franklin regional council of governments essentials series municipal financial management review...
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Franklin RegionalCouncil of Governments
Essentials Series
Municipal Financial Management Review
September 16, 2015
Contact Information
Joe MarkarianFRCOG Special Projects
781-588-2050
markarian@frcog.org
Introduction
What happens at what time of Year
Who should be involved
What policies should your town have
Insights into best practices
Pitfalls to avoid
What Happens When
Legally required Accountant, Treasurer, Collector, Assessors DLS Municipal Calendar
www.mass.gov/dls-->dls publications
Discretionary actions Select Board, Finance Committee Town Administrator / Coordinator Department Heads
Source of Authority
Mass General Laws DLS Legal Index for Municipal Officials Subject matter index MGL Chapter-Section search
Chapter 39 & Chapter 40 – Towns Chapter 41 – Individual Officers Bylaws / Charters Municipal Finance Reference
www.frcog.org Publications Regionalization & Special Projects
Responsibilities Select Board
Ethics Guide
Finance Committee MGL Chapter 39 §16
who shall consider any or all municipal questions for the purpose of making reports or recommendations to the town
Ethics Guide
Town Administrator / Coordinator Capital Improvement Committee / bylaws Accountant, Treasurer, Collector, Assessor…
Association manuals
Finance-Related Events
Note: activity in early 1st half of FY
Closing the books / balance sheet
Statement of Indebtedness
Schedule A
Tax bills
Tax Recap Sheet
Operating budget
Capital budget
Closing the Books
Accountant responsibility(With reliance on other departments)
DOR: complete by July 15(More typical: end of August)
Means of identifying problems
First step toward Free Cash certification
July: Look Back
Select board / FinCom / TA-TC
Budget report (aka Expenditure Report)
ID revenue / appropriation deficits
Take corrective actionSB/FinCom transfer by July 15 w/ limits
Town meeting action before Tax Recap filed
ID issuestimely completion of tasks / info exchange
Schedule A
Accountant’s responsibilityreliance on closing the books / others
Report to DOR by October 30revenues, expenditures, fund balances
DLS data bank / Federal government
Failure to file: by March, state aid held A reference / should monitor progress
Tax Bills
Assessors issue tax commitment Collectors receives tax payments
When depends on tax billing cycle Quarterly Semi-annual preliminary Semi-annual
Local acceptance vote by town meeting
Tax Recap Sheet
Assessors: page 1 Accountant: pages 2 & 3 Town Clerk: page 4
Basis for DOR approval of taxation / rate Due date: depends on billing cycle
Prior to Oct. 1 or Jan. 1 Critical information
Look Ahead
Select board / FinCom / TA-TC
Can we improve “process” Do our general bylaws help or hinder What in the prior year did we not accomplish Can we establish priorities & goals for new FY Are there different approaches to consider Are there resident concerns we should address Can planning begin for major projects in future
Look Ahead (cont)
Select Board
Evaluate efficiency
decisiveness or kick-the-can
Weekly v. Bi-weekly meetings
summer schedule
Consent agenda
requires info review in advance
Defer decision making (to TA / Dept Hd)
Look Ahead (cont)
Finance Committee
Evaluate role & efficiency
reduce number of meetings
use budget modules
improve forms
evaluate budget format
Review budget calendar
Finance Committee Role
1) All municipal questions vs. Finance articles only
2) Budget formulator vs. Budget watchdog
3) Report / Budget Message
4) Recommendations
5) Transfers
6) Monitoring fiscal activity
7) Revenue projections
8) A resource
9) A policy maker
10) Dual role as capital improvement committee
11) Advocate on ballot questions 12) Web page
Ongoing / Sept - March
Monitor the budget (expenditure reports)
Cash reconciliations (accountant/treasurer)
Receivable reconciliations (accountant/collector)
Monitor Committees Prepare for Town Meeting Communicate: SB & TA/TC; Dept mtgs
Best Practices
Community Compact Best Practice Areas Finance related:
Budget documentFinancial policiesLong range planning / forecastingCapital planningReview financial management structureRegionalization / Shared Services
Budget Document
