From the Massachusetts Department of Revenue;

Understanding Municipal Debt 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 twothirds vote. State law also specifies what expenditure purposes may be funded through debt and the allowed duration of the borrowing term (M.G.L. Ch. 44). The terms of a borrowing are made final when a majority of the board of selectmen, or the mayor, affixes their signature to required documentation. However, between authorization and issuance much more occurs with little notice outside the treasurer’s office. In the narrative that follows, we hope to provide some clarity. Discussed will be typical reasons why municipalities borrow and the borrowing vehicles that are available. The players who are a part of the process are described, as well as the process itself. Communities in Massachusetts have an ongoing responsibility to create and maintain capital assets. Hopefully, decisions of this nature are based on a capital improvement plan developed through analysis and prioritization of the community’s needs. Beyond a role in funding capital improvements related to buildings, infrastructure and equipment, it is the treasurer’s responsibility to maintain sufficient cash balances to meet the spending demands of departments, within the limits of appropriations. Occasionally, some communities also find themselves in need of a short-term infusion of cash for either capital or operating purposes. For these and other reasons, Massachusetts General Law authorizes cities and towns to issue debt under certain circumstances and for various durations. Often, the reasons for borrowing will dictate the type of debt a community chooses to take on. This is because some vehicles are better suited than others, depending on the nature of the need for funds. To make the discussion simpler, we can conceive of municipal debt as essentially falling into two categories: short-term and long-term.

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 and, in some cases, statute dictates a shorter time frame. Additionally, a community might choose to re-issue short-term debt and/or make principal payments under certain circumstances. The various types of short-term debt vehicles used in Massachusetts include the following:

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 BANs to be re-issued for up to five years if principle payments are made in accordance with an amortization schedule that would be required if the outstanding balance had been financed as long-term debt (M.G.L. Ch. 44, §17). Since short-term debt normally carries a lower interest rate than permanent, this strategy may make sense under certain circumstances.

Question: is there a line item in the fiscal year budget, 2017, which begins July 1, 2016 and will be voted on this May at Annual Town Meeting.

Jeff Bennett

School Building Committee meeting.

Seems like some members may be fizzling out, as it was at the very last minute to the start of the meeting that a quorum was arrived at. Can't wait to see what happens after Steve Hemmen leaves.

At last night's meeting of the school building committee, it was stated by school superintendent that he had taken the town Accountant and selectmen secretary Holly Young to Boston (presumably MSBA) to be trained with regards to MSBA payments, specifically pro-pay. This seemed a bit odd considering there was no mention of the Town Treasurer, who according to MA general laws, has authority and duties to pay bills and keep track of town debt, The treasurer shall, in addition to his estimate of the amount required for the maintenance of his own office, prepare a separate statement indicating the amounts required for the payment of interest on the town debt and for the payment of such portions of the town debt as may become due during the ensuing fiscal year. (from MA general law, chapter 41, section 59)

It was also stated that the school district intends to turn over control of the Templeton Center School building back to the Town on July 1. It would appear that as of that date, that building and land will be solely under Town Control.

If anyone should check, and I urge you to do so by looking at MA general laws, specifically chapter 41 and by googling Massachusetts municipal treasurers, Collectors and Accountants. This will allow you to read on the powers and duties of each position. Very simply, each department, board or committee authorized to expend Town funds shall at least once a month send to the Town Accountant said bills at which time the accountant verifies that they are proper and legal charges or bills and that they are charged to the proper account, that is then presented to selectmen for their approval and finally the Town Treasurer, after having a warrant signed by a majority of selectmen, can pay the bills and keep a record of all debt and interest costs for said debt. 

Jeff Bennett

Oh that budget and the pesky details. . . .

Retirement costs and conflicting numbers aside, there appears to be some more figures presented in the next budget draft for fiscal year 2017, July 1, 2016 to June 30, 2017. These numbers come from information provided by the Town Administrator. There is still a wait for debt schedule of the Town to be provided as well as explanations of numbers not coinciding with previous year budget. The budget versus actual which is suppose to be an up to date accounting of town spending does not even equal what it should be. Quite a few dollar figures do not agree. Something is clearly amiss here which is probably why the Town's schedule A has not been completed on time. There are also new contracts for some departments such as fire and highway, which I hope the selectmen do not give away the house this time. It is time to stop giving away free stuff, offer a wage and benefit package that helps employees but also benefits the town as a whole. One thing would be to strongly push for new health insurance entity to lower the cost of the taxpayers, quite simply, the pie is only so big and if you spend it all on employees, what is left for services such as road repair and maintenance of town buildings. The money has to come from somewhere and that is your wallet, whether it is local taxes, state taxes or federal taxes, it all begins at your wallet. There is no such thing as free money and if the state did not take it from you in the first place, there would be no need for state aid. But back to the local issue at hand. The Advisory Board received an email from the Town Administrator that the Town Accountant was working on the debt schedule, which is really the job of the Town Treasurer. With all the work that needs to be done for audits to happen, as we have been told, it would seem prudent and important for the Town Accountant to be fully focused on things under that office and the treasurer to work on things under that office. Seems like one person doing all the work, which makes one wonder, what the hell is the rest of the "team" doing?

