Financial Policy

Financial Policy (approved June 24, 2025)

The purpose of this document is to establish policies designed to manage expenditures and the Town’s financial resources with the goals of:

  • Ensuring the continuous delivery of Town services at a level that is consistent with the reasonable needs and expectations of its citizens.
  • Supporting the acquisition and maintenance of appropriate infrastructure. 
  • Guiding the use of Town financial resources in emergency circumstances.
  • Preserving the Aaa / AAA credit rating from at least two nationally recognized credit rating agencies.
  • Maintaining stable tax rates.
  • Reflecting the Town’s commitment to the Climate Action Plan in budget and capital    expenditure planning whenever reasonable and possible.
  • Enabling people of varied economic means to remain a part of our community.

 This Financial Policy is intended to be used by the Select Board and other executive bodies in preparing budgets, by the Advisory Committee in reviewing and recommending budgets, and by Town Meeting in evaluating and approving budgets. The Financial Policy applies to three principal areas of Town finance: Financial Management, Capital Outlay, and Debt Service.

 General Comment: Where percentages are referenced, two uniform common denominators are used throughout this document. They are:

  • Total Annual Expenditures (TAE): Sum of Warrant Articles 4 and 6 excluding the expense amounts attributable to the Weir River Water System, the Sewer Department, and the South Shore Country Club, which are Enterprise Funds and/or are funded by user fees; and,
  • Operating Budget: Total Annual Expenditures minus Employee Benefits and Debt Service.

FINANCIAL MANAGEMENT

  1. The Financial Policy assumes there is a sound financial control system based on budgeting, monthly financial reporting, and independent verification of the reporting. All financial transactions of the Town shall be recorded in the general ledger under the control of the Town Administrator and Town Accountant. Annual financial statements shall be prepared in accordance with Generally Accepted Accounting Principles. Independent accountants shall audit the financial statements and issue recommendations to improve financial procedures and internal controls. The Town's Audit Committee shall review the work of the independent accountants' periodic audits and report annually to the Select Board and the Town on its findings.
  2. Municipal departmental budgets should be spent in accordance with the uses represented during the annual appropriation process and as approved at Annual Town Meeting.  Surplus balances should not be used to purchase capital items or for other expenditures not contemplated in the budget approved by Town Meeting.
  1. At the end of each fiscal year, all unexpended balances shall be closed into Available Reserves of the General Fund unless encumbered or specifically retained and reallocated via the intra-department transfer process.     
  2. Financial forecasts estimate the Town's revenues and expenditures in the current and ensuing five fiscal years. Forecasts are inherently imprecise and, therefore, should be updated regularly throughout the budgeting process as new information becomes available. The forecasts prepared by the Town Administrator and Town Accountant for the annual budget process begin with a preliminary forecast, which is used to make tentative decisions on budget instructions, borrowing expectations, and capital expenditures.  Periodic and final forecasts, which are the basis for the Advisory Committee's budget recommendations, shall be made available to interested parties on request. These forecasts should include the Town Administrator's budget guidance for the upcoming year. Cautionary statement: Forecasts beyond the next fiscal year are focused on expected revenues. The Town’s real estate tax revenues are restricted to a   2½% annual base growth rate plus real estate tax revenues associated with new growth, absent an override. In accordance with the Town’s “FY24 Override Framework and FY 24-28 Financial Management Plan”, also referred to as the Memorandum of Understanding (MOU), the Town’s expense forecasting beyond the next fiscal year should generally assume a 3.5% annual growth rate in the Operating Budget even though historically expenses have grown at a higher rate. The Forecast Sensitivity Model and the Financial Planning Model  provide analytical tools to enhance forecast sensitivity to higher growth rates and the impact of such higher growth rates on the potential need for budget cuts and/or additional revenue.  The Town should consider extending the MOU beyond 2028 and consider whatever modifications to its terms that might be deemed appropriate.
  3. The Operating Budget incorporates a) an implicit definition of recommended activities and service levels; b) personnel costs at contracted or expected compensation levels; and, c) estimated non-personnel costs, miscellaneous expenses, and those capital expenses that are not funded by borrowing, separate warrant articles, or grants or similar funding mechanisms. The Operating Budget takes into account prior experience, changing operating conditions, and general inflation expectations.
  4. A Reserve Fund allocation of approximately 0.75% of the Operating Budget should be budgeted annually to provide for extraordinary or unforeseen expenditures that could not have been anticipated before Town Meeting and/or to allow immediate expenditures of funds in the event of an emergency.  In the event that experience indicates the 0.75% allocation is inadequate or excessive, appropriate adjustments should be considered. A Reserve Fund Transfer request shall not be used to reverse a vote of Town Meeting.
  5. Fund Balance, also known as Available Reserves or Available Funds, is the accumulation of each year's actual surpluses and deficits. In accordance with the implementation of GASB 54, Fund Balance is classified into five categories: Non- spendable (inherently non-spendable); Restricted (externally enforceable limitations on use); Committed (self-imposed limitations on use); Assigned (limitation resulting from intended use); and Unassigned (residual). The Appendix of this document contains more detailed definitions and examples of these categories. The Town should maintain Unassigned Fund Balance at a level of no less than 16% and as high as 20% of Total Annual Expenditures.
  6. When Unassigned Fund Balance exceeds 20%, the Advisory Committee shall consider recommending that Town Meeting apply such amounts in excess of 20% to items such as:  
  • Capital expenditures
  • Tax relief, including but not limited to a transfer of some portion of such excess to a tax mitigation and/or a capital stabilization fund or funds or other stabilization funds that have been authorized by Town meeting
  • Retirement of debt
  • Unfunded long-term liabilities

