of living raises, Proakis said, are intended to keep up with inflation, but in Watertown they generally outpaced inflation from 2010-20, when inflation was low. Contracts also include raises for years of experience (called step raises) and sometimes merit-based ones, he added.

Some have talked about dipping into Watertown’s reserve funds, but Proakis said “in general, this is not a good idea.

“A fiscally prudent strategy requires us not to increase our annual expenses faster than we are increasing our annual income,” he wrote. “And, given the uncertain budgetary circumstances we face in the next several fiscal years, it is more important than ever to maintain our reserves, per the City Council’s guidelines, at 7 percent to 15 percent of annual operating budgets. Currently, the total of our general stabilization fund and our free cash account is about 11 percent of our annual operating budget.”

See City Manager George Proakis’ budget and bargaining memo by clicking here.