Town budget basics
by Betsy Fell
Head get foggy when talk turns to municipal finance? Town Finance Director Larry Barton recently sat down with the Mosquito reporters to review some of the basics of town finances.
The yearly budget for town government and the public schools is funded through a combination of property taxes, state aid and local receipts (like permit fees.) The budget is voted by Carlisle’s Annual Town Meeting each spring and goes into effect on July 1, with the start of the new fiscal year. Any Carlisle resident age 18 or over can attend Town Meeting, participate in the discussion and vote. Questions considered by Town Meeting are presented as a list of Warrant Articles.
Several groups participate in preparing the budget: The Board of Selectmen must approve the inclusion of each question on the Warrant. (The board may oppose the substance of the question, but agree nonetheless to place the question on the Warrant for Town Meeting consideration.)
The Finance Committee (FinCom) advises the Selectmen on how to produce a balanced budget. In the months leading up to Town Meeting, FinCom meets with town departments, schools and the Long-Term Capital Requirements (Long-Term Caps) Committee and issues spending guidelines. Barton explained that for a number of years there has been an effort to keep spending by town departments reasonably constant, with the exception of wages, which have risen roughly 2% a year.
Long-Term Capital requests may include items such as police or DPW vehicles or technology replacement at the Carlisle School. Each department focuses on its specific funding needs, but the Selectmen, FinCom and Long-Term Caps Committee look at how all the pieces fit together.
Another major player in the town budget process is the Community Preservation Committee (CPC). Unlike the other town boards and departments that are funded through the regular tax base and the town’s General Fund, the CPC is concerned with a separate income stream raised through the Community Preservation Act (CPA) surcharge on real estate taxes. The state typically provides a grant to match a percentage of local CPA revenue. CPA funds can be used only for the purposes of open space and historic preservation, public recreation and community housing. Once a year, the CPC reviews applications for CPA funding submitted by town departments and private groups, recommending some to Town Meeting for final approval.
Tax terms and Proposition 2-1/2
Massachusetts General Law known as “Proposition 2-1/2” restricts the ability of towns to increase real estate taxes. It sets a levy limit, a cap on the rise in the tax levy to 2.5% of the previous year’s base levy, plus tax revenue from “new growth.”
New growth includes additions to the town’s taxable property due to home construction, additions, added swimming pools, etc. Since the exact amount of new growth is not known until the old fiscal year ends, an estimate of new growth is used during budget planning.
Prop. 2-1/2 also sets a levy ceiling: the base tax rate cannot exceed $25 per $1,000 of property valuation.
There are three ways to raise taxes above the base levy allowed under Prop. 2-1/2: levy limit overrides, capital exclusions and debt exclusions.
A town can raise taxes more than 2.5% by passing a levy limit override. An override of Prop. 2-1/2 must be approved both at Town Meeting and at Town Election. If passed, the override will permanently enlarge the base tax levy.
Though smaller items (such as police cruisers) are typically funded in the operating budget, Barton explained that a capital exclusion can be used to purchase something more expensive, if the town is willing to pay for it as a one-year lump sum added to the tax bill. This is rarely used in Carlisle.
More common is a debt exclusion, where major expenses (eg. fire trucks and school building projects) are financed by selling long-term bonds. A debt exclusion under Prop. 2-1/2 requires approval both at Town Meeting and at Town Election.
A debt exclusion does not change the base levy calculation, though it will increase the net tax rate for several years until the debt is repaid. For instance, last year the town’s operating budget did not rise above the 2.5% limit set by Prop. 2-1/2, but because of debt payments, primarily for the school building projects, the town’s net tax rate rose 3.9%.
Other funding sources
In addition to real estate taxes, the town gets funding from state aid and local revenue receipts. According to Barton, the roughly $28 million budget includes about $800K in local receipts and a little over $1 million in various forms of state aid. Local receipts include motor vehicle excise taxes (collected by the state and returned to the towns), as well as local fees for things like fees and dog licenses.
The AA1 town’s bond rating is based in part on the size of the town’s financial reserves. The town’s reserves include the Stabilization Fund, the Reserve Fund, and Free Cash. Used primarily for non-recurring expenses, the Stabilization Fund can be used for any purpose, with fund transfers controlled by Town Meeting vote.
The Reserve Fund is used to handle unexpected expenses, such as snow and ice removal in an unusually snowy winter. (Town Meeting sets the funds aside, which are not to exceed 5% of the previous year’s tax levy.) Reserve Fund disbursements are made by the FinCom. If the town’s budget has unspent funds at the end of the fiscal year, the funds go into the Free Cash account. After certification by the state, the funds are available to use in a future budget year.
Additional terms are defined on the Mosquito website at www.carlislemosquito.org, under Archives — Resources. ∆