DANVERS, Mass. — Danvers officials told the town's select board, school committee and finance committee on Saturday that the town is heading into its fiscal 2028 budget cycle facing a projected deficit of about $2.5 million, and several members said the town may soon have to choose between asking voters for more tax money and making substantial cuts to services.

The gap, presented during a nearly four-hour joint workshop on the town's long-term finances, would equal roughly 25 full-time employees, according to Rodney Conley, who presented the town's financial forecast. He said that would be about 3% of the general fund workforce including schools, or about 10% of the workforce on the town government side alone.

"Having a number in red is not unique," Conley said, explaining that the town's out-year forecasts are always built on conservative revenue estimates. But he said the deficit is larger than usual this cycle, and that the town has less cushion than before because it has already raised its estimates of local receipts to balance recent budgets.

"I hate to use the word realer, but realer than normal," he said of the projected gap.

Town Manager Jill Cahill, who facilitated the session, said no policy decisions would be made and that the workshop was meant to give the town and school teams guidance for long-term planning. Public comment was not taken.

Costs outpacing Proposition 2½

Conley said the town's biggest cost drivers are rising faster than the 2.5% annual levy increase allowed under Proposition 2½. He cited a 9.8% health insurance renewal, a 4.8% increase for Danvers Public Schools, a 6.3% three-year average increase in the Essex Tech assessment and a retirement contribution that requires roughly 8% annual increases to reach full funding.

For the fiscal 2027 budget, he said, the town projected roughly $3.1 million in new revenue from the 2.5% increase and new growth, while those four items alone added close to $5 million in expenses — "before we get into any of the other departments and cost factors."

Conley said early discussions with the town's advisers suggest a similar health insurance increase is expected for fiscal 2028. He also said the most recent pension valuation showed the town's usual 8% annual increase would no longer reach full funding by 2035, and that the fiscal 2028 contribution reflects an increase of roughly 9%.

The town's representative to Essex Tech told the boards he expects the school's assessment to rise substantially next year, estimating — while stressing he was "very much spitballing" — that it could reach about $5.5 million to $5.75 million.

Free cash expected to shrink

Conley said free cash certified for the last fiscal year was $11.7 million, but that figure included $3.1 million tied to the town's landfill project and $2 million in unusually high investment returns. Without those one-time sources, he said, the total was $6.6 million, which is still within the town's target, but he expects free cash to "greatly decrease" over the next two or three years.

He said the town raised its local receipts estimates by $3 million from fiscal 2025 to fiscal 2027, which he described as "essentially" borrowing from the next year's free cash. The town uses free cash to pay for capital items such as police cruisers, technology, paving and building and grounds work, he said.

Conley said debt makes up roughly 5% of the budget, half the town's 10% policy limit. "The issue is that we have no capacity to take on new debt within our current levy capacity," he said.

New growth, another source of added tax revenue, was about $700,000 in fiscal 2027, which Conley called the lowest figure in several years.

'Do you have the guts now?'

Several members said the numbers point toward a decision on whether to ask voters for a Proposition 2½ override or a debt exclusion.

One member, who said he also serves on the municipal light board, said he believes "it's pretty clear where we're going to be in two years."

"If it's as bad as we expect it to be, we're going to have to either face the reality of doing an override or making substantial cuts to services," he said, adding that more information is needed about whether the community is "willing and able" to approve an override.

Another member cautioned that an override "is not a structural fix," and said the town needs a structural plan to both increase revenue and decrease expenses.

Asked when residents last voted on such a question, a veteran board member who said he chaired the school committee at the time recalled a 1999 debt exclusion for a new middle school and high school that failed. He said a debt exclusion was later considered for the Smith School, but "the Board of Selectmen didn't have the appetite or the guts to do it."

Members said the town tried twice and both votes lost. A school committee member who described being a parent of children in the schools then said, "if I understand correctly, an override has never been put forward in the town," and asked: "Do you have the guts now?"

"I think we have to put it in front of the people," the school committee member said. "If we put it forward and the town, our citizens, voted it down, when the cuts are made, it's based off of decisions that the town people made, as opposed to decisions that are left with the town manager and the select board."

Town officials said they would research the procedure for placing an override or debt exclusion on the ballot. One official noted that the two options have different effects: "Debt exclusion makes it possible to do a project," while an override "changes your actual capacity to deliver services."

Push for economic development

Cahill told the boards there are only two ways to raise revenue in a meaningful way. "You either grow or you increase taxes," she said. "At the end of the day, those are the two things that move the meter."

She said the town's approach to new growth has been "set it and forget it," and that a more aggressive economic development strategy would require a fundamental change in how the town manager works, with more time spent out of the office working with state officials and business leaders. Other members said growth would take years to pay off and would not close the near-term gap.

In live polling during the session, 12 participants picked economic development and commercial tax base growth as the revenue strategy most worth exploring. Asked what message should guide future budget decisions, 13 of 14 respondents chose protecting the town's long-term financial stability.

One member urged officials to put together a worst-case scenario showing what would have to be cut over the next five years if no override is approved, saying residents need to see it before a real community conversation can begin.

Cahill said the presentation would be posted online and encouraged residents to take part in the coming budget hearings held by the select board, finance committee and school committee.