DLS City & Town

Post date: Feb 24, 2021 1:59:42 PM

An Update from A&F Secretary Heffernan

Michael J. Heffernan - Secretary of the Executive Office for Administration and Finance

Over the past few weeks, the Baker-Polito Administration has filed and signed several critical pieces of legislation which will help support our municipal partners and ensure the delivery of essential government services which matter to the people of Massachusetts.

First, on January 14, 2021, Governor Baker signed “An Act enabling Partnerships for Growth,” an economic development package that will help promote growth and opportunity in local communities as the Commonwealth recovers from the impact of COVID-19.

This economic development legislation contains key policy changes that will help businesses, workers, and residents. Most notably, it includes Housing Choice, a top priority for the Administration for the past several years. The Housing Choice provisions signed into law represent the first significant zoning reform in decades and will make it easier to build housing in communities that want it. Also included in this bill is language that will help encourage multifamily zoning in MBTA communities.

The economic development legislation also includes capital authorizations to help drive growth and promote housing stability. Communities around the state will benefit from a $40 million authorization for the revitalization of underutilized properties and $10 million for regional and community assistance, tools that are more important than ever for the COVID-19 recovery. Recognizing the challenges that rural and small towns face, the new rural and small town development fund will provide up to $20 million to support municipalities on local goals.

Secondly, on January 15, 2021, Governor Baker signed “An Act Authorizing and Accelerating Transportation Investment,” which provides capital authorization to invest in building and modernizing a transportation system that meets the needs of residents, businesses, and municipalities across the Commonwealth.

This includes authorization for several local transportation programs which have become very popular with municipalities over the past six years include the Small Bridge program, Complete Streets program, and the more recent “public realm” improvements in the COVID-related Shared Streets and Spaces program. This legislation also includes additional authorization for a suite of new municipally focused programs, from the new Municipal Pavement program, to assistance to communities seeking to improve transit infrastructure and connectivity.

Lastly, the Administration filed its Fiscal Year 2022 (FY22) budget proposal, known has House 1, on January 27, 2021. This $45.6 billion proposal continues the Administration’s response to the COVID-19 pandemic and addresses key priorities including promoting economic growth and supporting cities and towns across the Commonwealth.

Notably, House 1 fully funds the first year of the landmark Student Opportunity Act with $246 million in new funding related to this legislation. This includes nearly $198 million in new Chapter 70 funding, with a focus on supporting school districts which serve low-income students. Additionally, this proposal will allow local cities and towns to count $114 million in federal support towards their Chapter 70 required local contribution, a commonsense measure to provide flexibility and fiscal support.

House 1 includes a $39.5 million in increase in Unrestricted General Governmental Aid – or UGGA – consistent with the projected 3.5% increase in tax revenue, for a $1.168 billion total investment. The recommendation also provides $4 million in funding for Community Compact related programs including best practices and regionalization and efficiency grants, $4.8 million for the Public Safety Staffing Grant Program managed by the Executive Office of Public Safety and Security, as well as $3 million for district local technical assistance.

We look forward to continuing to collaborate with our Legislative colleagues on this proposal and other key pieces of legislation, and we appreciate your dedicated work on behalf of the people of Massachusetts.

A&F Publishes New Covid-19 Federal Funds Website

Heath W. Fahle - Special Director for Federal Funds, Executive Office for Administration and Finance

The Executive Office for Administration and Finance’s Federal Funds Office recently published a comprehensive website which provides detailed information on federal funds distributed to Massachusetts in response to the COVID-19 public health emergency.

This website includes data on federal funds provided to the Commonwealth including Coronavirus Relief Fund dollars, information on federal funds distributed to municipalities, as well as compliance resources for municipalities and state agencies.

The Baker-Polito Administration continues to work to maximize the usage of federal funds, manage compliance risks, and inform and involve state and local stakeholders. These efforts are helping cover the costs of the historic response to COVID-19, stabilize state and local budgets, and ensure responsible stewardship of fiscal resources.

The COVID-19 federal funds website can be found online here: https://www.mass.gov/info-details/about-covid-19-federal-funds and we encourage you to view the page and learn more about federal COVID-19 funds.

Financing Massachusetts Town Government: Part 2

Martin DiMunah - Bureau of Accounts Field Representative

Katie Scopelleti - Bureau of Accounts Field Representative

Tony Rassias - Deputy Director of Accounts

The following is the second of a three-part series covering the financing of annual town budgets in Massachusetts. The first part was published in our September 3, 2020 edition of City & Town. If you’re a new town official, especially a new town finance official, we hope you will find this series helpful.

Towns finance their annual budget using different financing sources than other forms of government. It’s important to understand what these sources are, where they come from, and what limitations may be placed on them. The following article continues our look at Massachusetts town government finance.