If excess Unassigned Fund Balance is used for soft costs (design fees, engineering, environmental, permits, inspections, legal, etc.) in connection with a large capital project, the Town should consider rolling such soft costs into the final financing of the capital project to replenish Unassigned Fund Balance.  Excess Unassigned Fund Balance should not be used to fund recurring Operating Budget items, except as otherwise provided herein. Under emergency circumstances which impact the Town’s operations and resources, the Town should first look to federal and state aid to address those circumstances but, irrespective of the availability and timely receipt of such aid, may consider the use of Unassigned Fund Balance, subject to management controls to be determined by the Select Board, the Advisory Committee, the School Committee and the Town Administrator, to protect and stabilize Town resources and operations, while endeavoring to preserve the long-term financial health of the Town.

  1. Long-term financial obligations and liabilities (contributory retirement, other post-employment benefits (OPEB), and other such obligations as the Town might incur from time to time) shall be funded, at a minimum, as required by law, and also should be funded so as not to burden future generations with unsustainable or disproportionate financial obligations. OPEB should be funded consistent with the most recent actuarial valuation report and, when practical, a catch-up allocation should be considered. Annually, the Town, working with its advisors, should review the reasonableness of the key assumptions that bear on our conclusions about the adequacy of our OPEB funding position.
  2. From time to time, the Town experiences growth in its tax base that can provide increases to annual tax revenues. Since such 'new growth' is cyclical in nature and may slow down or stop as suddenly as it appears, the Town should be cautious in relying on long-term growth assumptions in its financial forecasts and consequent expenditure growth. Caution also should be given to the underestimation of revenue. Forecasts should reflect reasonably anticipated changes in revenue.
  3. New spending initiatives, departmental reorganizations, by-law amendments, property purchases, gifts, and grants can have significant long-term impact on tax receipts and operating costs that may not be immediately apparent. Reasonable efforts should be made to identify such long-term costs for incorporation into future capital improvement plans and Operating Budgets.
  1. Revenues from local receipts shall go to the General Fund, unless Town Meeting decides to dedicate specific revenues to revolving funds or enterprise funds, or unless such revenues are required by statute to be dedicated to specific use(s). As with revenue from new growth, local receipts may be cyclical in nature, and the Town should exercise the same caution in incorporating related long-term revenue assumptions into future financial forecasts.  The Town shall also be conservative in projecting both departmental turn-backs and surplus revenues, recognizing that each such budget element might become vulnerable to economic weakness and tightening budgets.
  1. Unused levy capacity (also known as excess levy capacity) is created when the amount of property taxes levied to taxpayers in a fiscal year is less than the levy limit authorized by law for the same fiscal year. Unused levy capacity reflects fiscal discipline, provides flexibility to address foreseeable and unforeseeable future financial requirements, emergency requirements, and is viewed favorably by rating agencies and others. In addition, where practical, programs that target tax relief to specific segments of the community should be considered.
  2. Unused levy capacity can be reduced or eliminated in future fiscal years by levying up to the levy limit as defined by Proposition 2½; recognizing that elimination of unused levy capacity results in a commensurate year over year tax increase. Accordingly, once unused levy capacity is created, it should be maintained if feasible in future years, i.e., succeeding tax levies should be limited to the prior year actual (vs. authorized) levy plus new growth plus an increase of no more than 2½% adjusted for overrides and debt exclusions.
  3. When unused levy capacity results from levying less than the full amount authorized under a debt exclusion, such unused levy capacity will cease to exist when the excluded debt is paid in full and the corresponding exclusion expires.
  4. The use of unused levy capacity to fund a project or initiative that would otherwise require an override or debt exclusion vote, and the related Town Meeting consideration and subsequent ballot vote, should be avoided.
  5. In its annual report to the Town, the Advisory Committee should provide a reconciliation of the prior year's unused levy capacity to the current year's unused levy capacity, including a comprehensive explanation of any changes from year to year.
  6. Reasonable efforts shall be made to identify the cost and overall budget impact, both initially and in subsequent years, of collective bargaining agreements prior to entering into them. Both initial costs and the projected future growth of such contractual obligations should be considered, incorporated into the Town’s forecast once settled, and made available upon request. 
  7. Proper financial management should include the review and implementation, as appropriate, of the recommendations of the Report of the Sustainable Budget Task Force dated January 31, 2022.
  8. Proper financial management shall include periodic review of methods and opportunities for the generation of revenues from sources other than the tax levy, including an assessment of the best revenue generation practices of similarly situated towns.
  9. Proper financial management shall include recognition that, despite prudent fiscal management, the expenditures necessary to fund the level of services required by the Town may exceed the revenues generated by the Town (principally from the tax levy) on a long-term basis and as a consequence an operational override may be necessary from time to time to reset the Town’s tax levy revenues. An operational override results in a permanent tax increase. Therefore, consideration and careful study should be given to all financial management tools and options to ensure an operational override is the optimal solution. 

