DLS City & Town

Looking Ahead to 2021

DLS Senior Deputy Commissioner Sean Cronin

Goodbye 2020 and welcome 2021! I want to thank all of you in local government for everything you’ve done to continue the delivery of core municipal services during this pandemic. As I’ve noted in previous City & Town pieces, public employees rise to the occasion. They do the critical and unheralded work that keeps our cities and towns safe and functioning. In terms of the finance side of local government, not surprisingly local officials and my colleagues at DLS worked collaboratively to get done what needed to be done in order get FY21 tax rates set.

I also want to thank everyone who played a role in getting multiple bills signed into law that enabled municipalities to function during these unprecedented times. From changes to the Open Meeting Law to the ability to open FY21 even without a town meeting or council-approved budget; from the extension of property tax due dates to allowing unused Free Cash to be used after FY20 ended; we worked on these collaboratively, a direct outcome of the strong state-local relationship developed over the past few years.

I’m proud of our DLS staff who transitioned almost seamlessly to a remote working environment. I’m proud of the way they embraced new, innovative approaches to maintain our operations and support our relationships with our colleagues in local government. Whether that meant using ZOOM for the first time or making a trip to a town hall to connect (masked and socially-distanced, of course!) with a local official in need of a little extra assistance, DLS stepped up and so did you. In 2021, I know we’ll continue to just that.

I do want to use some statistics to show how the pandemic impacted the FY21 tax rate setting season. As shown below, only 109 tax rates were set by the end of November, the lowest since FY11. In addition, 230 tax rates were set in December, the highest figure in the 15 years of data I have. Why so few by the end of November? Because of the pandemic, understandably, some of the tax rate setting requirements were delayed at the local level; and local aid figures weren’t finalized until well into December, understandably given the impact on the state’s economy and, by default, on the state budget.

In terms of turnaround time, 83% of tax rates were finalized within one work week, a slight increase from last year. For Free Cash, 66% of submissions were approved within 10 working days, down from last year’s 77%. That’s to be expected since balance sheet approvals had to be pushed aside so that tax rates could be the primary focus of attention.

This continues to be a critical time of year in local government and we remain committed to supporting our cities and towns, so if you or your colleagues have any questions, comments, or concerns, please contact me at croninse@dor.state.ma.us. In the coming weeks, we're looking forward to the Massachusetts Municipal Association’s Annual Meeting online this year and our Economic and Fiscal Outlook workshop. We’ll cover important current issues in municipal finance and look at fiscal 2021 and beyond. To register, please click here. Together, as the light at the end of the tunnel gets brighter, we will continue to rise to the occasion to sustain the vital business of local government.

Counting Free Cash – Another Update

Deb Wagner – Bureau of Accounts Springfield Office Supervisor

In our October 3rd, 2019 article entitled “Free Cash – Final Update for July 1, 2018,” we noted another new record in total statewide certifications of $1.754 billion as of 7/1/2018. However, the $43 million increase from total 7/1/2017 certifications represented only a 2.5% increase, second lowest increase in percentage to 2.3% in the 7/1/2012 to 7/1/2013 certification period.

In our January 9th, 2020 article entitled “Counting More Free Cash,” we found that almost every community appropriated from its July 1, 2018 certification, some for particular purposes, others to reduce the tax rate and still others a combination of both. About 47% of communities appropriated a percentage greater than 90% to 100% of their certification. This led us to review whether the most recent total certification had reached its apex.

July 1, 2019 Certifications

As of June 30, 2020, statewide July 1, 2019 free cash certifications for 349 communities totaled $1,915,169,481. This total was $161.1 million (9.2%) over the previous fiscal year. The July 1, 2019 figure continued a trend in total free cash in excess of $1 billion that began as of July 1, 2012 as shown in the graph below. Certifications have increased annually from July 1, 2009 to July 1, 2019 by about $1.2 billion.

In this certification period, 349 communities were certified. Of these, four were certified in the negative.

