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Financial Policy Statement

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					                           Financial Policy Statements

Introduction. The Board of Selectmen is the major policy setting board for
executive decision making in Town. Over the years various boards of selectmen
have set policies regarding Town finances, but this is the first time that a
comprehensive articulation of fiscal policy has been adopted and put into use.

A comprehensive Financial Policy Statement ought to consider all major areas
affecting Town finances including taxation, user fees, legislation affecting Town
finances at the state and federal level, grants, annual operating appropriations,
financial forecasting, capital expenditure, debt financing, fund balance, compensation
and collective bargaining, energy policy, risk management and procurement. The
policies should provide guidance for the complex process in which elected officials,
the Warrant Committee and Town Meeting play significant roles in determining the
Town’s current and future financial condition. Its objectives should be to control the
cost of government through the application of best management practices, careful
monitoring of “budget busters” and creation of a more efficient organization.

1. Annual Operating Appropriations. Also known as “the budget”, this is
ultimately determined by Town Meeting and in some cases the voters of the Town,
but the Selectmen also play an important role. Stability is extremely important to
any organization. Fluctuation in funding levels from year to year needs to be
minimized because it affects the confidence of property owners and financial
markets. In addition, Town residents should be able to expect that certain levels of
service, except in extraordinary circumstances, are maintained from year to year.

Budget Policy Statement: The annual Town budget should reflect an agreed
upon level of Town services. When economic conditions require reductions,
such reductions should be made in a manner that recognizes the importance
of all Town services.

2. Multi-year Budget Forecasts. In FY2006, an ad hoc committee
consisting of the Town Administrator, the Town Planner, the Superintendent of
Schools and two department heads, with the assistance of the Town Accountant,
prepared a five year budget estimate, relying upon departmental estimates of their
needs going forward and a five year revenue history. This forecast was updated by
the Town Accountant in 2007. Town officials agree that budget forecasting is a
useful tool that should be undertaken each year. Because this is a new process for
us, we have prepared a policy statement that is partly procedural.

Budget Forecasting: Town Departments should submit budgets in a timely
fashion according to the schedule in the Town of Milton Bylaws which
currently requires submission by December 1st. Individual departmental
budget requests should include the amount that will be needed to maintain
level service for the next two years. In addition departments should
describe the reductions in the level of service that they would incur in the
next fiscal year with a level dollar budget.

Such budgets and estimates of expected revenue based on a five year
history will be used to prepare an updated five year budget forecast of
expenditures and revenues in January of each year or as soon thereafter as
possible. Preparation of the forecast will be the responsibility of the Board
of Selectmen but will be accomplished in a collaborative process with the
Town Accountant, the Town Treasurer, the Warrant Committee and other
elected and appointed officials and department heads.

3. Capital Appropriations and Debt Service. The Town of Milton bylaws require
a capital planning committee be appointed by the Board of Selectmen annually.
Members include the Town Accountant, a member of the Board of Selectmen, a
member of the School Committee, a member of the Warrant Committee, a member
of the Planning Board and two citizen members. The committee believes that timely
maintenance of the Town’s capital assets and infrastructure is necessary to prolong
the life of these assets and to protect their value. Failure to maintain on an
appropriate schedule shortens the useful life of the asset and in the long term leads
to higher costs for maintenance and/or premature replacement. In its planning
efforts the committee is looking for ways to bundle capital requests from various
departments to help leverage the Town’s purchasing strength. The Town has
undertaken a $150 million capital investment in its school buildings over eighty
percent of which is being paid for by grants from the Commonwealth of
Massachusetts. Most of the remaining cost is paid for by borrowing over the levy
limit with some additional gifts and some borrowing under the levy limit. Annual
expenditure on the debt service for these projects, combined with other smaller
capital improvement projects, is a little more than five percent of our operating
budget in fiscal year 2007. In addition the Town is about to begin a $12 million
library renovation project which will be supported equally by over the levy limit debt,
a state grant and private fundraising.

