Franklin Regional
Council of Governments
Essentials Series
Municipal Financial Management
Review
September 16, 2015
Contact Information
Joe Markarian
FRCOG Special Projects
781-588-2050
markarian@frcog.org
Introduction
What happens at what time of Year
Who should be involved
What policies should your town have
Insights into best practices
Pitfalls to avoid
What Happens When
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Legally required
Accountant, Treasurer, Collector, Assessors
 DLS Municipal Calendar
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www.mass.gov/dls-->dls publications
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Discretionary actions
Select Board, Finance Committee
 Town Administrator / Coordinator
 Department Heads
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Source of Authority
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Mass General Laws
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DLS Legal Index for Municipal Officials
Subject matter index
MGL Chapter-Section search
Chapter 39 & Chapter 40 – Towns
Chapter 41 – Individual Officers
Bylaws / Charters
Municipal Finance Reference
www.frcog.org  Publications  Regionalization & Special Projects
Responsibilities
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Select Board
Ethics Guide
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Finance Committee
MGL Chapter 39 §16
who shall consider any or all municipal questions for the
purpose of making reports or recommendations to the town
Ethics Guide
Town Administrator / Coordinator
 Capital Improvement Committee / bylaws
 Accountant, Treasurer, Collector, Assessor…
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Association manuals
Finance-Related Events
Note: activity in early 1st half of FY
Closing the books / balance sheet
Statement of Indebtedness
Schedule A
Tax bills
Tax Recap Sheet
Operating budget
Capital budget
Closing the Books
Accountant responsibility
(With reliance on other departments)
DOR: complete by July 15
(More typical: end of August)
Means of identifying problems
First step toward Free Cash certification
July: Look Back
Select board / FinCom / TA-TC
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Budget report (aka Expenditure Report)
ID revenue / appropriation deficits
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Take corrective action
SB/FinCom transfer by July 15 w/ limits
Town meeting action before Tax Recap filed
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ID issues
timely completion of tasks / info exchange
Schedule A
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Accountant’s responsibility
reliance on closing the books / others
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Report to DOR by October 30
revenues, expenditures, fund balances
DLS data bank / Federal government
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Failure to file: by March, state aid held
A reference / should monitor progress
Tax Bills
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Assessors issue tax commitment
Collectors receives tax payments
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When depends on tax billing cycle
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Quarterly
Semi-annual preliminary
Semi-annual
Local acceptance vote by town meeting
Tax Recap Sheet
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Assessors: page 1
Accountant: pages 2 & 3
Town Clerk: page 4
Basis for DOR approval of taxation / rate
Due date: depends on billing cycle
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Prior to Oct. 1 or Jan. 1
Critical information
Look Ahead
Select board / FinCom / TA-TC
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Can we improve “process”
Do our general bylaws help or hinder
What in the prior year did we not accomplish
Can we establish priorities & goals for new FY
Are there different approaches to consider
Are there resident concerns we should address
Can planning begin for major projects in future
Look Ahead (cont)
Select Board
Evaluate efficiency
decisiveness or kick-the-can
Weekly v. Bi-weekly meetings
summer schedule
Consent agenda
requires info review in advance
Defer decision making (to TA / Dept Hd)
Look Ahead (cont)
Finance Committee
Evaluate role & efficiency
reduce number of meetings
use budget modules
improve forms
evaluate budget format
Review budget calendar
Finance Committee Role
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
All municipal questions vs. Finance articles only
Budget formulator vs. Budget watchdog
Report / Budget Message
Recommendations
Transfers
Monitoring fiscal activity
Revenue projections
A resource
A policy maker
Dual role as capital improvement committee
Advocate on ballot questions
Web page
Ongoing / Sept - March
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Monitor the budget (expenditure reports)
Cash reconciliations (accountant/treasurer)
Receivable reconciliations (accountant/collector)
Monitor Committees
Prepare for Town Meeting
Communicate: SB & TA/TC; Dept mtgs
Best Practices
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Community Compact Best Practice Areas
Finance related:
 Budget
document
 Financial policies
 Long range planning / forecasting
 Capital planning
 Review financial management structure
 Regionalization / Shared Services
Budget Document
Components
 Budget message
 Narrative
 Line-item appropriations
 Articles
 Supplemental information