Jeff Bennett

MMA Policy Committee on Personnel and Labor Relations Best Practice Recommendation: Managing Other Post-Employment Benefit (OPEB) Liabilities BEST PRACTICE:

 Take necessary steps to modernize benefit structures and implement pre-funding options to effectively mitigate and manage Other Post-Employment Benefit (OPEB) liabilities. This includes using the authority that localities have under state law to change retiree health plan contribution ratios and plan design elements, and investing funds in a reserve account to pre-fund the OPEB liability for current and future retirees. Cities and towns face a $30 billion liability for their Other Post-Employment Benefits. Under current law, eligibility for benefits is quite generous. In most cases, employees qualify for health insurance for themselves and their dependents for life if they work as few as 20 hours per week for 10 years and are 55 years of age.
Access to this level of retiree health benefit has left cities and towns with a liability far larger than their pension liability, with bond rating agencies and the federal government taking notice. In the absence of statewide legislation, there are several actions that cities and towns can take to manage their OPEB liability. It is important to regularly review and consider a wide range of options to make changes to health insurance as an opportunity to manage OPEB costs. Cities and towns should be creative, and consider measures such as increasing new hire contribution rates, making meaningful plan design changes, and engaging in conversations with active employees about setting money aside to fund their future benefits. Similarly, under state law (recently affirmed by a Supreme Judicial Court decision), cities and towns may change the contribution rate for retired employees without engaging in collective bargaining. If municipal retirees are paying less than 50 percent of the premium, or have the same or lower contribution rates as active employees, it may be worth considering a change. On the funding side, there are a handful of steps municipalities can take to begin funding their liability. In order to have all of the information and have all parties be on the same page, it is first important to conduct the required actuarial analysis every two years, as well as to have an agreed-upon reserve or financial policy. Once the size of the liability is agreed upon, municipalities should consider funding their normal costs each year. Cities and towns are encouraged to use savings from changes in health insurance, such as using Municipal Health Insurance Reform, to fund their Annual Retired Contribution (ARC). This would at least fund OPEB obligations from this point Managing Other Post-Employment Benefit (OPEB) Liabilities – continued forward at their annual cost. Additionally, cities and towns are encouraged to begin to pay the normal cost for new employees immediately from the date they are hired. If financially feasible, this could eventually be expanded to existing employees. Finally, it is a best practice recommendation that communities establish an irrevocable trust through Chapter 32B, Section 20 of the Massachusetts General Laws, and use a meaningful and recurring revenue stream to fund the trust (such as a portion of the local-option meals tax, local-option lodging tax, or other local revenue source). Communities are encouraged to use an irrevocable trust rather than a stabilization fund. This ensures the money is earmarked for OPEB and is segregated from other municipal responsibilities. Similarly, it is worth weighing the pros and cons of managing the funds locally or investing through the State Retiree Benefits Trust Fund (SRBTF), an option now available to municipalities. These best practices will allow cities and towns to manage the costs of retiree benefits and begin to pre-fund their OPEB liabilities.

Not popular with some folks, especially town employees, but if you wish to keep the ship afloat, something has to change. Especially with a 50 million dollar debt soon to be on the books. Remember this when you see, read about or hear anything about new job descriptions and or job title changes, because that usually equals an increase in pay and other things. If you want this, fine, but if you do not or you do not feel you can afford it, you need to show up, you need to vote accordingly and to do that, you have to take the time, you have to make the time to vote.

Jeff Bennett

MMA Policy Committee on Municipal and Regional Administration Best Practice Recommendation: Sharing Municipal Services BEST PRACTICE: Evaluate opportunities to save money and improve local government services by sharing municipal service delivery with other cities, towns and governmental entities. This could include equipment-sharing arrangements, contracts for sharing municipal and school services, and group purchasing. Collaboration could take the form of intermunicipal agreements (IMAs), contracts, special acts, or the formation of districts or regions. Cities and towns across the Commonwealth routinely look for opportunities to lower costs and improve local services by sharing services or equipment with other municipalities, regional organizations, or state government. These agreements offer substantial savings and efficiencies, yet should be framed so that all participating communities have common understandings, goals and commitments. Examples include: • Adopting a shared services model for underutilized capital equipment via an inter-municipal agreement, such as having one community purchase a sewer flusher truck and renting it to surrounding communities to significantly offset the purchase cost. • Sharing a Veterans’ Services Officer among municipalities, with rotating office hours at community or senior centers. • Forming a Regional Housing Services Office to monitor affordable housing compliance and other housing opportunities more broadly than in a single community. The Government Finance Officers Association (GFOA) suggests that inter-municipal agreements should include provisions that establish the legal basis of the agreement, specific provisions for service delivery levels and performance measurement, a structure for governance, finance and dispute resolution, and a time period.