The following tables show more certification results.

The Effect of the Pandemic on July 1, 2019 Certifications

In normal times, free cash cannot be appropriated until it has been certified by the Director of Accounts; any unappropriated balance expires after the next June 30 and is unavailable for appropriation after June 30 and must then be recertified after a new balance sheet has been submitted and reviewed as of July 1. However, section 6 of Chapter 53 of the Acts of 2020, “An Act to Address Challenges Faced by Municipalities and State Authorities Resulting From COVID-19,” extended the free cash certification time period beyond June 30 as a funding source for the city’s, town’s or district’s FY2021 expenditures if the city’s town’s or district’s annual budget is delayed beyond June 30, 2020 due to the COVID-19 emergency. This extension authorized an appropriation of the July 1, 2019 free cash certification until the earlier of the setting of the FY2021 tax rate or a new certification is approved as of July 1, 2020. This extension must first be granted by the Director of Accounts.

At the time of this writing, 118 cities and towns applied and were granted the extension. No special purpose districts applied. The number of cities and towns that took advantage of this extension will become known after all FY2021 tax rates have been certified by the Bureau of Accounts. The result will be the subject of a future City & Town article.

Given the extended use of July 1, 2019 free cash beyond June 30, 2020 and a slowdown in economic activity since the coronavirus outbreak, one may foresee a significant reduction in total free cash certified as of July 1, 2020. But the crystal ball is not crystal clear. Emergency federal and state financial assistance to local governments provides a measure of financial support as may conservative local government fiscal policies in response to the economic slowdown.

There are many more certifications to complete. For all cities, towns and special purpose districts, please re-read our City & Town article on Fiscal Stress – A Diminishing Level of Reserves on how to improve free cash position and for policies on generating and using free cash.

Ask DLS: Community Preservation Act - Part 7

This month's Ask DLS features Part 7 of frequently asked questions concerning the Community Preservation Act (CPA) and the Community Preservation Fund - its receipts, fund investment and fund financing sources. Additional questions about the CPA will be featured in future editions of City & Town. For Part 6 of the series, see the December 3, 2020 edition of City & Town. For additional information on the Community Preservation Act, see Informational Guideline Release (IGR) 19-14. Please let us know if you have other areas of interest or send a question to cityandtown@dor.state.ma.us. We would like to hear from you.

What is the Community Preservation (CP) Fund?

The CP fund is a special revenue fund. Under G.L. c. 44B, § 7, the accounting officer must establish and maintain the CP Fund as a separate account of which the municipal treasurer is the custodian.

What receipts are credited to the Community Preservation Fund?

A.) All monies collected from the surcharge. G.L. c. 44B, § 7(i).

B.) The additional funds from allowable municipal sources appropriated to the CP Fund by the city or town that has adopted the “blended” CPA pursuant to G.L. c. 44B, § 3(b½). G.L c. 44B, § 7(ii). See also Part 4 of the CPA FAQ series for more information on the “blended” CPA.

C.) All proceeds from borrowings made under the community preservation program. G.L. c. 44B, § 7(i).

D.) All funds received from the Commonwealth for community preservation purposes, including matching fund distributions from the Massachusetts Community Preservation Trust Fund. G.L. c. 44B, §§ 9 and 10. G.L. c. 44B, § 7(iii).

E.) All funds received from any other source for community preservation purposes. G.L. c. 44B, § 7(iii). This includes rents received from the rental of property acquired with community preservation funds and any self-help reimbursement grants for land acquired with community preservation funds.

F.) Proceeds from the disposal of real property acquired with community preservation funds. G.L. c. 44B, § 7(iv).

G.) Damages and penalties from persons who knowingly damage properties acquired by cities and towns using community preservation funds. G.L. c. 44B, § 15.

H.) All income and interest earned on CP Fund monies. G.L. c. 44B, § 7.

Are there requirements for investing Community Preservation Funds?