 Product
of good budget process
Budget Process
1)
2)
3)
4)
5)
6)
7)
Identify those with roles/responsibilities
Agreement on a budget calendar
Lineal process
Formalize (codify) the process
Recommend a balanced budget
Strive for structural balance
Terms / concepts to understand
Calendar Milestones
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Revenue projections / Five year forecast
Departmental guidelines / requests
Data assemblage – working budget
Meetings / hearings
Balanced budget recommendation
Board of Selectmen approval
Finance Committee review
Town Meeting vote
Budget Terms / Concepts
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Expense drive / revenue driven budgets
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Distinguish line-items and articles
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Four general sources of revenue
Line-items accts close at year-end; flows to free cash
Article accounts remain open year-to-year
All revenue is general revenue
Proposition 2 /12
Fixed costs & revenue projections
Budget format
Required: Amount – Purpose – Funding Source
Revenue Projections & Fixed costs
Deduct fixed costs:
-debt service
-pension obligations
-OPEB (retirees’ health)
-health insurance (active)
-property / casualty insurance
-workers’ compensation
-Medicare
-utilities
-known deficits
Results in discretionary revenue
Financial Policies
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Municipal Finance Reference
 Budget
 Free cash
 Stabilization
 Debt
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Guidelines only
Promote consistent, sound practices
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Long range planning / forecasting
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DLS Best Practice
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Multi-year projections / outlook
Considers historical experience
Conservative projections
Anticipate fiscal events
Input from department heads
Annually update
Planning & crisis avoidance tool
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Capital Planning - Why?
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Ensure long-range physical integrity of the town
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Track condition / needed investment in:
Buildings
Infrastructure
Roads
Rolling stock
Technology
Equipment
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Prioritize town-wide needs
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Allocate resources among competing needs
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Establish level playing field
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Improve credit standing
Goals of CIC / CIP
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Credibility
Establish a well-defined process
 Commit to year-to-year consistency
 Demonstrate open-minded/objectivity
 Be engaged, but also challenge
 Arrive at well-founded decisions
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Exercise good judgment & common sense
Capital Planning
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Role of a Capital Improvement Committee
Determine who serves on the CIC
Be clear who the CIC reports out to
Define the Capital budget process?
Calendar milestones
Determine information to collect
Set ranking criteria / basis of analysis
Provide funding & place in budget
Financial Management Structure
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Accountability
How to get there:
 Appointed positions (v. elected)
 Appointing authority
 Budget control
 Clear job descriptions
 Departmental goals
 Clear expectations
Regionalization / Shared Services
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Reasons to explore:
Positions increasingly harder to fill
 Appeal: two towns sharing a F-T w/ benefits
 Shared training costs: higher quality service
 Fewer reasons for town hall visits
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To start: internal conversations
communicate with other towns
Pitfalls to Avoid
Failure to keep current with duties
Neglect of checks & balances
Failure to monitor
Indecisiveness
Lack of communication
Adversarial government
Mission to Mars
Hawaii Space Exploration Analog and
Simulation (HI-SEAS) Boston Globe Sept. 6
Visit to Mars simulation
3 women & 3 men
Two-story dome
Mauna Loa volcano
8 months
Mission to Mars (cont)
Question: Is there any relevance of findings to
town government.
-Defined roles, but not always. With rotation,
work improved. Understand others’ role.
-Debriefs were critical following an important
assignment. Communication =>solutions
Mission to Mars (cont)
-Orientation mattered. Advanced
discussions helped smooth way.
-Leadership is flexible. Success occurs
when all voices are heard.
-Teamwork is more powerful than individual
performance.
The End
Supplemental Slides
Statutory Source of Authority
Massachusetts General Laws
Chapter 39 Section 16
Every town whose valuation for the purpose of apportioning the state tax
exceeds one million dollars shall, and any other town may, by by-law provide
for the election or the appointment and duties of appropriation, advisory or
finance committees, who shall consider any or all municipal questions for the
purpose of making reports or recommendations to the town; and such by-laws
may provide that committees so appointed or elected may continue in office for
terms not exceeding three years from the date of appointment or election.