Components Budget message Narrative Line-item appropriations Articles Supplemental information
Product of good budget process
Budget Process
1) Identify those with roles/responsibilities
2) Agreement on a budget calendar
3) Lineal process
4) Formalize (codify) the process
5) Recommend a balanced budget
6) Strive for structural balance
7) Terms / concepts to understand
Calendar Milestones
Revenue projections / Five year forecast Departmental guidelines / requests Data assemblage – working budget Meetings / hearings Balanced budget recommendation Board of Selectmen approval Finance Committee review Town Meeting vote
Budget Terms / Concepts
Expense drive / revenue driven budgets Four general sources of revenue
Distinguish line-items and articles Line-items accts close at year-end; flows to free cash Article accounts remain open year-to-year
All revenue is general revenue Proposition 2 /12 Fixed costs & revenue projections Budget format Required: Amount – Purpose – Funding Source
Revenue Projections & Fixed costs
Deduct fixed costs:-debt service
-pension obligations
-OPEB (retirees’ health)
-health insurance (active)
-property / casualty insurance
-workers’ compensation
-Medicare
-utilities
-known deficits
Results in discretionary revenue
Financial Policies
Municipal Finance Reference Budget Free cash Stabilization Debt
Guidelines only Promote consistent, sound practices
Long range planning / forecasting
DLS Best Practice Multi-year projections / outlook Considers historical experience Conservative projections Anticipate fiscal events Input from department heads Annually update Planning & crisis avoidance tool
Capital Planning - Why?
Ensure long-range physical integrity of the town
Track condition / needed investment in:
Buildings Rolling stockInfrastructure TechnologyRoads Equipment
Prioritize town-wide needs
Allocate resources among competing needs
Establish level playing field
Improve credit standing
Goals of CIC / CIP
Credibility
Establish a well-defined process Commit to year-to-year consistency Demonstrate open-minded/objectivity Be engaged, but also challenge Arrive at well-founded decisions
Exercise good judgment & common sense
Capital Planning
Role of a Capital Improvement Committee Determine who serves on the CIC Be clear who the CIC reports out to Define the Capital budget process? Calendar milestones Determine information to collect Set ranking criteria / basis of analysis Provide funding & place in budget
Financial Management Structure
Accountability
How to get there: Appointed positions (v. elected) Appointing authority Budget control Clear job descriptions Departmental goals Clear expectations
Regionalization / Shared Services
Reasons to explore:
Positions increasingly harder to fill Appeal: two towns sharing a F-T w/ benefits Shared training costs: higher quality service Fewer reasons for town hall visits
To start: internal conversations
communicate with other towns
Pitfalls to Avoid
Failure to keep current with duties
Neglect of checks & balances
Failure to monitor
Indecisiveness
Lack of communication
Adversarial government
Mission to Mars
Hawaii Space Exploration Analog and Simulation (HI-SEAS)
Boston Globe Sept. 6
Visit to Mars simulation
3 women & 3 men
Two-story dome
Mauna Loa volcano
8 months
Mission to Mars (cont)
Question: Is there any relevance of findings to town government.
-Defined roles, but not always. With rotation, work improved. Understand others’ role.
-Debriefs were critical following an important assignment. Communication =>solutions
Mission to Mars (cont)
-Orientation mattered. Advanced discussions helped smooth way.
-Leadership is flexible. Success occurs when all voices are heard.
-Teamwork is more powerful than individual performance.
Statutory Source of Authority
Massachusetts General LawsChapter 39 Section 16
Every town whose valuation for the purpose of apportioning the state tax exceeds one million dollars shall, and any other town may, by by-law provide for the election or the appointment and duties of appropriation, advisory or finance committees, who shall consider any or all municipal questions for the purpose of making reports or recommendations to the town; and such by-laws may provide that committees so appointed or elected may continue in office for terms not exceeding three years from the date of appointment or election.
