Should the town dip into its savings to balance the budget this year?

How much to rely on one-time money to pay town expenses been a hot topic at Town Meeting for the past several years, and this year will be no exception. As in past years, town officials differ on what the best answer is.

The debate often comes down to whether it’s a good idea to use one-time money (i.e., revenue the town won’t replenish over the course of the year) to fund the day-to-day operations of the town. One town official likened it to dipping into your savings to pay for your groceries.

The Board of Selectmen has staunchly argued against using one-time money in the town’s overlay fund to pay for operational budgets. Instead they favor using it for one-time capital items. This year they recommend using just over $400K for things like road repair and school technology.

“It builds a false sense of security for residents that these services will be available,” Selectman John Rooney said earlier this year of using one-time money to fund town budgets. “It’s only a matter of time before the hammer comes down.”

The majority of the $1.3M currently in the town’s overlay fund came from taxpayers. It’s money the town collected and held in reserve pending the outcome of some telecommunications lawsuits. The lawsuits were settled this summer and the money was released into the overlay fund.

The Advisory Committee takes the view that the money should be returned to the the taxpayers in the form of a lower tax rate. Their recommended budget relies on more than $800K in overlay funds to keep the tax rate at 1.9 percent (compared to the Selectmen’s budget which is at 2.3 percent).

In a comment on this blog, Advisory Committee member John Butler said the committee decided to use a portion of the one-time funds to offset the town’s debt payment. “This reduces the tax rate without distorting the picture of how much money is available within the tax cap,” Butler wrote.

The major difference between what the Selectmen and Advisory Committee recommends in terms of the overlay is how much of it to spend, with $400K separating the two. Ultimately, the decision rests with Town Meeting.

“At some point someone has got to say we can’t keep spending money we don’t have,” Rooney said. “If (voters) don’t want to say it this year, that’s okay, we can say it next year. The day of reckoning has come.”

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Al Hamilton
11 years ago

While this debate looks like the old “Stabilization Debate” it is in fact quite different. There are 2 important facts that differentiate the Overlay Reserve from the Stabilization Fund.

First and explanation of the Overlay Reserve. Each year we vote on how much money we want to spend and subsequently raise by the property tax. In addition, the Board of Assessors votes to add a premium to that sum called the Overlay to allow for taxes that cannot be collected. Town Meeting does not have any authority to change this amount (I know because I tried once). Normally any overlay that remains at the end of the year is rolled over into the next years general fund. The Board of Assesors decided (correctly in my opinion) to increase the Overlay and hold on to it to guard against the possibility of losing the telecoms suit. If we followed normal practice all of this sum would be returned to the General Fund and the purpose for reserving these monies is now moot.

But, the first, and most important in my opinion, difference is that Town Meeting Never Authorized The Collection of This Money! That is substantially different from the case of the Stabilization Fund which was authorized by Town Meeting. Since each of us overpaid our taxes for the last 10 years or so to cover the risk, a fair system would now return to each of us the amount we overpaid. No such mechanism exists so the next best result is to use this money as quickly as possible to votes in terms of a tax reduction this year and that mechanism does exist.

The second difference is that unlike Stabilization which was set up specifically as a “Savings Account” the historic practice with respect to the Overlay Reserve is that any sums not required have been returned to the general fund in the next Fiscal Year and a separate Overlay is assessed. The proposed practice is not in keeping with the way we have managed the town in the past.

I have no problem with the actions taken by the Board of Assessors. They acted within their authority and practiced very conservative risk management. Now that the risks have passed the only fair thing is to return these overpayments to the taxpayers as quickly as possible.

Information Hound
11 years ago
Reply to  Al Hamilton

Excellent summary, Al, as usual.

John Butler
11 years ago

Talk of “using savings to buy groceries” is somewhat misleading here. As most people know there is a limit on Town Meeting’s authority to raise taxes that is set by Proposition 2.5. Although it would be possible for Town Meeting to use one time funds, such as the atypically high Overlay Reserve, to spend at a rate that is above level at which Town Meeting has the authority to support through taxes, no one is recommending that. The budgets recommended by Advisory and Selectmen have spending levels that are well within the level of taxation authority, without using unsustainable amounts from Overlay Reserve fund.
Secondly the distinction between “Capital” and “Expense” attributed to Mr. Rooney, is not much of a distinction. For example, paying for road repair is as much an annual expense as paying salaries for school teachers. If it makes you feel good to talk that way, fine, but it really doesn’t mean anything from a financial viewpoint to say you are spending it on road repair instead of salaries. The same road repair will be facing you next year as will the same teachers needing to be paid.
As for Mr. Hamilton’s view that all the extra Overlay money should be returned this year, in the form of lower tax rates, Advisory, essentially, is recommending it be returned over two years, primarily because of uncertainty over the Northborough law suit. Whether this is necessary is debatable, but it factored into some people’s thinking.
As the story notes, Advisory Committee for many years has not been able to recommend that Town Meeting voters vote for higher taxes merely to keep more money, unused, in Town bank accounts, instead of in their own bank accounts. This is a complex subject treated in detail in the paper “Cash Reserve Policy” at southboroughadvisory.com.
Lastly, although the idea of “paying for groceries out of savings” when applied to the Town finances is a questionable metaphor, it is a painfully literal description for some Southborough families during these difficult economic times. The Town should not now be collecting money from families that it does not actually need to deliver services.

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