Schools Leave Empty Handed As Select Board/Warrant Committee To Place Added Local Aid To Free Cash

Photo: Educators attend a recent Select Board/Warrant Committee joint meeting at Town Hall

On March 1, Massachusetts Gov. Maura Healey filed her state budget proposal with increases in Chapter 70 local aid, in which Belmont would receive an additional $1.4 million net for fiscal ’24, which begins July 1. And the boost in aid could not have come at a better time for the schools, the largest of the town’s departments.

Facing a $2.1 million deficit that could see nearly two dozen teachers, educators, and administrators losing their jobs and positions failing to be hired, the school district and Belmont School Committee placed their hopes that some portion of the governor’s largess would be directed to education.

But in a joint meeting held Monday night, March 20, the Belmont Select Board and the Warrant Committee (the Town Meeting’s fiscal watchdog) voted to cap the amount of free cash to use in the fiscal ’24 budget – which tops off at $138.3 million – at slightly more than $10 million. As for the added money coming from the governor’s budget, $600,000 would be allocated to the district’s depleted Special Education reserve account, with the remainder carried forward into the town’s free cash account.

At the end of the night, the schools will be asked to fill the $2.1 million deficit with the planned job cuts.

John Sullivan, head of the Belmont Education Association, who attended the meeting with two dozen teachers and administrators carrying signs calling to keep current staff, said the decision, if unaltered, will be felt in the classrooms.

“Free cash should be spent on what we need right now, and right now, we need it for staffing,” Sullivan said after the meeting. “Your kids are the ones that are ultimately impacted by these cuts.”

The town has allocated more than two-thirds of the $15 million in free cash it stockpiled over the past decade into the general budget with the schools being the chief driver, having witnessed an unprecedented 12.7 percent increase in expenses in fiscal ’24. The School District points out the record rise as a combination of two significant factors: the cost of opening the new Middle School on Concord Avenue and a historic jump in Special Education expenditures, specifically Out-of-District placement of students, that hit the budget hard.

The decision to squirrel away all future state funds is due to the realities the town is facing that it will be facing an $11 million shortfall in fiscal ’25 and $12 million in fiscal ’26. Current calculations show the town will have $5 million in the rainy day fund in fiscal ’25.

By marshaling all available state aid into free cash now, according to town officials, reduce the size of the Proposition 2 1/2 override request set to be on the ballot next April. Observers believe voters will not be amenable to a double-digit request, pointing to the rejected override this month by Newton voters that would have closed its school district’s $6 million budget gap.

“We know we need to have an override for fiscal ’25,” said Jennifer Hewitt, the town’s assistant town administrator and finance director. “But the goal is to try to make that number a winnable number” so the town isn’t stuck with “really, really bad decisions” if the override fails.

“We need to think about next year,” said Mark Paolillo, Select Board chair.

And having reserves in free cash will be critical in the worst-case scenario if voters bail on an override. The account will be used to mitigate what soon-to-be Select Board member Elizabeth Dionne described as a possible “blood bath” where the town and school district will see entire departments and services decimated with a back of the envelope calculations predicting a 10 percent cut in teaching positions.

While sympathetic to town and schools requests, Adam Dash – who will be giving up his seat on the board on April 4 – said “it’s a very dire situation, and unfortunately, it’s a bit of a zero-sum game at this point” as the town seeks a fiscally prudent solution. “The problem is that we need to bank some money and not deplete the entire savings account, what free cash is.”

But to School and Warrant Committee member Michael Crowley, the policy is a Faustian pact in which educators and programs are put on the chopping block to prepare for a future unknown. And like Oliver Twist with a bowl in hand, Crowley urged the town to find “just $500,000” to preserve posts such as teacher assistants in the elementary schools that the district has targeted for redundancy.

“Another half million in the spirit of compromise won’t destroy the bank,” said Crowley as educators in the room applauded.

But Garvin warned funds transferred from free cash to the schools would need to be offset with cuts elsewhere.