In every town having a committee appointed under authority of this section,
such committee, or the selectmen if authorized by a by-law of the town, and, in
any town not having such a committee, the selectmen, shall submit a budget at
the annual town meeting.
State Ethics Law
Massachusetts State Ethics Commission
www.mass.gov/ethics/
MGL Chapter 268A
Advisory Opinions
Guide for Municipal Finance Committee Members
Open Meeting Law
Office of the Massachusetts Attorney General
MGL Chapter 30A §§18-25
Definition: “Meeting” & “Deliberation”
Open Meeting Law Guide
Notice Requirements
Minutes
Executive Session
Public Records Law
Office of the State Secretary
Public Records Division
MGL Chapter 66
Guide to the Massachusetts Public Records Law
Public Records Definition
MGL c. 4, § 7, cl. (26)
Record Retention Schedules
“Administrative Use”
Office of Campaign
& Political Finance
http://ocpf.cloudapp.net/
Search Legal Opinions
Financial Activity
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Fiscal Year:
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Departments authorized to spend on July 1
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Procurement rules (MGL Chapter 30B)
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Personal Service Contracts
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Goods or services must be received (c. 41 § 56)
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Purchase Order System
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Accountant verification process
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Expenditure Reports (c. 41 § 58)
Finance Committee Role
Ultimate goal: Committee Credibility
Consistent
Objective
Well informed
Well reasoned
Respectful
Consensus over conflict
Town interest over personal preference
Four Major Revenue Sources
DLS Article: Municipal Budget Revenues
Revenue Sources:
Tax Levy
State Aid
Local Receipts
Miscellaneous (non-recurring)
Increase Revenue Detail
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Tax Levy: Levy Limit Calculation Form
New Growth Estimate
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State aid: Cherry Sheet - Chapter 70 &
Unrestricted General Government Aid
Cherry Sheet Manual
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Local Receipts: Tax Recap page 3
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Misc: Close look at available funds – free cash,
assessors’ overlay, other.
Expense side
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Budget format
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Role of Policies
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Deduct from free cash & raise on next year’s Recap
Appropriation deficits
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Guidelines, not rules
Revenue deficits
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No required format or level of detail for towns
Format impacts Dept. Heads’ ability to manage
Review format vs. Town Meeting presentation
Deduct from free cash
Taxpayer recourse
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10 taxpayer suit; order of mandamus
Proposition 2 ½
MGL C. 59 § 21C
Levy Ceiling
Levy Limit
Levy
New Growth
Overrides & Underrides
Debt & Capital Exclusions
Special Exclusion
Stabilization Fund Override
Excess Levy Capacity
Annual Levy Ceiling
To Calculate the New Levy Ceiling
Total Assessed Valuation
Property values are reviewed and adjusted annually
If values increase, ceiling rises
If values decrease, ceiling decreases
Annual Levy Limit
To Calculate New Levy Limit
Begin with Last Year’s Levy Limit
New Growth
To Calculate the
New Growth Factor
Proposition 2½
Limit Exceptions
Overrides
Underrides
Debt Exclusions
Capital Outlay Exclusions
Stabilization Fund Overrides
Special Exclusions
Comparison of Referenda Questions
Overrides
Exclusions
Only Capital Purchases
Operating Budget
Temporary
Permanent
Non-specific
After year 1
Overrides Limited by Ceiling
Debt
(Life of Bond)
Capital
(1 Year)
No Limit on the Number
Or Dollar Amount
Stabilization Fund Override
DLS IGR 04-201
MGL c. 59 § 21C (g)
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Alternative for funding special purpose
stabilization fund
Year 1: 2/3s Town Meeting – maj. voter approval
Year 2+: 2/3s Selectmen approval
-can continue, reduce, defer/resume
Authorized amount increases 2½% annually
If lowered, continues at lower amount + 2½%
Change of purpose by voters via BOS 2/3s vote
Special Exclusions
See Levy Limits Primer, page 12
-Water, sewer debt exclusion for capital projects &
assist homeowners: faulty septic, UST, lead paint
-BOH contracts for work / costs added to tax bill
-Temporary increase not added to tax base
-Allows raising water or sewer debt service on tax
rate, but requires corresponding decrease in rates
-Adopted by majority vote of Selectmen
Things to Know
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Exclusions
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Bond authorization vs. debt exclusion
Only Three Ways to Lower Taxes
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Underride - one year only
Create excess levy capacity
Exclusion end or debt service roll-off
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Caveat – Must equal / exceed Levy Limit increase
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Property Taxes
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Tax rate = levy / total AV x 1000
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Property tax = home AV /1000 x tax rate
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DLS Financial Calculators
Debt Service calculator
 Tax Impact Calculator
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Revenues
Statutory Treatment of Municipal Revenues
All revenue, received or collected from any source
and by any department is General Fund revenue.
