Town
Meeting Finance Terms
March 31, 2005
CHERRY SHEET: Printed on cherry pink paper, this annual statement
from the Massachusetts Department of Revenue lists estimated state
receipts to the town for the coming fiscal year and estimated county
and state charges payable by the town. The figures are used by town
assessors in setting the tax levy.
FINANCE COMMITTEE: This elected body reviews all budget requests
and gives recommendations on warrant articles. It is the sole entity
that transfers from the reserve fund. The power of its recommendations
rests on members’ ability to make a persuasive argument on
the town meeting floor.
FINANCIAL BUDGET: The annual warrant always calls for approval
of the town’s OPERATING (DEPARTMENTAL) BUDGET for the coming
fiscal year. It includes line item budgets for every town department.
It may be amended from the floor by majority vote.
FREE CASH: “It’s the amount you have in your checkbook
after you’ve paid your bills,” says one selectman. Once
referred to as AVAILABLE FUNDS, free cash is the balance remaining
after the town has satisfied its debts. It does not include the
amount of unpaid property taxes even if these are due. The amount
is certified to the town by the state director of accounts effective
July 1 of each year. Free cash can be appropriated out by a majority
town meeting vote.
GENERAL FUND: Comprises money from operating budget and warrant
articles. Town also has a SPECIAL REVENUE FUND for income from grants,
gifts, and other sources; TRUST FUND includes bequests and income
to stabilization fund; AGENCY FUND includes money held but not to
be used by the town such as escrow deposits.
LEVY LIMIT: Amount the town is entitled to raise and appropriate
in a given fiscal year not relying on a proposition 2.5 override.
MEETING THE COSTS: The town has three ways to obtain funds to
cover expenditures (1) RAISE AND APPROPRIATE articles on the town
meeting warrant that take money raised by taxation and put it toward
a specific expense. Requires a majority vote; (2) FREE CASH TRANSFER
by majority vote; (3) BORROWING through a bond issue or notes, usually
used for a capital expenditure such as construction project or equipment
purchase. Warrant article asks voters to appropriate the sum and
authorize treasurer, with approval of board of selectmen, to borrow.
Requires a two-thirds majority vote.
PROPOSITION 2.5: Enacted by the Massachusetts legislature
in 1981, this measure stipulates that towns can increase their budgets
by only 2.5 percent over the preceding year.
PROPOSITION 2.5 OVERRIDE: In instances when a town calculates
all its income and expenditures and finds the bottom line shows
an increase larger than 2.5 percent, a ballot vote is required for
approval.
A GENERAL OVERRIDE seeks approval for going beyond the 2.5
percent spending limit for the budget as a whole. The increase becomes
a permanent part of the base on which the budget is calculated.
Some towns have instituted a MENU OVERRIDE system, in which voters
can pick and choose which capital expenditures they would approve
beyond the spending cap.
Voters are sometimes asked to EXEMPT certain expenditures, such
as long-term capital projects, from the 2.5 limit. Known as a CAPITAL
EXCLUSION or DEBT EXCLUSION, this allows the town to assess taxes
in excess of the levy limit. The amount does not become a permanent
part of the levy limit base. It allows the town to assess taxes
for a specific period of time to pay for capital expenditures or
service debt payments. Island towns routinely exempt school construction
projects from the 2.5 cap.
RESERVE FUND: An account to be used for transfers for “extraordinary
or unforeseen” expenditures by town departments. The amount
is appropriated by voters at annual town meeting. Departments request
an appropriation from the finance committee, which controls the
fund.
SCHOOL BUDGETS: Each town must approve its share of the Martha’s
Vineyard Regional High School budget which appears separately on
the warrant. Approval by at least four towns is required. In addition,
three up-Island towns act on the Up-Island Regional School District
budget; Edgartown, Oak Bluffs, and Tisbury vote on their own individual
school budgets.
STABILIZATION FUND: A “rainy day” savings account,
a trust fund, sometimes used to hold appropriations toward future
expenditures. Balance may not be more than 10 percent of the previous
year’s budget. Earned interest is added to the account. Funds
from this account may be used for any lawful municipal purpose and
may be appropriated at town meeting by a two-thirds majority vote.
TAX RATE: Town’s net expenditures minus estimated receipts
divided by total valuation of the town as determined by the assessors.
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