The one glimmer of hope for school advocates and educators is the likelihood that the Massachusetts House and Senate will join Healey in boosting local aid allocations in the next iteration of their budgets in the coming month. While Garvin stood firm on the town’s intention to slot any additional local aid to free cash, Select Board’s Roy Epstein was receptive to using a portion of any additional revenue from Beacon Hill towards the schools.

Steve Sloan, a Goden Street resident with a child in the district, said it’s honestly disrespectful to the parents to talk about putting all this extra money into free cash without even knowing how much you have” until the state budget is finalized.

“When you’ve got all these cuts on the table. I think that’s a bad optic and you’re sending a terrible message. At least take a compromise solution when you know how much you have.”

Record Free Cash Level Likely To Lower Override Dollar Ask

Photo: Free cash isn’t free

The holidays came two months early to Belmont Town Hall as the Massachusetts Department of Revenue certified the town’s fiscal year 2020 free cash account – officially known as the Unreserved Fund Balance – at $11,239,464, a record high level for the budget line.

“The free cash amount this year is good news all around. The town was diligent in its conservative practices and we are seeing the fruits of our efforts,” Town Administrator Patrice Garvin told the Belmontonian.

Free cash is made up of receipts – taxes and fees – in excess of revenue estimates along with unspent amounts in departmental budget line items known as “turn backs” for the previous fiscal year, plus any unspent free cash from the previous year. Before it can be used, free cash must be certified by the state.

The size of this fiscal year’s amount dwarfs the average account over the past decade ranging from $5 to $7 million. The $11.2 million outpaced last fiscal year’s robust $8.1 million in free cash which allowed the town to balance the fiscal year ’19 budget without the need of a Prop. 2 1/2 override.

“I’m pleased to see that the town and school’s efforts earlier this year to proactively freeze hiring and curtail spending, combined with our focus on maximizing federal reimbursement for COVID expenses, has substantially improved our free cash position,” said Select Board Chair Tom Caputo.

It comes as no surprise that both town and select board are viewing to use some of this fiscal year’s bounty to reduce the $12.5 million the town is seeking in a Prop 2 1/2 override which will be on the ballot at the annual Town Election set for April 6.

“While this healthy free cash balance doesn’t address the structural deficit that we will confront in the coming fiscal years, it does give Belmont some more flexibility as we look to an April override,” said Caputo. “The free cash may be available to help stabilize the budget for a few years and reduce the size of the required override.”

And Garvin isn’t wasting any time presenting scenarios how the fund can be used, going before the Financial Task Force II on Friday, Nov. 6 meeting and presenting a preliminary free cash plan to the Select Board on Monday, Nov. 9.

“We are currently running models to see what can be used from free cash to lower the override request,” said Garvin.

Yet it’s unlikely the select board will attempt cut the lion’s share of the override with free cash. For more than a decade, town policy is to maintain a level of free cash that will help secure the town’s Triple-A bond rating. In 2018, that goal was set at four percent of the current fiscal year’s General Fund Revenue Budget.

“I will tell you that I have had many conversations regarding the town’s Undesignated Fund Balance, and its impact on the bond rating. This work is ongoing and answers are forthcoming,” said Garvin.

Four factors for free cash

The increase in free cash reflects the town’s conservative budgeting practices and our response to managing the financial impacts created by COVID-19, such as controlling spending, freezing hiring and maximizing available Federal and State reimbursements.

“This level of free cash gives the town greater flexibility to reduce an operating override request, without reducing services,” said the press release announcing the record free cash level.

The factors leading to this favorable result include:

  • Proactive management of the Town and School hiring and spending at the end of Fiscal Year ’20
  • COVID-19 slowdowns in spending, resulting in large turn backs (underspent budgets) from departments;
  • Federal Assistance for COVID-19 through the Coronavirus Aid, Relief, and Economic Security(CARES) Act Reimbursement for Town and School Expenses, of approximately $1 million;
  • Accounting adjustments for prepaid property taxes in prior fiscal year.