Local Receipts

Local receipts include both General Fund and enterprise fund receipts. In FY2020, local receipts budgeted for all towns was $2.3 billion (16%) of all town budgeted revenues: General Fund totaled $1.2 billion (9%), and enterprise fund $1.1 billion (7%) of all town budgeted revenues.

General Fund Receipts

Per G.L. c. 44, § 53, all town monies received belong to its General Fund unless allocated to another fund by law. These budgeted estimates, separate from property tax receipts, are detailed on the town’s annual Tax Rate Recap form. The top five FY2020 budgeted General Fund receipts in dollars and percentages for all towns were:

(1) Motor Vehicle Excise = $472M (38%)

(2) Charges for Services = $277M (22%)

(3) Penalties and Interest on Taxes and Excises = $138M (11%)

(4) All Other Excises including Meals & Room Occupancy = $122M (10%)

(5) Licenses and Permits = $113M (9%)

Enterprise Fund Receipts

The enterprise fund statute, G.L. c.44, § 53F½, was initially enacted in 1986. Before then, special revenue funds were authorized by various general laws or special acts to separately account for business type services. These special revenue funds were:

  • limited with regard to the services and costs covered,

  • authorized mostly for water, gas and electric utility departments; and

  • used primarily to account for annual operating costs, not the indirect costs, capital improvements or fixed assets of the service.

Enterprise funds generate most of their receipts from user charges to pay for the activity’s cost and may only be established for utility, cable television public access, health care, recreational or transportation purposes.

A complete list of budgeted and prior year actual General Fund and enterprise fund receipts received can be found in Category Four of the DLS Massachusetts Municipal Finance Trend Dashboard.

Reserves

In FY2020, budgeted reserves for all towns totaled $874 million (6.1%) of all town budgeted revenues. There are five major reserve funds available to towns: free cash, stabilization, overlay surplus, the finance committee’s reserve fund and the enterprise fund’s retained earnings.

Analysts often regard the free cash and general stabilization fund balances as core reserves.

  • Overlay Surplus – surplus of amount initially provided for abatements and exemptions.

  • Finance Committee’s Reserve Fund – appropriated to the finance committee by the legislative body, then transferred by the committee if necessary to a budget line item for an extraordinary and unforeseen purpose. The fund cannot exceed 5% of the prior fiscal year’s tax levy.

  • Retained Earnings – the enterprise fund’s surplus from operations.

The following table shows some unique features of each reserve fund.

(* initially appropriated by the legislative body for allocation by the finance committee)

Reserves, sometimes called “rainy day funds,” prove invaluable to finance emergency spending and/or to replace lost revenues during bad economic times. They do not, however, regenerate automatically, so planning for them is important.

For more information, please read our City & Town publications from December 15th, 2016 and December 21st, 2017 on planning for free cash. Also, consider establishing a town reserve policy. To learn how, click here.

Review of Parts 1 and 2

  • Massachusetts town budgets are financed differently than federal, state, or county government budgets.

  • The six components of town government finance are the tax levy, state aid, local receipts, reserves, debt and other sources.

  • The property tax and Cherry Sheet aid provide towns with most of their General Fund revenue.

  • Other state aid includes grants to eligible towns and targeted aid to specific towns for specific purposes.

  • Locally generated receipts include General Fund receipts and enterprise fund charges.

  • A town’s major reserves are free cash, stabilization funds, overlay surplus, the finance committee’s reserve fund and the enterprise fund’s retained earnings.

  • Each reserve fund has its own unique features.

  • Consider establishing a town reserve policy.

We hope you found this information helpful. Our third article in this series will further review components of Massachusetts town government finance.

Latest DLS Online Training Offers An Intro to Enterprise Funds

Frank Gervasio - DLS Director of Special Initiatives

This week, we’ve added a new video presentation to the Municipal Finance Training & Resource Center providing an introduction to enterprise funds. Enterprise funds allow communities to maintain a separate accounting and financial reporting mechanism for a broad range of municipal services, such as public water or sewer utilities. The presentation and provides a brief overview of why a municipality could consider creating an enterprise fund and how they would do so. Definitions of key terms, like “indirect costs”, and best practices for enterprise fund management are also provided. In addition to this resource, our team is currently updating our Enterprise Fund Manual, which will be available online in the coming weeks.

We also continue to make portions of our assessing focused learning modules available on YouTube. You can now access videos regarding state oversight of local taxation and how assessors serve as public officials and as part of a municipality’s financial management team. We hope these will serve as a helpful resource for local officials and taxpayers alike! Note that new assessors are still required to complete Course 101 in Gateway, and these modules will still be available in their current form on our website. For other assessing related resources, please visit the property taxes and Proposition 2 ½ section of our training page.

Be sure to bookmark the Municipal Finance Training and Resource Center page and subscribe to our YouTube channel to stay updated on new items added. Something you'd like to see added? We'd love to hear from you! Please email the DLS Data Analytics & Resources Bureau at DARB@dor.state.ma.us.