The Commonwealth of Massachusetts’ Dept. of Revenue, Division of Local Services publishes all sorts of advice for towns on how to do things, and this was an article from its latest newsletter, on the amounts of reserves a town should have.  DLS says reserves should be 5-7%, and I recall Mike Sullivan saying the rating agencies (such as Moody’s) saying they wanted us to have 10%.  Our free cash has been about 2-3%, and I do not know what stabilization funds they would include.

Ask DLS
City and Town Editorial Board

Is there a best practice target a community should have for the amount in a stabilization fund?

At DLS, we have historically recommended that cities and towns set aside a combined free cash and stabilization fund balance of between five to seven percent of the total annual budget. However, we recognize that current economic circumstances, financial management constraints and political obstacles can make building and retaining reserve levels within this range unrealistic.

Even so, municipal rating agencies in recent years have advocated for reserve levels closer to ten percent in order to provide adequate resources during times of fiscal stress and to generally mitigate risks. Using the state-wide average as a benchmark, communities across Massachusetts have averaged almost six percent in combined reserves over the last ten years, and just over 6.7 percent in FY2012.

Dollar amounts also come into play when a municipality commits to increasing its reserves.  Reaching and sustaining a five to seven percent reserve balance may involve setting aside additional millions of dollars. This may not be a realistic goal. Decision makers must then carefully consider whether the potential need for reserves can be satisfied by a healthy dollar balance, which may not necessarily meet percentage targets.

In any case, we encourage cities and town to adopt formal policies that define adequate reserve levels based on a community’s particular needs and circumstances. For more information on stabilization funds, free cash and other municipal finance topics, visit our best practices webpage. Also, many municipalities post reserve policies that can provide useful guidance.

This from the Massachusetts Municipal Association –

July 12, 2013

GOV VETOES $177M FROM LOCAL AID

Gov. Patrick Signs FY14 State Budget, But Slashes $177M from Unrestricted General Government Aid (UGGA), Citing Lack of Revenues From Trans. Tax Package

Speaker DeLeo Immediately Pledges that Lawmakers “Will Protect the Cities and Towns of Massachusetts”

Please Contact Your Legislators Immediately and Ask the House and Senate to Override the Local Aid Veto and Restore the $177 Million for Cities and Towns

Governor Patrick today signed the state’s $34 billion fiscal 2014 budget into law, but imposed a massive $177 million veto in Unrestricted General Government Aid (UGGA), as well as $240 million in transportation-related vetoes.  The Governor said he made these cuts because the budget on his desk relies on approximately $450 million in new tax revenue from the transportation finance package, and those funds are not yet guaranteed.

The Governor’s veto would slash unrestricted municipal aid down to 1986 levels and create widespread fiscal distress in nearly every city and town.  The veto would reduce direct local aid from the $920 million passed by the Legislature down to $743 million, a 19 percent cut that would also result in the diversion of $110 million in local Lottery funds away from cities and towns, and use those dollars to balance the state budget instead of funding local services, as originally intended in state law.  If this veto is allowed to stand, communities will face an unexpected, undeserved and devastating fiscal crisis.

In general, other local aid accounts were approved as passed by the Legislature, including a $130 million increase in funding for Chapter 70, $10 million more for the Special Education Circuit Breaker, and a $6 million increase for regional school transportation.

The MMA has issued a statement opposing the Governor’s local aid veto and calling on the Legislature to immediately override the $177 million cut.  Click here to read a copy of the MMA’s statement.

Before the ink was dry on the Governor’s veto message, House Speaker Robert DeLeo issued a statement pledging to restore the local aid cut.  The Speaker said “the House of Representatives will protect the cities and towns of Massachusetts.  We passed a budget that addresses key transportation needs, provides funding to our municipalities and makes key investments in higher education and community colleges, and we will again vote next week to maintain that commitment.”

All observers expect that the transportation tax package will eventually become law, with or without the Governor’s signature, and it is also expected that the Legislature will vote to override the $177 million local aid veto.  However, the Governor’s veto has created significant uncertainty and budget disruption.

Two weeks ago, the Governor returned the transportation tax bill to the Legislature, asserting that $135 million in MassPike toll revenues might not be available in 2017 (an issue that was not addressed or raised in any of the plans originally offered by the House, Senate or Governor).  The Governor attached an amendment to automatically increase the gas tax by $135 million a year if the Weston-to-Springfield tolls come down in four years, and sent the bill back to the Legislature for a vote, even though legislative leaders announced that they would oppose the further tax increases in the amendment.  By returning the tax bill to the Legislature, the $450 million in new revenue was delayed until after the deadline for signing the state budget, and the Governor chose to veto over $400 million from the state budget to “bring it into balance.”

Legislative leaders are now scheduling formal sessions to override the Governor’s tax amendment and expected veto of the final tax bill, as well as voting to override any related budget vetoes, including the local aid veto.

THE NEXT TWO WEEKS ARE CRITICAL:

The Legislature is already planning on debating and likely rejecting the Governor’s tax amendment on Wednesday (July 17) and Thursday (July 18) of next week.  After that, the Governor will have ten days to decide whether to sign or veto the final tax package.  The Legislature is expected to override the tax package veto and then turn to consider overriding any related budget vetoes.

After the new tax package becomes law (with or without the Governor’s amendment or signature), the Legislature will then move to vote on whether to override the local aid veto.  Depending on several factors, this could occur during the final days of July, according to the latest schedule of formal sessions announced by legislative leaders.

PLEASE CONTACT YOUR REPRESENTATIVES AND SENATORS AND CALL ON THEM TO IMMEDIATELY OVERRIDE THE $177 MILLION LOCAL AID VETO. 

Please tell your legislators that cities and towns cannot afford any cuts to local aid:

• Communities have set their budgets based on the local aid levels in the Legislature’s budget, and this veto will translate into fiscal distress for cities and towns;

• If this cut is actually imposed, communities will be forced to implement sweeping reductions in vital services, including police and fire protection, education, public works, libraries and much more.  Cities and towns would lay off thousands of municipal and school employees, and increase their reliance on regressive property taxes; and

• The Governor’s local aid veto would reduce direct local aid from the $920 million passed by the Legislature down to $743 million, a 19 percent cut that would also result in the diversion of $110 million in local Lottery funds away from cities and towns, and use those dollars to balance the state budget instead of funding local services, as originally intended in state law.

Please Contact Your Legislators Immediately and Ask the House and Senate to Override the Local Aid Veto and Restore the $177 Million for Cities and Towns