CAPITAL 

  1. The capital assets of the Town comprise the Town's physical infrastructure, inherited from previous generations and intended to be passed on to future generations. It is the aggregate property, plant, and equipment used by the Town. It includes assets such as the roads and buildings we use, the harbor which must be dredged periodically, and the equipment needed by our Town staff. We are the current caretakers. It is our collective responsibility to maintain, replace, when necessary, upgrade and/or expand - as directed by Town Meeting - the Town's capital assets.
  2. The Town should maintain a long-term major capital plan in addition to the five-year schedule of capital expenditures from the Capital Outlay Committee.
  3. The Capital Outlay Committee, working in conjunction with the Municipal departments and the School Committee, is responsible for determining which capital assets are required and for recommending a five-year schedule of capital expenditures and the financing required.
  4. Capital assets, for purposes of this Policy, have a useful economic life of more than five years, and cost more than $15,000, or are otherwise classified as fixed assets on the Town's financial statements.
  5. The Town Administrator and the School Committee may choose to establish a lower dollar threshold for Municipal departments and the School Department, respectively, provided that such lower threshold shall not be less than $10,000.
  6. The Town Administrator, School Committee, and Capital Outlay Committee should ensure that individual expenditures that do not meet the aforementioned definition of capital assets are not aggregated or bundled in order to avoid incurring operating expenses.
  7. The scheduled replacement of operating assets and a sound, ongoing maintenance program require that the Town spend funds regularly to keep property and equipment in good operating condition. The absence of maintenance results in shortened life, unsafe conditions, and unexpected expenses. In times of fiscal restraint, it is easy to defer regular capital investments, but this generally proves to be "penny wise and pound foolish.”
  8. Ongoing maintenance and repair costs should be funded through the applicable department’s Operating Budgets. Major maintenance and repair costs that extend the useful life of an asset beyond the original expectation should be viewed as a capital expense, such as a new engine for a truck or new roof for a building.
  9. The Five-Year Capital Plan prepared annually by the Capital Outlay Committee incorporates the construction of and purchase of major capital assets used in normal operations (which are sometimes financed by debt), the regular replacement of operating assets, and the attendant major maintenance and repair of assets. When considering the acquisition or creation of new or replacement capital assets, consideration should be given to the total cost of ownership during the asset's expected life (life-cycle cost).  The Town’s five-year forecast should also provide, as a footnote or otherwise, the debt service anticipated for all capital projects that have been authorized but not yet issued.
  10. The Capital Outlay Plan for any fiscal year, excluding expenditures financed by debt, should budget an expenditure amount equal to between 3% and 6% of the Town's Operating Budget for that fiscal year, except in extraordinary circumstances. Calculation of this ratio shall not include the cost of capital items that are included in separate Warrant Articles presented to Town Meeting. Capital expenditures that are not financed by debt or by dedicated grants should be funded from recurring revenues, departmental revolving funds, user fees (e.g., Sewer Dept.), Enterprise Funds (e.g., South Shore Country Club, Weir River Water System), and the like, and not from Fund Balance (except as specifically discussed in Item 7 of the Financial Management section of this Policy).
  11. The Capital Outlay Committee prepares the Five-Year Capital Plan in a timely manner each year so that both the Select Board and the Advisory Committee are able to incorporate it into their respective budget considerations. Increased operating expenses (which may result from new building construction) or decreased operating expenses (which may result from energy-saving modifications to existing public buildings) should be identified by the Capital Outlay Committee for inclusion in the appropriate departmental Operating Budgets.

 

DEBT SERVICE

  1. The Town Administrator is responsible for managing the Town's debt and maintaining a Long-Term Debt Schedule.
  2. Debt financing of major capital expenditures provides a smoothing effect on both the Town’s annual expenditures and the associated tax levy. Prudent debt financing entails taxpayers paying for the use of capital assets over the timeframe during which those assets are in service, so that the taxpayers who enjoy the benefits also bear the costs. Debt financing, however, should be undertaken prudently, since it burdens future taxpayers by deferring, not avoiding, expenditures.