The line items contributing to the Free Cash balance are:

ITEMAMOUNT
FY’19 Rollover Unreserved Fund Balance (Free Cash)$425,160
Prior Year Reserve for Subsequent Taxes (Prepay that should have been reserved last year)$2,151,248
Reserve Prior year bond premium$18,000
Reverse prior year reserve for continued appropriations$1,711
Tax Deferral Redeemed$274,899
Tax Title Redeemed$489,099
Estimated Receipts Surplus (Revenue)$1,430,258
Turnbacks from Departments$6,405,517
Prior Year Fund Deficits/etc.$43,567
CERTIFIED FREE CASH as of July 1, 2020$11,239,464

The line items in the table are explained in more detail as follows:

FY19 Rollover Unreserved Fund Balance (Free Cash)

The FY20 budget included a high use of Free Cash. This drawdown reduced the FY19 Unreserved Fund Balance (Free Cash) to $2.4 million. A subsequent review of our accounting revealed the need for two additional adjustments related to classification of property tax and water and sewer revenues. These were one-time adjustments. The effect of the adjustments reduced the FY19 rollover to $425,165.

Prior Year Reserve for Subsequent Taxes

Tax payments by residents sometimes cross over the fiscal year, which begins on July 1. $2.1 million of FY20 Free Cash represents tax revenue that was prepaid and not estimated in the FY20 Fiscal Year. This $2.1 million should have been part of the FY19 Certified Free Cash.

Tax Deferral Redeemed

The Town has tax deferment programs that delay the collection of taxes. Free Cash is credited for the taxes in the Fiscal Year they are actually paid. For FY20 $274,898 of tax deferments were collected.

Tax Title Redeemed

Free Cash is also increased when delinquent taxes are finally paid. The Town Treasurer works diligently to collect delinquent taxes.

Estimated Receipts Surplus (Revenue)

The Town budget estimates revenue receipts for the year. Actual FY20 revenue exceeded the estimate by $1.4 million. Most of this excess can be attributed to investment income on amounts borrowed for the new middle and high school. The Town saw a reduction is some local receipts due to COVID-19, but the investment income resulted in a surplus.

Turnbacks from Departments

Turnbacks, underspent department budgets, returned to Free Cash, totaling $6.4 million are the largest contributor to the increase in FY20 Free Cash. This amount almost doubled from the previous year. Turnbacks can be generated by vacancies in positions, and spending less on supplies and services. COVID-19 is the main explanation for the FY20 turnbacks. The Town realized in March that the pandemic would significantly impact revenues and wanted to make sure we capitalized on every dollar. The Town was also mindful of the budgetary challenges and the potential need for an operating override. We started to slow down spending beginning in March and April. The Select Board imposed a hiring and spending freeze for May and June. Also, the COVID-19 CARES Act reimbursement enabled Belmont to receive reimbursement of over $1 million for Town expenses associated with COVID-19.

Prior Year Fund Deficits/etc.

$43,567 remains of Prior Year Fund Deficits, which are created by not expending the entire amount of available funds.

Boost In Free Cash Likely To See Belmont Avoid A Spring Override Vote

Photo: The money is rolling into town’s free cash coffers (Wikimedia Commons, the free media repository)

Belmont Treasurer Floyd Carmen is fond of repeating a cautionary catchphrase when speaking about the town’s unrestricted fund account.

Free cash isn’t free,” says Carmen.

While it may not be free, by bringing in a robust $8.1 million in its unrestricted account, Carmen’s work will likely help the town balance the fiscal year’s budget without the need of a Prop. 2 1/2 override vote that appeared all but a certainty just six months ago.

The $8.1 million is just short of the $8.4 million in free cash the town held in fiscal ’18, an amount that Carmen warned the Board last year would not likely be matched. While the state advises municipalities to have a free cash amount equal to three to five percent of its annual budget, Belmont’s account is slightly more than 6.25 percent on a fiscal year budget of $129 million.

Free cash is made up of receipts – taxes and fees – in excess of revenue estimates along with unspent amounts in departmental budget line items known as “turn backs” for the previous fiscal year, plus any unspent free cash from the previous year. Before it can be used, free cash must be certified by the state.

