from the Division of Local Services
May - 2016





The decision to borrow money can be intimidating. To make matters more uncertain, the mechanics of issuing debt may be the least understood financial process among citizens, local officials, and even some professional staff. Generally known is the statutory requirement that a town meeting or a city council can authorize borrowing only by a two-thirds vote. State law also specifies what expenditure purposes may be funded through debt and the allowed duration of the borrowing term (M.G.L. c. 44). The terms of a borrowing are made final when a majority of the board of selectmen or the mayor affixes their signatures to required documentation. However, between authorization and issuance much more occurs with little notice outside the treasurer’s office.



Short-term Debt Short-term debt can be classified best as borrowing through the issue of notes in anticipation of either paying them off or permanently financing the debt. Short-term borrowing also allows communities to make interest-only payments. However, such debt usually has a maturity date of no more than two years, though in some cases, statute dictates a shorter time frame. Additionally, a community might choose to reissue short-term debt and/or to make principal payments under certain circumstances. The various types of short-term debt vehicles used in Massachusetts include the following:

Revenue Anticipation Notes (RANs) – These notes, issued for a maximum of one year, are used to stabilize cash flow when the treasurer’s cash balances are low or forecasted to go negative (M.G.L. c. 44, §4). These notes are issued to fill a cash need, usually until receipt of quarterly or semiannual tax payments or local aid distributions from the Commonwealth.

Federal and State Aid Anticipation Notes (FAANs and SAANs) – These notes are issued to fund spending in anticipation of grant receipts, with the expectation that the note will be paid off upon receiving federal, state or other funds (e.g., Chapter 90 highway project reimbursements).


Bond Anticipation Notes (BANs) – These notes are issued to provide funding for capital improvements. BANs are usually paid off with the proceeds of long-term financing instruments, such as general obligation bonds. However, state law allows for the reissue of a BAN for up to five years if principle payments are made in accordance with an amortization schedule that would be required if the outstanding balance were financed as long-term debt (M.G.L. c. 44, §17). Since short-term debt normally carries a lower interest rate than permanent, this strategy may make sense under certain circumstances.