Yes, G.L. c. 44B, § 7 governs investment of CP Funds. It provides that the treasurer may invest CP Funds in savings banks, Massachusetts trust companies, Massachusetts FDIC banking companies or national banks or in shares of co-operative banks, savings and loan associations or federal savings and loan associations doing business in Massachusetts. The treasurer may also invest in the same manner authorized for the investment of trust funds under G.L. c. 44, § 54. The treasurer may pool or establish a separate bank account for community preservation cash. A treasurer who pools cash must allocate interest earned on community preservation cash to the CP Fund.

What are Community Preservation Fund financing sources?

The CP Fund financing sources are:

• Annual Fund Revenues (Annual Recurring Revenues)

• Special Purpose Restricted Reserves

• CP Fund Annual Budgeted Reserve

• CP Fund Balance

• CP Fund Surplus Bond Proceeds.

What are Community Preservation Fund Annual Fund Revenues?

For a city or town that has adopted the CPA pursuant to G.L. c. 44B, § 3(b), annual fund revenues consist of (i) receipts from the CPA surcharge and (ii) state trust fund distribution for the fiscal year.

For a city or town that has adopted the CPA pursuant to G.L. c. 44B, § 3(b½), annual fund revenues consist of (i) receipts from the surcharge, (ii) the additional revenue from other allowable sources appropriated to the CP Fund pursuant to G.L. c. 44B, § 3(b½) and (iii) state trust fund distribution for the fiscal year.

A community may appropriate from estimated annual fund revenues for any allowable community preservation expenditure purpose. It may also reserve those revenues for future appropriation. Appropriations and reservations must state a specific dollar amount.

Communities can appropriate from estimated annual fund revenues until the tax rate is set for that fiscal year. Spending from appropriations from estimated annual fund revenues cannot commence until July 1 of the fiscal year (of the estimated revenues).

To ensure the fund does not incur a revenue shortfall, communities should generally limit total appropriations and reservations to no more than the prior year’s actual surcharge and the estimated state trust fund receipts. For communities that have adopted the CPA pursuant to G.L. c. 44B, § 3(b½), total appropriations and reservations should be limited to no more than the prior year’s actual surcharge, the additional revenue from other allowable sources appropriated to the CP Fund for the upcoming fiscal year and the estimated state trust fund receipts.

What are the other fund financing sources within the Community Preservation Fund?

The other fund financing sources are: (i) special purpose restricted reserves, (ii) CP Fund annual budgeted reserve, (iii) CP Fund balance and (iv) CP Fund surplus bond proceeds. These are available funds from which appropriations for allowable community preservation purposes may be made at any time during the fiscal year. Appropriations must state a specific dollar amount. Spending from appropriations from available funds can commence once the appropriation vote is effective, unless the funds include new reservations from estimated annual revenues, in which case spending cannot commence until July 1.

What are CP Fund Special Purpose Restricted Reserves?

Special Purpose Restricted Reserves are the CP funds reserved by the legislative body for future appropriation for one of three categories of CP purposes. A separate reserve exists within the CP Fund for each category of CP purposes and later appropriations from each reserve are restricted to those purposes. Any unappropriated balance in a special purpose restricted reserve at the close of the fiscal year remains in the special purpose restricted reserve. The three special purpose restricted reserves are:

i. CP Fund Open Space Reserve (includes recreation)

ii. CP Fund Historic Resources Reserve and

iii. CP Fund Community Housing Reserve.

What is a Community Preservation Fund Annual Budgeted Reserve?

The CP Fund Annual Budgeted Reserve includes the CP funds reserved by the legislative body for future appropriation for any community preservation purpose during the fiscal year. Appropriations may be made from estimated annual fund revenues to an annual budgeted reserve. Such appropriations must state a specific dollar amount and must be made before the tax rate is set. Appropriations from the annual budgeted reserve must also state a specific dollar amount and can be made for any community preservation purpose during the fiscal year only. Any unappropriated balance in the annual budgeted reserve at the close of the fiscal year closes to the CP Fund Balance. (See below FAQ for the CP Fund Balance.) A community should vote an annual budgeted reserve if it wants the flexibility to use any annual revenues not appropriated or reserved for a particular community preservation purpose after the tax rate is set.

What is the Community Preservation Fund Balance?

The CP Fund Balance is the unspent and unencumbered balance as of year-end that results from (1) actual collections of annual and miscellaneous fund revenues (except bond proceeds) that exceed expenditures and reservations from estimated annual revenues, (2) actual expenditures and encumbrances that are less than appropriations and (3) unspent and unencumbered balance remaining in the Annual Budgeted Reserve.

CP Fund Balance is an available financing source only after the accounting officer closes the municipal accounts for the previous fiscal year and determines the amount of the CP Fund Balance. Appropriations from CP Fund Balance must state a specific dollar amount and can be made during the fiscal year until June 30 when its availability expires. The accounting officer then closes the municipal accounts for the year and determines a new CP Fund Balance for the ensuing fiscal year. The accounting officer must report the year-end CP Fund Balance to the DLS Bureau of Accounts. The accounting officer should provide a copy of the annual report to the CPC and other boards or officers with financial responsibilities in order to notify them of the CP Fund Balance available for appropriation through the end of the current fiscal year.

What are Community Preservation Fund Surplus Bond Proceeds?

CP Fund Surplus Bond Proceeds are the unspent and unencumbered balance of proceeds from bonds at the completion or abandonment of a community preservation project for which debt was issued. Appropriations from this source are restricted to a community preservation purpose for which borrowing may be authorized for the same or longer term than the original loan. G.L. c. 44, § 20.

Stay tuned for next month’s City & Town for Part 8 in our FAQ series on the CPA. For more information see Informational Guideline Release (IGR) 19-14.

GIC Update from Executive Director Veno

GIC Executive Director Matthew Veno

I hope you and your families enjoyed the holidays despite this season being unlike anything we have ever experienced. It is hard to believe but it is nearing one full year since I joined the Group Insurance Commission (GIC) as its Executive Director. As a former municipal official from the City of Salem, I cherish the state and local partnership the GIC is part of and wish to share some of our achievements from the last year.

Three months prior to the onset of the COVID-19 pandemic in March, the GIC launched our new online platform, called “MyGICLink.” In preparation for that launch, GIC engaged a group of municipal HR Directors and Benefit Coordinators regarding the platform. This group provided recommendations to enhance and maximize the tool’s ability to make their lives easier through online processes that streamline benefit enrollment and benefit changes. The result was a smooth transition made possible through the hard work of GIC staff as well as the patience and ingenuity of our municipal benefit coordinators who are the foundation of our partnership.

Over the course of 2020, GIC also took steps to make things a easier for our participating municipal organizations, including:

• Provided greater financial flexibility amidst a time of sudden revenue reduction by allowing municipal partners to defer one quarters’ worth of billing payments at the start of Fiscal Year 2021.

• Extended our Annual Enrollment period by an additional 30 days to allow our members and municipalities more time to make enrollment decisions and benefit changes.

• Made conference calls with GIC leadership available during Annual Enrollment for all municipal HR Directors to identify any hurdles and ensure enrollment was proceeding smoothly.

Finally, through these challenging times, it is important to know that all GIC municipal entities and their employees have full access to the Commonwealth’s “Mass4YOU” Employee Assistance Program (EAP). As one example of how the EAP may address member concerns, GIC-enrolled municipalities can connect with integration specialist Adam Mintz at adam.mintz@optum.com to schedule webinars for employees on timely topics such as Managing Stress, Building Resilience or Conflict Resolution. This service is free of charge and part of your GIC membership. Adam is also available to provide Mass4YOU EAP overview sessions which are helpful to municipal administrators, managers and employees to understand how to make the most of this program.

If your municipality is not enrolled with the GIC but you wish to learn more about our insurance offerings and the advantages of membership, please contact Director of Government Affairs Mike Berry at Michael.C.Berry@mass.gov. Best wishes for a happy and healthy 2021!

A Minimum Baseline of Cybersecurity for Protecting Your Municipality

Meg Speranza – MassCyberCenter Resiliency Program Manager

Technology plays a vital role in the lives of Massachusetts municipalities and citizens. Before the COVID-19 pandemic, technology gave people the ability to access information online and use services to make life more efficient - such as paying bills or sending emails at anytime from anywhere they had access to the internet. Since the onset of the pandemic, technology has become critical in everyone’s day-to-day lives. Those services once considered ‘nice to have’ have become required, as people have moved to working and attending school from home and technologies, such as virtual meeting applications, have become mainstream.

The Changing Role of Technology and Cybersecurity

The changing role of technology has created larger threats to the information needed to live and work. That has led to an increased focus on cybersecurity and a growing need to actively protect and defend the networks and systems that hold that information.

Cyber adversaries have increased the volume of attacks, taking advantage of a crisis to find new ways to exploit information systems. Recent attacks on major hospitals, universities, and public agencies underscores this key point: there has never been a greater need for people to be aware of cybersecurity.

Municipalities and school systems are among the most vulnerable organizations during this pandemic, facing cyber threats while trying to maintain “business as usual,” often while working remotely and without the usual day-to-day support.

What is a Minimum Baseline of Cybersecurity and Why is It Important?

The MassCyberCenter and the Cyber Resilient Massachusetts Working Group have been working on cybersecurity initiatives aimed at bolstering municipal cybersecurity and resiliency.

In order to help municipalities address the growing cybersecurity risks, the Working Group recently released a Minimum Baseline of Cybersecurity for Municipalities guide as part of the Cyber Center’s Municipal Toolkit. The purpose of defining a Minimum Baseline - the foundational level of cybersecurity municipalities should strive for - is to encourage municipalities to improve their ability to protect and defend themselves from a cyberattack, inspire collaboration, and strengthen cybersecurity resiliency across Massachusetts. Cybersecurity is created via a combination of people, process, and technology—people who are aware of cyber threats, process that reduces cyber risk, and technology to protect municipal infrastructure. These basics can be done fairly inexpensively, but require an investment of time from municipal employees.

The Minimum Baseline is made up of four goals:

1. Trained and Cyber-secure Employees – to reduce risk of cybersecurity incident by improving the training and awareness of system users.

2. Improved Threat Sharing – for a faster response to threats, and improved regional awareness and resilience.

3. Cyber Incident Response Planning – to create an effective strategy to respond to incidents and to strengthen municipal defenses against incidents.

4. Secure Technology Environment and Best Practices – to reduce the threat of cybersecurity incidents and minimize incident impacts.

Each goal includes a description of how to attain the goal and associated resources that provide tools and information to help municipalities along the way.

Technology and creating a secure environment need not be overwhelming. Municipal cybersecurity is understanding that people, process, and technology work together. Through small steps and protective measures, municipalities can establish defensive foundations and build steadily upon them to safeguard against cyberattacks. The Minimum Baseline establishes four goals to start this process and help municipalities create a culture of cybersecurity within their organization.

Find out more about the Minimum Baseline of Cybersecurity and how to protect your municipality during an upcoming workshop at the Massachusetts Municipal Association’s Annual Meeting and Trade Show on Thursday, January 21st, at 12:30. The panel, “Setting and Achieving Cybersecurity Goals for Your Community,” will take place via an online interactive platform and will be moderated by MassCyberCenter Director Stephanie Helm and feature business, municipal, and state speakers. To register, please go to https://www.mma.org/annual-meeting/.

To learn more about the MassCyberCenter, please visit https://masscybercenter.org/.