"FREE CASH"
SEPTEMBER 2024
(Note: The post below is from Jack Conway, our friendly neighborhood moderator) - Posted to Facebook, September 17, 2024
Howdy neighbors!
Your friendly neighborhood moderator here to provide a bit of context on “Free Cash” and what this year’s much-larger-than-expected amount of it means with regards to the recent override attempt.
Critical piece of background information: at the FinCom meeting on 16 September 2024 the Town Manager stated he is anticipating approximately $6m in “Certified Free Cash” this year. This includes ~$2m from “interest payments” and ~$800k from property auctions.
in a typical year our town gets between $2.5-4m in Certified Free Cash.
this comes from a combination of additional revenue beyond budgeted estimates and lower spend compared to what was budgeted; each year is a bit different on the make up.
according to the Massachusetts Department of Local Services: “Under sound financial policies, a community strives to generate free cash in an amount equal to three to five percent of its annual budget.” (https://www.mass.gov/doc/free-cash-0/download....)
based on our town’s FY24 budget of roughly $70m, the 3-5% target would be $2.1-3.5m.
Free Cash is a “one time” source of revenue. You may recall folks on both sides of the override debate resoundingly agreeing that one time funds should not be used to fund ongoing expenses such as supplementing the operational budgets. Covid funds would be another example.
the Certified Free Cash is generally allocated to 3 buckets: Capital Improvements, Stabilization, and OPEB (“other post employment benefits” - basically town pension liability for municipal employees).
for many years now, a portion of the Certified Free Cash has been used to fill holes in the town’s operational budget. The amount varies year to year, usually between $500k to $1m. Again, not best practice to do this but not a lot of other options.
for the FY24 operating budget the town utilized $1.1m from Free Cash and an additional $700k from Stabilization to balance the budget.
With all that said, a $6m free cash projection is staggering amount. In my opinion, our town manager and accountant should have seen this coming and communicated it much earlier rather than dropping it as a bombshell. This does nothing to improve faith and trust in the town.
However! This does not resolve the long term budgeting challenges in town. Even if every penny of this $6m was put into the FY25 operating budget, it would be a one year bandaid at best. That money couldn’t (and shouldn’t) be counted on to continue funding recurring expenses, nor could future tax levies be calculated including the added $6m. Spring of 2025, we’d be right back here having the same conversations.
I urge everyone to pay attention to the upcoming meetings of the Select Board, School Committee, and FinCom. The Fall Town Meeting is coming up quick (Monday October 21!) and discussions on any supplements to the FY25 operating budget have already started.
I’m by no means an expert on this stuff but I do hope this helps frame things better for folks.
Thanks for reading! Hope to see a sea of shining faces in the NHS Auditorium on 10/21!
Stay kind,
Jack
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