In every town having a committee appointed under authority of this section, such committee, or the selectmen if authorized by a by-law of the town, and, in any town not having such a committee, the selectmen, shall submit a budget at the annual town meeting.
State Ethics Law
Massachusetts State Ethics Commission
www.mass.gov/ethics/
MGL Chapter 268A
Advisory Opinions
Guide for Municipal Finance Committee Members
Open Meeting Law
Office of the Massachusetts Attorney General
MGL Chapter 30A §§18-25
Definition: “Meeting” & “Deliberation”
Open Meeting Law Guide
Notice RequirementsMinutes
Executive Session
Public Records Law
Office of the State Secretary
Public Records Division
MGL Chapter 66
Guide to the Massachusetts Public Records Law
Public Records Definition MGL c. 4, § 7, cl. (26)
Record Retention Schedules“Administrative Use”
Office of Campaign & Political Finance
http://ocpf.cloudapp.net/
Search Legal Opinions
Financial Activity
Fiscal Year:
Departments authorized to spend on July 1
Procurement rules (MGL Chapter 30B)
Personal Service Contracts
Goods or services must be received (c. 41 § 56) Purchase Order System
Accountant verification process
Expenditure Reports (c. 41 § 58)
Finance Committee Role
Ultimate goal: Committee Credibility
ConsistentObjective
Well informedWell reasoned
RespectfulConsensus over conflict
Town interest over personal preference
Four Major Revenue Sources
DLS Article: Municipal Budget Revenues
Revenue Sources:Tax Levy
State Aid
Local Receipts
Miscellaneous (non-recurring)
Increase Revenue Detail
Tax Levy: Levy Limit Calculation FormNew Growth Estimate
State aid: Cherry Sheet - Chapter 70 & Unrestricted General Government Aid
Cherry Sheet Manual
Local Receipts: Tax Recap page 3
Misc: Close look at available funds – free cash, assessors’ overlay, other.
Expense side Budget format
No required format or level of detail for towns Format impacts Dept. Heads’ ability to manage Review format vs. Town Meeting presentation
Role of Policies Guidelines, not rules
Revenue deficits Deduct from free cash & raise on next year’s Recap
Appropriation deficits Deduct from free cash
Taxpayer recourse 10 taxpayer suit; order of mandamus
Proposition 2 ½
MGL C. 59 § 21C
Levy CeilingLevy Limit
LevyNew Growth
Overrides & UnderridesDebt & Capital Exclusions
Special ExclusionStabilization Fund Override
Excess Levy Capacity
Annual Levy Ceiling
To Calculate the New Levy Ceiling
Total Assessed Valuation
Property values are reviewed and adjusted annuallyIf values increase, ceiling rises
If values decrease, ceiling decreases
Proposition 2½ Limit Exceptions
Overrides
Underrides
Debt Exclusions
Capital Outlay Exclusions
Stabilization Fund Overrides
Special Exclusions
Non-specific After year 1
Comparison of Referenda Questions
Overrides Exclusions
Operating Budget
Only Capital Purchases
PermanentTemporary
Debt(Life of Bond)
Capital(1 Year)
Overrides Limited by CeilingNo Limit on the Number
Or Dollar Amount
Stabilization Fund Override
DLS IGR 04-201MGL c. 59 § 21C (g)
Alternative for funding special purpose stabilization fund
Year 1: 2/3s Town Meeting – maj. voter approval Year 2+: 2/3s Selectmen approval
-can continue, reduce, defer/resume Authorized amount increases 2½% annually If lowered, continues at lower amount + 2½% Change of purpose by voters via BOS 2/3s vote
Special ExclusionsSee Levy Limits Primer, page 12
-Water, sewer debt exclusion for capital projects &assist homeowners: faulty septic, UST, lead paint
-BOH contracts for work / costs added to tax bill
-Temporary increase not added to tax base
-Allows raising water or sewer debt service on tax rate, but requires corresponding decrease in rates
-Adopted by majority vote of Selectmen
Things to Know
Exclusions Bond authorization vs. debt exclusion
Only Three Ways to Lower Taxes Underride - one year only Create excess levy capacity Exclusion end or debt service roll-off
Caveat – Must equal / exceed Levy Limit increase
Property Taxes
Tax rate = levy / total AV x 1000
Property tax = home AV /1000 x tax rate
DLS Financial Calculators Debt Service calculator Tax Impact Calculator
Revenues
Statutory Treatment of Municipal Revenues
All revenue, received or collected from any source and by any department is General Fund revenue.