Policy on Capital Appropriations and Debt Service: The Town should spend
a minimum of five percent of its annual operating budget each year,
averaged over a period of ten years, on capital maintenance, replacement
and improvements. This expenditure includes the cost of debt service, both
under and over the levy limit, for capital improvements. At no time should
debt service exceed the maximum allowed by law. This five percent
calculation is to be made exclusive of enterprise funds and grants. Funds
should be appropriated each year as cash, or towards the payment of
principal and interest to fund capital improvements as approved by the
Annual Town Meeting. Debt service for capital improvements under the levy
limit should remain level from one year to the next, with new debt added
only as debt is retired.

4. Reserve Levels. Historically, the Town of Milton has had reserve levels under
five percent of total government expenditures. While dramatic change in our
reserve levels may not be possible, we do want to achieve stability in our reserve
levels and we would like to increase the level of reserves when possible when “one-
time” funding becomes available. The Board of Selectmen recognizes that further
work must be done to determine a realistic and specific goal for reserve levels to
support the annual operating budget, and we intend to continue to work on this issue
during FY2008. This work will include considering appropriate goals for the
stabilization fund, the capital stabilization fund and undesignated reserves.

Reserve Policy: Reserves should not be used without a plan to restore
them. When one-time funding becomes available, a primary consideration in
deciding how to appropriate the funds should be to increase the Town’s
reserves. One-time funding should not be used to support the operating
budget. The Town’s reserves should be maintained at a consistent level.
Funds maintained by the Town , such as the health insurance trust fund and
the Assessors’ Overlay Account, which are not considered reserves, should
be monitored to ensure that reserves are adequate but not over-funded.

5. The Reserve Fund. The Reserve Fund is funded by Town Meeting and is to be
used for extraordinary and unforeseen financial needs, as required by state law, not
for supplementary funding for departments. The Warrant Committee must approve
requests for expenditures from the reserve fund.

Policy on expenditures from the Reserve Fund: Expenditures from the
Reserve Fund must be as defined by state law: for extraordinary and
unforeseen purposes.

6. Compensation and Collective Bargaining. Salary and benefits account for
the lion’s share of most departmental budgets. Benefits alone accounted for 13.8%
of town expenditures in fiscal 2006. The salary line of the Police and Fire is 91.9% of
total spending for those two departments. Therefore, how the Town conducts its
collective bargaining has serious financial implications.

Compensation and Collective Bargaining Policy: The Town will negotiate
with employee groups in good faith and strive to create an atmosphere of
mutual respect and trust. Management must be cognizant of the financial
capacity of the Town when making and/or accepting proposed wage
increases and benefit changes. During negotiations and prior to ratification
of collective bargaining agreements, the cost and all current and future year
impacts of wage and benefit changes should be evaluated and that
information should be incorporated into our financial planning process.

7. Energy Policy. The cost and long-term reliability of oil and natural gas has
become an issue of national proportion. The Town of Milton is not exempt from the
challenges presented. The Milton Energy Task Force noted that the total energy
expenditure in the Town for fiscal year 2005 was $1,570,915, or approximately 2.5%
of total expenditure. Gasoline, oil, and natural gas prices experienced significant
increases over the first half of fiscal year 2006, placing further stress on our budgets.
Factors that have mitigated against sudden fluctuations in market prices include
cooperative procurement of gasoline and diesel fuel, the practice of entering into
long term electric supply agreements at fixed prices, installing energy efficient
fixtures, a “green building” approach to some new buildings when cost effective, and
building improvements such as new windows.

Energy Policy: The Town, through an energy task force, will annually review
the cost effectiveness of energy saving strategies and technologies. The
Task Force will provide the Board of Selectmen with recommended changes
early in the budget process. The Town should take advantage of all
available grant programs and work with advocacy groups to promote energy
savings.

8. Risk Management. Like any large organization, the Town of Milton experiences
exposure to risk. Insurance is one important tool, but not the whole answer.
Managing risk also requires being proactive with education and training of employees
and officials and active in decision making regarding claims.
Risk Management Policy: The Town will annually review its risk
management coverage, prevention practices and financial controls and will
be proactive in incorporating best practices according to industry standards.

9. Procurement. Several statutes govern the procurement of goods and services
including Massachusetts General Laws Chapters 30, Subsection 39M, 30B and 149.
These statutes are in place to promote competition, the lowest possible price, and to
discourage favoritism. The Town needs to ensure that it has the appropriate legal,
financial and administrative systems in place to comply with the law. Within this
context, our goal is to obtain the best possible value for the Town while considering
our cash flow needs.

