What the Massachusetts Department of Revenue says about so called Free Cash".
Free cash is a revenue source that results from the calculation, as of July 1, of a community's remaining, unrestricted funds from its operations of the previous fiscal year based on the balance sheet as of June 30. It typically includes actual receipts in excess of revenue estimates and unspent amounts in
departmental budget line items for the year just ending, plus unexpended free cash from the previous year. Free cash is offset by property tax receivables and certain deficits, and as a result, can be a negative number.
Free cash is a revenue source that results from the calculation, as of July 1, of a community's remaining, unrestricted funds from its operations of the previous fiscal year based on the balance sheet as of June 30. It typically includes actual receipts in excess of revenue estimates and unspent amounts in
departmental budget line items for the year just ending, plus unexpended free cash from the previous year. Free cash is offset by property tax receivables and certain deficits, and as a result, can be a negative number.
The DLS certification protects communities from relying on free cash that might not materialize due to inaccurate local estimates.
The Technical Assistance Bureau (TAB) recommends that communities understand the role free cash plays in sustaining a strong credit rating and encourages them to adopt policies on its use. Under sound financial policies, a community strives to generate free cash in an amount equal to three to five percent of its annual budget. This goal helps deter free cash from being depleted in any particular year, which
enables the following year's calculation to begin with a positive balance. To do this, the community would orchestrate conservative revenue projections and departmental appropriations to produce excess income and departmental turn backs.
Overall, TAB recommends that communities adopt a free cash policy that avoids supplementing current year departmental operations. By eliminating the expectation of additional resources later in the fiscal year to back-fill budgets, department heads will produce more accurate and realistic annual appropriation requests.
The Technical Assistance Bureau (TAB) recommends that communities understand the role free cash plays in sustaining a strong credit rating and encourages them to adopt policies on its use. Under sound financial policies, a community strives to generate free cash in an amount equal to three to five percent of its annual budget. This goal helps deter free cash from being depleted in any particular year, which
enables the following year's calculation to begin with a positive balance. To do this, the community would orchestrate conservative revenue projections and departmental appropriations to produce excess income and departmental turn backs.
Overall, TAB recommends that communities adopt a free cash policy that avoids supplementing current year departmental operations. By eliminating the expectation of additional resources later in the fiscal year to back-fill budgets, department heads will produce more accurate and realistic annual appropriation requests.
Page 6-37 of the below link shows the uses of free cash from last year.
ReplyDeletehttps://www.templetonma.gov/sites/templetonma/files/uploads/budgetrevisions4.17.19.pdf
All items were voted and approved by Town meeting.
Also note that $202,500 was utilized to back fill the Operating Budget which according to the Financial Management Policy.......
"Policy:
The Town of Templeton will continue to avoid using free cash to fund the operating budget, except
in the event of an emergency or extraordinary or unforeseen events as described in A-1 above.
The Town will endeavor to annually generate free cash of 5 percent of the prior year’s omnibus
operating budget, less school debt
The Town will strive to have its free cash certified in time for use at its Fall Town Meeting. Free
Cash may be used for certain one-time expenditures, such as major capital projects, emergencies,
other unanticipated expenditures and deficits (i.e. snow & ice) or to replenish other reserves. Free
cash shall not be depleted in any year, so that the following year's calculation will begin with a
positive balance. "
This would be allowed to be followed if we utilized the Towns reserve account properly. Our towns reserve is allowed to be up to 5% of the budget, but Templeton isn't using it as designed and only has .05% of the budget set aside. This requires them to violate the FMP every single year and use Free Cash to replenish the Operating Budget, when the wording states it should be used to back fill the reserve account.
The administration has been using this method to avoid going through the Advisory Committee as required to utilize the Town reserve as its laid out. This needs to stop being used as justification to break the rules our own administration created.
I expect our new group in the BOS to remind the Administrator of that fact and to work on correcting it.........