General Fund money is unrestricted and available for expenditure for any lawful purpose.
Money can only be segregated for specific purposes if authorized a general law or special act.
Special Revenue Funds
Revolving Funds
Receipt Reserved Funds
Trust & Agency Funds
Gift Accounts
Special Purpose Funds
Enterprise Funds
Revolving Funds
Statutory authorizations
General departmental – MGL c. 44 § 53E ½
All other non-school department - (see chart) Unpredictable level of activity Fees collected directly support program or service Resident participation must be voluntary Fees or charges must reasonably reflect costs Statutory criteria and spending restrictions apply Town Meeting approval required
Receipt Reserve Accounts
Authorized by statute; established by Town Meeting
Revenue held in separate account for a particular purpose
Year-end balances roll-over to next year
Funds must be appropriated
Funds must be received before appropriated
Trust & Agency Funds
A fiduciary fund
Funds collected by town but intended for another government entity
Not credited to town as a cash receipt
Gift Accounts Money given generally to town must be
accepted and appropriated by Town Meeting
Money given to board, department or official, can be spent with approval of Selectmen
Spending purpose must be in accordance with donor’s wishes
Not subject to Ant-Aid Amendment
Gift of real estate requires Town Meeting acceptance
Enterprise Funds
MGL c. 44, § 53F 1/2
Enterprise Fund Manual
DLS Information Guideline Release 08-101
Enterprise Funds (cont.)
May be set up forwater, sewer, trash disposal
ambulance service, nursing homes
skating rinks, pools, golf courses
airports, docks, marinas
Two Town Meeting votes required:
-create the enterprise fund
-approve the budget
Enterprise Funds (cont.)
Budgeting: expense driven recurring revenue emphasis self-supporting operation rates not subject to Prop. 2 ½
Revenues: only for enterprise purposes
Indirect costs: develop methodology
Retained earning: like free cash
Reserves
FinCom Reserve
Free Cash
General Stabilization Fund
Special Purpose Stabilization
Enterprise Fund Reserves
Overlay
FinCom Reserve
Chapter 40 § 6 Extraordinary or unforeseen
Includes emergency Includes “inconvenience” factor
Reserve amount: look to historical demand Require transfer request form / copy accountant Town Administrator approval first Approval at discretion of FinCom / Consistency
Free Cash
Unrestricted funds from prior year operations Calculated from Balance Sheet as of June 30 Available for appropriation only on DOR cert. Results from:
Actual receipts in excess of revenue estimates Unspent departmental appropriations Unexpended free cash from prior year Offset by receivables and certain deficits
Free Cash (cont.)
Target: 3-to-5 % of annual budget Inversely related to Local Receipts Regarded as non-recurring revenue best used:
-capital purposes
-replenish reserves
-other one-time expenditures Limit use as budget revenue source Resist backfilling current year dept. budgets Develop a policy on the use of free cash
General Stabilization Fund
MGL c. 40 § 5B One time / Non-recurring revenue Requires 2/3s vote of Town Meeting to
create May be expended for any lawful purpose Requires 2/3s vote of Town Meeting to
appropriate to & from the fund.
Special Purpose Stabilization
DLS IGR 04-201
DLS Article: Long Term Planning Tool
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