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Duxbury Town's Financial Policy: Budgeting, Reserves & Capital Improvements, Slides of Accounting

Solent UniversityAccounting

The financial management policy for the Town of Duxbury, including guidelines for budgeting, maintaining reserves, and prioritizing capital improvements. The policy emphasizes the importance of a strong financial position for maintaining favorable ratings from bond-rating agencies and ensuring sufficient funds for reinvesting in fixed assets and infrastructure.

Typology: Slides

2021/2022

Uploaded on 09/12/2022

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TOWN OF DUXBURY, MASSACHUSETTS
FINANCIAL MANAGEMENT POLICIES & OBJECTIVES
(Revised and Adopted by Board of Selectmen 8-27-18)
Introduction
The following financial principles set forth the broad framework for overall fiscal
planning and management of the Town of Duxbury’s resources. In addition, these
principles address both current activities and long-term planning. The principles are
intended to be advisory in nature and serve as a point of reference for all policy-makers,
administrators and advisors. Town Meeting retains the full right to appropriate funds and
incur debt at levels it deems appropriate, subject of course to statutory limits, such as
Proposition 2 ½.
The principles outlined in this policy are designed to ensure the Town’s sound financial
condition now and in the future. Sound Financial Condition may be defined as:
Cash Solvency - the ability to pay bills in a timely fashion
Service Level and Budgetary Solvency - the ability to provide needed and desired
services while annually balancing the budget
Long Term Solvency - the ability to pay future costs
It is equally important that the Town maintain flexibility in its finances to ensure that the
Town is in a position to react and respond to changes in the economy and to new service
challenges without measurable financial stress. At the same time the Town must also
guard against Capital Depreciation by planning and ensuring there are sufficient funds
available to reinvest in its Fixed Assets and Infrastructure.
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TOWN OF DUXBURY, MASSACHUSETTS

FINANCIAL MANAGEMENT POLICIES & OBJECTIVES

(Revised and Adopted by Board of Selectmen 8- 27 - 18) Introduction The following financial principles set forth the broad framework for overall fiscal planning and management of the Town of Duxbury’s resources. In addition, these principles address both current activities and long-term planning. The principles are intended to be advisory in nature and serve as a point of reference for all policy-makers, administrators and advisors. Town Meeting retains the full right to appropriate funds and incur debt at levels it deems appropriate, subject of course to statutory limits, such as Proposition 2 ½. The principles outlined in this policy are designed to ensure the Town’s sound financial condition now and in the future. Sound Financial Condition may be defined as:  Cash Solvency - the ability to pay bills in a timely fashion  Service Level and Budgetary Solvency - the ability to provide needed and desired services while annually balancing the budget  Long Term Solvency - the ability to pay future costs It is equally important that the Town maintain flexibility in its finances to ensure that the Town is in a position to react and respond to changes in the economy and to new service challenges without measurable financial stress. At the same time the Town must also guard against Capital Depreciation by planning and ensuring there are sufficient funds available to reinvest in its Fixed Assets and Infrastructure.