General Fund money is unrestricted and available
for expenditure for any lawful purpose.
Money can only be segregated for specific
purposes if authorized a general law or special act.
Special Revenue Funds
Revolving Funds
Receipt Reserved Funds
Trust & Agency Funds
Gift Accounts
Special Purpose Funds
Enterprise Funds
Revolving Funds
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Statutory authorizations
General departmental – MGL c. 44 § 53E ½
All other non-school department - (see chart)
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Unpredictable level of activity
Fees collected directly support program or service
Resident participation must be voluntary
Fees or charges must reasonably reflect costs
Statutory criteria and spending restrictions apply
Town Meeting approval required
Receipt Reserve Accounts
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Authorized by statute; established by Town
Meeting
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Revenue held in separate account for a
particular purpose
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Year-end balances roll-over to next year
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Funds must be appropriated
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Funds must be received before appropriated
Trust & Agency Funds
A fiduciary fund
Funds collected by town but intended for
another government entity
Not credited to town as a cash receipt
Gift Accounts
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Money given generally to town must be
accepted and appropriated by Town Meeting
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Money given to board, department or official,
can be spent with approval of Selectmen
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Spending purpose must be in accordance with
donor’s wishes
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Not subject to Ant-Aid Amendment
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Gift of real estate requires Town Meeting
acceptance
Enterprise Funds
MGL c. 44, § 53F 1/2
Enterprise Fund Manual
DLS Information Guideline Release 08-101
Enterprise Funds (cont.)
May be set up for
water, sewer, trash disposal
ambulance service, nursing homes
skating rinks, pools, golf courses
airports, docks, marinas
Two Town Meeting votes required:
-create the enterprise fund
-approve the budget
Enterprise Funds (cont.)
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Budgeting:
expense driven
recurring revenue emphasis
self-supporting operation
rates not subject to Prop. 2 ½
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Revenues:
only for enterprise purposes
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Indirect costs: develop methodology
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Retained earning: like free cash
Reserves
FinCom Reserve
Free Cash
General Stabilization Fund
Special Purpose Stabilization
Enterprise Fund Reserves
Overlay
FinCom Reserve
Chapter 40 § 6
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Extraordinary or unforeseen
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Includes emergency
Includes “inconvenience” factor
Reserve amount: look to historical demand
Require transfer request form / copy accountant
Town Administrator approval first
Approval at discretion of FinCom / Consistency
Free Cash
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Unrestricted funds from prior year operations
Calculated from Balance Sheet as of June 30
Available for appropriation only on DOR cert.
Results from:
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Actual receipts in excess of revenue estimates
Unspent departmental appropriations
Unexpended free cash from prior year
Offset by receivables and certain deficits
Free Cash (cont.)
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Target: 3-to-5 % of annual budget
Inversely related to Local Receipts
Regarded as non-recurring revenue best used:
-capital purposes
-replenish reserves
-other one-time expenditures
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Limit use as budget revenue source
Resist backfilling current year dept. budgets
Develop a policy on the use of free cash
General Stabilization Fund
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MGL c. 40 § 5B
One time / Non-recurring revenue
Requires 2/3s vote of Town Meeting to
create
May be expended for any lawful purpose
Requires 2/3s vote of Town Meeting to
appropriate to & from the fund.
Special Purpose Stabilization
DLS IGR 04-201
DLS Article: Long Term Planning Tool