  3. Debt shall not be incurred for operating expenses. Debt should be reserved for the construction of or purchase of large, non-recurring capital items which have a life of five years or more, and the term of the debt should not exceed the useful life of the asset in accordance with applicable Massachusetts General Laws.
  4. The objective of debt management is to borrow funds when needed and at the lowest possible cost. It is a corollary that good cash management, including the timely billing and collection of taxes, reduces the need for borrowing.
  5. The repayment period of debt should, where practicable, approximate the useful life of assets acquired. By matching the debt term with the useful life, the cost of an asset is borne by those who will benefit from the asset. Accordingly, capital assets are typically financed with long-term debt that has a fixed interest rate for the life of the debt.
  6. There may be occasions where short-term borrowing, i.e., debt requiring repayment in one year or less, may be appropriate in order to take advantage of lower interest rates.  While short-term debt can result in significant savings, there can be risks, especially in periods of interest rate volatility. The ratio of short to long-term debt should reflect the rating agencies' guidance.
  7. In preparing the debt service component of the Town's budget, the Town Administrator, in consultation with the Town’s external financial advisors, should include a thorough analysis of the risks and benefits associated with the Town's financing posture. This analysis should be presented to the Select Board and Advisory Committee as part of annual budget deliberations. The Town Administrator should provide an update of such analysis to the Select Board and Advisory Committee within 90-120 days prior to any issuing or refinancing of debt.
  8. The Town's bond rating is a statement of the Town's overall financial health as a government and a community and of the quality of the financial management of the Town. An excellent bond rating is desirable because it determines the cost of borrowing, the level of investor interest in the Town's bonds, and, in certain economic conditions, the ability to borrow at any cost. The Town's capacity to incur debt is determined, in part, by its ability and willingness to meet debt-service requirements without disrupting the scope and level of public services which are expected by the citizens of the Town. Therefore, the Town should maintain the Aaa / AAA bond rating, which is the highest possible rating.
  9. The decision to fund capital expenditures by current taxes, a Capital Debt Exclusion (also current taxes), or debt, generally should be determined by the dollar amount and the life of the asset, e.g., a new building is a more likely candidate for long-term debt than is a new computer. Consideration should also be given to the overall net increase in property taxes or to offset expenses when a Capital Debt Exclusion is proposed.
  10. By statute, the Town may not issue, or have outstanding at any one time, debt exceeding 5% of the value of taxable property in the Town. Debt issued under M.G.L. Chapter 44, Section 8 (e.g., debt issued by the Light Plant, the Weir River Water System, or other non-tax supported unit but guaranteed by the Town) and M.G.L. Chapter 70B (e.g., debt issued for MSBA school construction) is not legally included within this limitation but should be included for purposes of this Financial Policy. The Town should maintain average annual debt service (repayment of principal and current interest) for borrowings at a level equal to approximately 5.0% of Total Annual Expenditures, or less, and annual debt service should not exceed 10% of Total Annual Expenditures for any extended period of time.  Where practical, the term of the debt issued by the Town should be less than 20 years, ensuring that the ratio of 10 years of debt service to original borrowing is in excess of 75%, a metric favored by the rating agencies. The term of the debt should be informed by the anticipated life of the asset in compliance with applicable Massachusetts General Laws.
  11. In the case of loans with level principal payment terms, annual debt service payments for municipal debt decline each year, reflecting lower interest expense on the declining loan balance. The annual reduction in debt service attributable to municipal non-excluded debt should be set aside in the Town's Operating Budget.  Any such unused non-excluded debt capacity that is set aside should be tracked in a Committed account in Fund Balance and should be used for non-excluded debt service or capital purchases.  If the balance in this restricted account is deemed excessive, any excess should be applied to unfunded long-term liabilities, capital expenditures, retirement of debt, or tax relief. It should not be used for operating expenses.
  12. The Report of the Advisory Committee to Town Meeting shall describe the status of the Debt Service Program by comparison to the Financial Policy and how the Five-Year Forecast may impact the Town's debt capacity and bond rating.  The Report should also describe the accumulated municipal non-excluded debt service reductions that have been set aside in Fund Balance.

