Friday, June 23, 2006
Proposed account maximums raise concerns
How much money should Carlisle keep handy? A proposal for minimums and maximums on liquid assets, presented by the Board of Selectmen (BOS) to the Finance Committee (FinCom) on June 13, raised concerns that guideline maximums could leave the town open to a shortfall. By setting upper and lower limits on accounts holding funds that are easily accessible, the Selectmen hope to keep adequate balances available for unforeseen circumstances, while avoiding excessive amounts sitting unused.
BOS Chair Doug Stevenson, defending the proposal, said, "It concerns me that in passing an override we're asking the taxpayer to pay more" while possibly maintaining larger-than-needed balances in town accounts. He later added, "This is not meant to be a criticism" of the town's financial management because "we're already doing many of these things."
The plan looked at four accounts: the Stabilization Fund, equivalent to the town's savings account; Free Cash, a fund built up from the overages when town receipts exceed expenditures; the Overlay Account, a set-aside for unpaid taxes; and the Reserve Fund, a one-year set-aside for unforeseen needs. The Stabilization Fund and Free Cash can only be appropriated by a vote at Town Meeting, while the Overlay Account is released by the Assessors and the Reserve Fund is appropriated by the FinCom after funding at Town Meeting. The proposal pegged a minimum and maximum for each account based on a percentage of the operating budget (now about $20 million), with additional minimums and maximums for the Stabilization and Free Cash funds combined.
Financial Manager Larry Barton made a case for higher cash reserves. He reported that Carlisle's bond rating might be raised if 20% of operating expenses were kept in reserve, versus the current 11%. The difference could be one-quarter point in interest, "which could be real money" given the amount of borrowing the town foresees over the next years.
FinCom member David Trask also questioned the account maximums, "I don't understand this sense around there being too much cash." He said "interest rates are going up" and "the upper limit of 6% (on the combined Stabilization and Free Cash funds) is quite restrictive." He suggested future capital projects will have 20-or 30-year paybacks on investments (such as schools) that will serve the community for a longer time. "The Stabilization Fund could have a role in smoothing that out" if built up to provide a source for partial debt payment so that "one set of taxpayers isn't saddled with carrying this debt."
FinCom Chair Thornton Ash noted another potential area for applying funds to smooth the ride is the high school assessment, which changes year-to-year due to varying class sizes. Also, the account maximums need to be adjusted for funds held against expected contingencies, such as the set-asides for pending litigation and land-debt payments currently held in the Stabilization Fund. Stevenson noted the maximums could be exceeded if "there were a reasonable foreseeable event for which the fund might be suitable."
Selectman Tim Hult did not feel the Stabilization Fund would be useful for debt payments because "$1 million is not going to make a difference in [paying off] a major capital project." But he did anticipate the town could be facing "different times" in which "a large amount of cash could be needed fast" for an unforeseen expense or immediate opportunity, such as a land purchase. He noted the Stabilization Fund used to have a much higher balance, but a few years ago "the Selectmen decided it was too much cash and it was drawn down."
Town Administrator Madonna McKenzie questioned if the Overlay Account should be considered liquid since "it is truly encumbered" because funds are "held against taxes that haven't been paid" and "it's not clear the money can be used elsewhere." Stevenson noted the value of a maximum on that account is that it warns the Assessors "not to lose sight of excess overlay" which should be released to the Stabilization Fund.
Ash agreed a guideline on accounts would be "helpful to have." Stevenson summarized the results of the discussion, noting there was general agreement "a 5% minimum is the right place" for the combined Stabilization/Free Cash amount and "3-5% is probably a reasonable level" for the Stabilization Fund, though he noted the concern that "there should be no cap, or the cap is too low." He will meet with the Board of Assessors and prepare a new draft of the document for future review.
Suggested limits for Town's Liquid Assets
Fund Minimum Maximum
Stabilization 3% 5%
Free Cash 1% 3%
Stabilization + Free Cash 5% 6%
Overlay (non-assessment years) 0.5%
Overlay (assessment years) 1%
Reserve Fund 0.5% 0.75%
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