The Select Board applauded Carmen’s accomplishment on the haul of free cash.

“I have to say I’m delighted and also astonished that free cash came in so high,” said Select Board Vice Chair Roy Epstein.

Carmen attributed the results to the town’s “fairly conservative” budgeting, department heads who work hard to return monies not spent and a tax and fee collection rate that caused one Board member to explain “wow.”

“Our tax collection rate is 99.6 percent,” said Carmen, who praised his staff for reducing uncollected receivables from $1.7 million on May 15 to just under $200,000 today.

While good government advocates suggest a portion of free cash be restricted to paying one-time expenditures and funding capital projects, Belmont will use a major chunk of the monies to fill in an expected gap in this year’s budget.

Carmen told the Select Board that he suggested to town officials transferring $2.5 million of the $8.1 million and place it into the town’s General Stabilization Fund, a special revenue account where monies are appropriated and reserved for balancing the town budget.

Added with the current balance of approximately $332,000, the Fund will end up with around $2.8 million in the Fund, about the same amount the account held last year at this time.

This amount will make up the bulk of the funding needed to fill a $2.3 million deficit in fiscal year 2021 that was predicted in August 2018 by consultants for UMass Boston’s Edward J. Collins Center.

“Just about three weeks ago, I finally could say we will have this covered,” said Carmen about the revenue hole.

While the Prop 2 1/2 override is all but certain off the April 2020 Town Election ballot, it is increasingly likely the override will be before residents in November 2020 to find a longer term solution for the town financial structural deficit.

Town Meeting Amendment Challenges Belmont Center Project Financing Plan

Special Town Meeting just got a whole lot more interesting.

Rather than the option of simply accepting or rejecting the financing plan for the $2.8 million Belmont Center Reconstruction Project, the 290 Town Meeting Members now have an alternative to the town-created “free cash” proposal.

Read the project’s highlights here

James Williams of Glenn Road and Precinct 1 submitted an amendment to the Belmont Center warrant article that will be brought before the Special Town Meeting on Monday, Nov. 17 to bond the entire $2.8 million project using a traditional sale of a bond to be paid out of the general fund.

Under the plan submitted in the article, the town proposes to finance the project in two steps; an initial downpayment from the town’s free cash account – sometimes referred to as the town’s “savings account” – of $1.3 million and then issuing a $1.5 million, 15-year bond which will be paid for over the term of the debt from free cash.

Read about the unique way the town will pay for project here.

“Free cash” is typically actual town receipts in excess of revenue estimates and unspent amounts in departmental budget line-items at the end of the fiscal year, plus the unexpended free cash from the previous year.

Last week, the state’s Department of Revenue certified Belmont’s free cash amount at $7,465,000, an increase of $1.3 million from the previous fiscal year.

For Williams and others who both support and are opposed to the project, using the town’s “savings” to finance a capital project that will benefit the residents over many years is not the proper use of the funds.

“Belmont is arguably in serious financial difficulty due in large part to actions taken or not taken by previous and current administrations,” said Williams in an email to the Belmontonian.
Pointing to areas of financial concern such as the millions owed in health care obligations to retired town employees and the lack of financing standard town amenities such as sidewalks and road, “[basically], we are living beyond our means and we are making commitments we can’t keep,” said Williams.
For Williams and others, using “free” cash would be just another example of fiscal irresponsibility by town officials.
“[T]he only responsible thing to do is to issue debt for the entire amount so the so-called “free cash” can be used for existing obligations and the center can be funded by new money,” said Williams.
“Since the Center is not a ‘must have’ project, it should be voted up or down on this point,” said Williams, who will “stand against” the project unless it was fully funded.

At a warrant briefing earlier this month which reviewed the articles on the Special Town Meeting, town officials said the current plan “strike a balance” in using town’s savings so it can bond a smaller portion of the project.

Belmont Town Administrator David Kale said if the entire project is bonded, the town would pay $320,000 in the first year, as opposed to the $168,000 in the first year under the current proposal.