A. ACCOUNTING, AUDITING, AND FINANCIAL PLANNING

  1. The Town will utilize accounting practices that conform to generally accepted accounting principles as set forth by the Government Accounting Standards Board (GASB).
  2. An annual audit will be performed by an independent certified public accounting firm. A report on the fairness of financial statements is the main element of the audit.
  3. As part of the annual audit engagement the Town may include random testing of departmental and/or revolving fund income and expenses; to test for compliance, adherence to internal controls, potential mis-statements, and any other items normally reviewed during the course of an audit.
  4. The Town should enter into multi-year agreements of at least three years in duration when obtaining the services of independent auditors. Such multi-year agreements can take a variety of different forms consistent with applicable legal requirements. Such agreements allow for greater continuity and help to minimize the potential for disruption in connection with the independent audit. The Town should consider performing a full-scale competitive process for the selection of independent auditors every 6 years, consistent with applicable legal requirements. The audit team leader at a minimum should be replaced every 6 years as a control mechanism.
  5. A Management Letter, a by-product of an annual audit, shall be provided by the independent public accounting firm to be reviewed by the Audit Committee, as established in the Town By-laws Sec 6.16, no later than March 1.
  6. A five-year financial projection shall be prepared annually by the Town Manager in conjunction with the Finance Director, projecting revenues and expenditures for all operating funds. This projection shall be used as a planning tool in developing the following year’s operating budget and capital improvements plan. Revenue forecasts for property tax, local receipts and state aid shall be conservative, using generally accepted forecasting techniques and appropriate data. Revenue deficits will be avoided at all costs. To avoid any potential for such a deficit, estimates for local receipts (i.e. inspection fees, investment income, departmental user fees) generally will not exceed 85% of the prior year’s actual collections without evidence that revenues are achievable. B. GENERAL FUND
  7. All current operating expenditures should be paid for with current operating revenues.
  8. Debt will not be used to fund current operating expenditures.

i) The Town of Duxbury Capital Improvement plan requires an annual funding of between 40% - 60% of free cash. ii) The Town of Duxbury must continue to provide funding for OPEB on an annual basis. A minimum annual requirement of $300K is recommended. iii) Pension, Unemployment, and Compensated Absences Reserves must be replenished as indicated in the subsequent paragraphs c - e. iv) Remaining amounts of free cash should be used to pay off short-term debt, and for non-recurring emergency expenditures. v) The depletion of free cash, whenever possible, should be avoided since having a balance of free cash at June 30 enables the following years calculation to begin with a positive balance. c) PENSION RESERVE FUND (40 § 5D) - All sums in such fund shall be appropriated for the sole purpose of offsetting fluctuations of Plymouth County Retirement Assessment increases in excess of 5%. The Pension Reserve should be funded annually at a minimum of 0.125% of general fund operating revenues. The Pension Reserve Fund should not exceed $1.5M. d) UNEMPLOYMENT RESERVE FUND (40 § 5E) - All sums in such fund shall be appropriated for the sole purpose of funding reimbursements to the commonwealth for unemployment compensation benefits. The balance of such fund shall not be less than 2 times the average benefits paid out over the last 5 years. e) COMPENSATED ABSENCES RESERVE (40 § 13D) - All sums in such fund shall be appropriated for the sole purpose of funding future payment of accrued liabilities for compensated absences due any employee or full-time officer of the town upon the termination of the employee’s or full-time officer’s employment. Funding for the Compensated Absences Reserve should be determined by the anticipated retirements of town employees. The balance of such fund shall not be less than 2 times the average benefits paid out over the last 5 years. f) OPERATIONAL RESERVE (40 § 6) – The law allows towns to appropriate money into a reserve fund that is overseen by the Finance Committee to provide for extraordinary or unforeseen expenditures. It is recommended that the reserve fund be funded at a minimum of 0.2% of general fund operating expenditures net of exempt debt.

  1. A strong financial position for the Town, as described in 1 above, is vital for maintaining favorable ratings from the bond-rating agencies. Favorable ratings mitigate the Town’s borrowing expenses.
  2. One-time revenues will be used for capital improvements, additions to reserve funds, or as legally restricted to a specific purpose.
  1. EXCEPTIONS: Dire fiscal conditions may affect the year to year implementation of this policy; deviation should be determined as fiscally responsible. The allocations and priorities stated in this section do not mean that additional funds cannot be allocated to the Stabilization and other reserves from free cash; it means that these are the minimum amounts recommended from the certified free cash amount. D. CAPITAL PLANNING
  1. Section 3.B. 5 of the Duxbury Town Government Act states that “the Town Manager shall develop a capital improvement program to be presented to the Selectmen, Finance Committee, Fiscal Advisory Committee, School Committee and Library Trustees in time to be included in the Finance Committee report and Fiscal Advisory Committee report to the next annual town meeting.”
  2. Policies proposed for the Fiscal Advisory Committee are listed below. These policies shall be reviewed by the Fiscal Advisory Committee annually. a. Definition of a capital project: a capital project is a tangible asset or project with an estimated useful life of five (5) years or more, and a cost of $25,000 or more. Among the items properly classified as capital improvements are: i. New public buildings, or additions to existing buildings, including land acquisition costs and equipment needed to furnish the new building or addition for the first time; ii. Alterations, renovations, or improvements to existing buildings that extend the useful life of the existing buildings by at least ten (10) years; iii. Land acquisition and / or improvement, unrelated to a public building, but necessary for conservation or park and recreation purposes; iv. Equipment acquisition, replacement or refurbishment, including but not limited to vehicles, furnishings, and information technology systems ‘hardware and software or other items that combined in purpose together make it a Capital Project; v. New construction or major improvements to Town’s physical infrastructure, including streets, sidewalks, storm water drains, the water distribution system, and the sanitary sewer systems. Infrastructure improvements must extend the useful life of the infrastructure by at least ten (10) years to be appropriately classified as a capital improvement; vi. A feasibility study, engineering design services, or consultant services which are ancillary to a future capital improvement project.

Committee to review the capital plan.

  1. The annual budget should include a Capital Program that includes debt service obligations and cash-funded capital projects funded from current revenues of 2 - 5 % of the estimated property tax levy limit. This does not include capital projects funded via debt exclusions (debt excluded from Proposition 2 1⁄2 limits). If in any year funds for the capital program recommended to Town Meeting are below the target allocation of 2- 5 % of the estimated property tax levy, a plan will also be presented to replenish funding of the capital program to this range within a reasonable timeframe.
  2. The Town will emphasize preventive maintenance as a cost-effective approach to infrastructure maintenance. Exhausted capital goods will be replaced as necessary.
  3. The annual operating cost of a proposed capital project, as well as debt service costs, will be identified before any long-term bonded capital project is recommended. E. DEBT MANAGEMENT
  4. The requirements for debt financing shall be a capital item of at least $100, and a useful life in excess of five (5) years.
  5. Long-term debt will be issued only for objects or purposes authorized by state law.
  6. The term of long-term debt generally shall not exceed the expected useful life of the capital asset being financed. Long-term debt should not be incurred without a clear identification of its financing sources. State law strictly regulates both the purposes for which cities and towns can borrow and the time periods for which these borrowings can occur. Borrowing purposes and maximum loan durations are set out in Chapter 44 §7&8, and, for MSBA purposes, Chapter 70b.
  7. General Fund debt service, exclusive of debt funded from dedicated revenues raised via voter-approved debt exclusions (non-exempt debt), shall remain between 1% and 2.5% of General Fund operating revenues. Roll off of non- exempt debt will NOT be moved to the operating budget. The aggregate of Non- Exempt General Fund debt service, Capital Outlay, and Recurring Warrant Articles shall be constant and increased by 1.5% each year as an inflationary factor so as to provide budget stability with respect to Capital and ongoing needs of the Town. Future consideration should be given to create a Capital Reserve fund as a mechanism to hold such amounts when the annual needs are less than those set by policy.
  8. Whenever possible, long – term financing projects should be bundled into larger debt issuance to provide for more favorable terms and lower issuance costs.
  1. Excluded debt service costs should be less than 12% of tax levy at all times. If above 10%, the Finance Director should develop a plan to bring the excluded debt level to the 10% level as soon as possible, through rapid amortization.
  2. The Town will maintain its practice of aggressively paying down long-term debt.
  3. The Town will meet the requirements of MGL Ch. 44, Section 7. Total debt for projects listed in that section will not exceed 5% of Equalized Valuation
  4. The Town will meet the requirements of MGL Ch. 44, Section 8. Total debt for projects listed in that section will not exceed 10% of Equalized Valuation.