Look at how much was spent by Templeton taxpayers on dispatch last year and then check on how much, if any, that will go up in the next budget.

Jeff Bennett

By Jonathan Phelps
Daily News Staff

HOPKINTON – It’s a rare move: A town or city voting to reduce the amount of money that can be raised by property taxes, according to state data.

This is known as an underride of Proposition 2-1/2, which permanently reduces a community’s tax levy limit. Many cities and towns pitch overrides, which raise the tax threshold for operating and capital expenses.

Hopkinton could be the next to join 13 towns – of the 351 communities in the state – to pass an underride since 1988, according to the state Division of Local Services.

Selectmen voted 4-1 last week to bring a $1.25 million underride before voters at the annual town election on May 19. It will require a majority vote to pass.

However, property owners should not expect to see lower tax bills if the underride passes. Those bills might not rise as much if the underride vote is successful. 

The maximum amount of taxes Hopkinton is allowed to raise under Proposition 2 1/2 – the levy limit – is about $55.6 million for next fiscal year. The town is using only $53.9 million of that amount, meaning the town has an excess levy amount of $1.7 million.

The board has proposed to draw the underride from that excess levy amount, not the town’s operating budget.

Proposition 2 1/2 was enacted in 1980. The town's most recent override was in 2006 for $1.9 million, according to the data.

The largest underride amount in the state was in Plymouth in 1995 for $2 million, and the smallest amount of $10,833 in Gill in 2004.

The most recent underride vote was in West Newbury in 2012 reducing real estate and personal property taxes by $180,000. The town also approved another underride for $170,000 in 2011, according to the data.

Williamsburg has also passed two underrides, the first in 1997 ($51,580) and again in 2001 ($35,407).

Other towns that have adoped underrides: Ayer, Dennis, Groveland, Holland, Lancaster, Orleans, Sandwich, Shelbourne and Upton.

Hopkinton’s proposed $1.25 million amount would be the second highest if approved by voters next month, according to the data. The next highest was just over $1 million in Lancaster in 2003.

Hopkinton Selectman Chairman John Mosher voted against the $1.25 million figure, but supports the concept. He recommended an underride of $800,000.

"Over the past four years, we’ve taken a methodical approach to ensure responsible long-term planning while making sure immediate needs are met," he said. "I would have liked to see an $800,000 underride because it reduced our excess levy capacity in half and then spend the next year looking at a policy regarding our excess levy capacity."

The Appropriation Committee recommended the underride be between $800,000 to $1 million, said Mike Manning, chairman of Appropriation Committee. There were concerns about the possible need for an override in fiscal 2016 if the amount were too high, he said.

"We weighed the different options," he said. "It is what we were comfortable with. It gave us a cushion."Manning cautioned that the underride does not mean there will be lower taxes for homeowners, but rather reduces the amount in which taxes can be raised in the future.

Details on the underride will be presented at Town Meeting as a non-binding measure.

Selectman Brian Herr said the $1.25 million figure is a significant reduction of the excess levy, but gives the town some flexibility.

"From my seat on the board we didn’t save the money to spend it at a future date," he said. "We saved the money to keep it in the pockets of the taxpayers."

He said he believes the Appropriation Committee is being conservative based on assumptions of budget projections.

Jonathan Phelps can be reached at 508-626-4338 or jphelps@wickedlocal.com. Follow him on Twitter @JPhelps_MW.

posted for informational purposes only

Jeff Bennett

Division of Local Services

Municipal Databank/Local Aid Section

Underrides

Proposition 2½ allows a community to reduce its levy limit by passing an underride.  When an underride is passed, the levy limit for the year is calculated by subtracting the amount of the underride.  The underride results in a permanent decrease in the levy limit of a community because it reduces the base upon which levy limits are calculated for future years.

A majority vote of a community's selectmen, or town or city council (with the mayor's approval if required by law) allows an underride question to be placed on the ballot.  An underride question may also be placed on the ballot by the residents using a local initiative procedure, if one is provided by law.  Underride questions must state a dollar amount and requires a majority vote by the electorate.

For more information on levy limits, override, underride, capital and debt exclusions.  Please view the links under key terms.

Massachusetts Department of Revenue Jeff Bennett