Procurement Policy: Appropriate management support should be available
to ensure that all procurement complies with the law and achieves the best
possible value for the Town, taking into account cash flow and overall cost.

10. Legislative Issues affecting the Town’s Financial Position. Net state aid
is currently roughly 10 percent of Town revenues. In the era of proposition 2½, the
loss of this aid and changes in state assessments have potentially debilitating effects
on the Town’s ability to provide services. Federal aid has been absent in recent
years, but a policy should be in place to address at least the possibility of this aid.
Other legislative initiatives have the potential to affect the Town’s balance sheet as
well. Vigilance and advocacy need to be central in our policy.

Policy on Legislation Having Financial Impact: The Town will provide
financial information each year to its legislative delegation and the public to
support the need for state and federal aid and to evaluate the impact of any
other legislative initiatives, including unfunded mandates having a financial
impact. The Board of Selectmen supports and encourages the Town’s
management to actively participate in organizations, such as the
Massachusetts Municipal Association, which advocate for the financial
support of cities and towns.

11. Grants and Gifts. Grants and gifts are important sources of revenue.

Grants and Gifts Policy: The Town’s management shall monitor and
periodically review all grant programs that are available to communities.
Management will encourage and seek out philanthropy for appropriate
purposes, including capital expenses. When gifts are accepted, appropriate
records will be maintained to show that the gift has been used for the
intended purpose.

12. Revolving Funds. The use of revolving funds has increased. In recent years
revolving funds have supplemented some departments’ appropriations by enabling
them to apply revenues generated through user fees and other sources to specific
expenses. Most revolving funds are approved at the Annual Town Meeting. It is
important to review the operation and overall value of our revolving funds in our
annual budget process. Risk management procedures must be followed scrupulously
with revolving funds, which often involve the collection of large amounts of cash.

Revolving Fund Policy: Revolving funds will be reviewed by the Town
Accountant and the Warrant Committee annually to ensure that each
complies with State law and follows proper accounting controls and that its
continuation is appropriate within the context of the whole Town budget.

13. User Fees. The Town relies on many forms of fees. User fees for water, sewer
and solid waste generate millions of dollars per year in needed revenues. Annual
review of user fees is anticipated in this policy statement and will be conducted by
the responsible department each year as part of the budget process. Any increases
in rates will be requested along with the appropriate supporting information as part
of the department’s budget request.

Policy on User Fees: The purpose of user fees is to raise the revenue
needed to provide a service. User fees will be evaluated annually in the
context of the overall budget. The Town will report the amount, type and
proportion that user fees represent of the annual operating budget each
year.

14. Taxation. Although the property tax rate is heavily controlled by State statute,
there are also decisions and processes in Town government that affect the property
tax rate. For example, tax classification, estimation of receipts, the ultimate amount
of taxes to be levied within the confines of proposition 2½ and the decision whether
to place an override question on the ballot are questions which issues that require
the input of many Town officials, both elected and appointed.

Local Taxation Policy: As early as possible in the annual budget process the
Town’s management will provide information concerning the cost of
maintaining level service, anticipated revenues and any discrepancy, in
order to foster an open dialogue about solutions including the possibility of
spending over or under the levy limit. Management shall provide five year
forecasts to inform this discussion. Five year budget forecasts shall be used
to anticipate budget shortfalls and develop a strategy for raising revenue,
whether through expansion of the tax base, operating or debt exclusion
overrides or other means.

15. Regionalization. The Town is one of 351 communities in Massachusetts and is
bordered by two cities and three towns. It has many regional affiliations such as
Norfolk County, Massachusetts Highway Department District 4, the Metropolitan Area
Planning Council and the South Shore Consortium which enable it to save money by
combining planning efforts and buying power.

Regionalization Policy: The Town shall endeavor to work cooperatively with
other communities, whether through formally established links or informal
arrangements, to provide services at a reduced cost. The Town will take
advantage of all advantageous cooperative purchasing arrangements and
look to the creation of new collaborative arrangements to reduce costs.

				
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