REVIEW

This Financial Policy is intended to be used to guide the management of the Town’s expenditures and financial resources, and, therefore, it should be flexible enough to accommodate changing social and economic conditions. It is appropriate for the Advisory Committee to review this Financial Policy in its entirety at least every three years, and, in consultation with the Select Board and the School Committee, make adjustments as required.

APPLICATION

The Financial Policy shall not conflict with Town By-laws, federal or state laws. This document is a policy recommendation of the Advisory Committee and, as such, is not binding on the Town. If the Policy is determined in whole or in part to be in conflict with Town By-laws, federal or state laws, then those laws will prevail.

 

ADVISORY COMMITTEE – Approved by a unanimous vote on June 24, 2025.

Tina Sherwood, Chair
Carol Tully, Vice Chair
Kevin Freytag, Secretary
Brenda Black
Alan Macdonald
Joseph Griffin
Kathleen Curley
Brian Stack
Steven Pohl
Ted Ciolkosz
John Germain
Elaine Cusker
Jerry Seelen
David Leiphart
Ben Lee


Appendix: Components of Fund Balance

Category 

1. Non-spendable fund balance: Amounts that cannot be spent because they are not in spendable form or because they are legally/contractually required to be intact. Examples of items in this category include inventories and pre-paid expenses.

2. Restricted fund balance: Amounts that can only be spent for specific purposes as stipulated by law or by other external resource providers (creditors, grantors).

3. Committed fund balance: Amounts that can only be used for specific purposes as determined by formal action taken by the highest level of decision-making (Town Meeting). Examples of this category include stabilization funds.

4. Assigned fund balance: Amounts that are intended to be used by the Town for specific purposes, do not meet the criteria to be classified as restricted or committed. Items that are encumbered from one year to the next are an example of this category.

5. Unassigned fund balance: Total fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes.