Department of Revenue
Division of Local Services
MUNICIPAL BUDGET
DEVELOPMENT SEMINAR
HARDWICK
September 22, 2016
Terry Williams
Bureau of Accounts – Field Advisor
www.mass.gov/dls
BUDGET = a plan expressed in
monetary terms covering a specific
time period
A GOVERNMENTAL BUDGET CONSISTS
OF THREE ELEMENTS
1.
2.
3.
Estimate of Revenue - including sources
Statement of Expenses – how much &
where to allocate
Specific Period of Time – usually a fiscal
year (July 1st - June 30th)
The purposes of a “Municipal Budget”
in the Commonwealth of
Massachusetts:
It must more than simply allocate financial
resources to competing programs & services.
 It should help to establish priorities (e.g.
operating vs. capital; municipal vs. school)
 It should articulate goals, objectives, and
measurable indicators of service delivery.
 It must comply with the Proposition 2-1/2
statute (MGL – Ch59 s21C).

The effect of Proposition 2-1/2 on
the Municipal Budget Process:

Formerly Expenditure Driven – Now Revenue
Driven

Budget must be in Balance –
e.g. Revenue = Expenditures

Tax Levy may not exceed the adjusted levy
limit (a.k.a. - Maximum Allowable Levy)
What are some of the Tenets to Successful
Creation of an Annual Municipal Budget ?



Demand for services generally outstrips
available resources – so all possible resources
must be identified and maximized.
Anticipated revenues for an upcoming fiscal
year must first be forecast to establish the
framework prior to preparation of a municipal
budget – the expenditure side.
While services provided by Massachusetts
communities vary widely, cities and towns have
primarily only four major revenue components
from which to provide for this budget.




Revenue Sources Available to
Massachusetts Municipal Governments
for the General Fund Annual Budget
Property Tax Levy - see Prop 2-1/2 Levy
Limit Sheet
State Aid – Cherry Sheets
Estimated Local Receipts - Page 3 of Tax
Recap
Other Available Funds – by Municipal Vote




Certified Free Cash
Stabilization Funds
Overlay Surplus
Budget Surpluses
Typical Massachusetts Percentages:
Sources of Revenue
All Other
3.91%
Local
Receipts
17.88%
State
Aid
20.66%
Tax Levy
57.54%
The Property Tax

Is the largest source of local government
revenue - averages over 50%.

Wealthier communities typically have higher
percentages of their budgets supported by
property taxes due to lower levels of state
aid.

Conversely, poorer communities typically
have lower percentages of their budgets
supported by property taxes due to greater
levels of state aid.
The Property Tax (cont.)




Communities may generally levy a property
tax up to their Prop 2-1/2 Levy Limit
The Levy Limit is a historical figure that
increases each year by 2.5% plus new
growth (new construction, subdivisions, etc)
It may also be increased by Overrides, Debt
Exclusions and Capital Outlay Exclusions
The difference between the Maximum
Allowable Levy Limit and the actual Levy is
called Excess Levy Capacity
HARDWICK
Levy Limit Form
$ 3,439,606
FY 2015
Levy Limit
$ 3,569,620
FY 2016
Maximum Allowable
Levy
State Aid – Cherry Sheet

Chapter 70 and Unrestricted General
Governmental Aid (UGGA) are the two largest
forms of unrestricted state aid

For FY 2017 Ch 70 is $4.6 billion and UGGA
is $1.022 billion in addition to the remaining
accounts of $337 million represent 15% of this
year’s total state budget of $39 billion

State Aid represents approximately twenty
percent of all revenues for municipalities!
Cherry Sheet Revenues
Cherry Sheet Charges
Estimated Local Receipts



These are locally generated revenues other
than real and personal property taxes
Examples include Motor Vehicle Excise,
Meals and Room Excises, Penalties, Fees,
Licenses & Permits, Fines, Charges for
Service, Departmental Revenue and
Investment Income
These estimates are shown on the Tax
Recap Sheet on “Page 3”
Estimated Local Receipts





Projections can be based on the previous
year’s actual receipts
Larger increases above simple inflation are
allowed if the reason can be documented
Some of these local revenues cover the
direct cost of what they support – user fees
DLS advises that the amounts contained on
“Page 3” be estimated conservatively
Conservative estimates may result in
increased future certified Free Cash
* HARDWICK
PAGE 3 *
Estimated Receipts
FY16, $ 780,374.54
Free Cash Definition





Unrestricted and available funds for
appropriation by the legislative body (some
times known as “budgetary fund balance”)
Certified as of July 1 based on the June 30th
balance sheet which reflects results from the
prior year
Cannot be appropriated until it is certified by
the Director of Accounts as per MGL 59:23
Any remaining balance expires on June 30th
Should be considered a non-recurring revenue
The Importance of Free Cash




An available fund which can be appropriated
for any legal municipal purpose
Depletion of Free Cash, particularly to
balance annual budgets, endangers future
spending plans if it is not regenerated
Drawdown on reserves may also cause a
negative impact on the communities credit
rating
However retention of ample Free Cash
balance provides municipalities with financial
flexibility and confidence
Generating Free Cash

Free cash certified > free cash appropriated

Actual revenues > budgeted revenues

Budgeted expenditures > actual expenditures
and encumbrances

Outstanding property taxes prior years >
outstanding property taxes current year
Basic Free Cash Formula
+ Undesignated FB or Surplus Revenue
- Accounts Receivables
- Illegal Deficits
+ Deferred Revenues
= FREE
CASH
Stabilization Funds – MGL 40:5B




A Stabilization “Rainy Day” Fund is a special
reserve fund into which monies may be
appropriated and reserved for later
appropriation
Can be utilized for any lawful purpose
Stabilization Fund balances carry forward
from one fiscal year to another
Interest earned on investment of the balance
in this fund remains with the fund
Overlay Surplus



Overlay (Allowance for Abatements and
Exemptions) is an annual amount raised to
cover anticipated abatements and exemptions
As abatements and exemptions are granted
by the Assessors the account is charged and
the balance is reduced
At the appropriate time the Assessors can
determine that there is surplus available and
declare Overlay Surplus which is an available
fund to be voted by town meeting
Total Financial Flexibility Factor
The Annual
Budget Process
WHO AND HOW
Budget Participants:







Select Board/Town Administrator – Responsible for
overall Budget Process
Finance/Advisory Committee – Advises and Is the
Fiscal Watchdog!
Town Accountant – Maintains Financial Records
Treasurer – Responsible for Vendor & Payroll
Warrants, Debt Management, Pensions, Insurances
Tax Collector – Collect Taxes and Other Fees
Assessors – Proper Valuation of Real and Personal
Property forms the basis of Fair Taxation
Department Heads – Important Member of Budget
Process as they are on the front lines everyday
Steps in the Budget Process:







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Budget Calendar – Responsibilities & Due Dates
Preliminary Projections Revenue and Non-Operating
Expenses
Budget Guidelines – Parameters & Framework
Budget Instructions c/w Standardized Forms &
Procedures
Budget Presentation Format – Form & Content of
Budget Document
Comprehensive Budget Document – Incorporating
Operating, Capital & Off-Budget Items
Schedule Review – Public Hearings and Comment
Finance/Advisory Committee Recommendations – for
presentation to Annual Town Meeting
Important Budget components to help
identify the needs of the Municipality
and clarify their costs





Select Board should first issue Budget Guidelines
for annual Salary & Expense accounts .
Insurance, Retirement, Utilities, Debt, and other
Fixed Costs should be obtained or estimated.
Department Heads should submit line item budget
requests for their department with justifications.
Short Term Capital needs should be identified – Is
their a Long Term Capital Plan?
Review Cherry Sheet Charges, Overlay and other
off-budget items such as deficits to be raised.

Finally a Comprehensive Budget Incorporating
all Revenue Estimates and Operating and
Capital Expenses is Constructed
QUESTION ? ? - Is the Budget in balance and under the
community’s Prop 2-1/2 Levy Limit ?

YES – Assuming estimated Tax Levy/Rate is acceptable for this
proposal it may be brought before Town Meeting – the Legislative
Body


NO – Budget must be balanced prior to the Tax Rate being certified
This can be accomplished by :


Reducing the Budget
Increasing the use of Available Funds



Certified Free Cash
Stabilization Funds
Overlay Surplus
OR Passing a Prop 2-1/2 Override !
BUDGET CYCLE
Create a timeline
Present balanced
budget to town
meeting/city
council
Towns: B.O.S. &
Finance Comm
approval
Review requests
& Revenue
projections
Develop Revenue
projections
JULY 1ST
Issue
budget
guidelines
Receive requests &
develop working
budget
Any Additional
Questions?
Thank You
!