Supplemental budget bill proposes municipal finance rule changes

A fiscal 2023 supplemental budget bill that Gov. Maura Healey filed on March 17 includes a number of policy proposals that seek to modernize and streamline certain municipal finance rules.

The proposed municipal finance rule changes share many similarities with a series proposed by the Baker-Polito administration last spring that ultimately did not become law.

The nine outside sections of the bill (H. 3545) related to municipal finance are as follows:
• Section 6 would make a technical correction to clarify “governing body” regarding other post-employment benefit (OPEB) trust funds.

• Section 8 would allow for a simple majority vote of the local legislative body, rather than a two-thirds vote, to draw down special purpose stabilization funds. A two-thirds vote would still be required to establish both types of stabilization funds — general and special purpose — but the threshold would be lowered for drawing from special purpose funds.

• Section 9 would allow municipalities to combine an appointed treasurer and appointed collector into one position. Currently, municipalities must seek a home rule petition if they want these positions to be held by one employee.

• Section 10 would allow municipal departments to repair property damages under $150,000 before the insurance claim comes through, without seeking appropriation, with the expectation that appropriate accounts would be reimbursed when the insurance claim is paid. The municipality would be required to fund the deficit if the insurance claim is not received within a certain period.

Section 10 would also create a “general fund revenue exception.” Under state law (Ch. 44, Sect. 53), all money received or collected from any source by a municipality belongs to its general fund and can only be spent after appropriation, unless a general or special law provides an exception. This rule can present accounting challenges when unexpected, conditional revenue is received, because the law requires this revenue to become part of the general fund even though it is intended for a specific purpose. As a result, these funds often become part of the next year’s free cash certification, creating confusion around how the funds can be used.

Section 10 would allow municipalities to reserve such one-time revenue in a special fund, with the approval of the Division of Local Services’ director of accounts, thus keeping it out of the general fund and preventing it from eventually becoming free cash. The proposed language would clarify how the receipts in special funds can be spent: if the receipt is for one specific purpose, such as opioid settlement funds, a municipal executive would be able to spend the funds without further appropriation; otherwise, qualifying revenue reserved in a special fund would be subject to appropriation. In both cases, the exception applies only to one-time, unanticipated receipts that are received by multiple communities.

• Section 23 would allow cities and towns that have created a dedicated stabilization fund for statewide opioid settlement receipts to vote to revoke this account and allow the settlement receipts to be spent in accordance with the amendment proposed in Section 10.

• Section 11 addresses approval of the spending cap of a municipal department’s revolving account. Currently, the spending cap must be approved annually by the local legislative body. The bill proposes that legislative body approval would only be needed when the spending cap of the revolving account is being changed.

• Section 12 would establish a new Section 53k under Chapter 44, Section 53, to allow a municipal CEO to create a special revenue fund (rather than using the general revenue fund) for funds coming to the municipality for a specific purpose. Municipalities often enter into host or mitigation agreements with developers or other entities to address the impacts of new development, and receive payments to mitigate these impacts. Under current law, these mitigation payments go into the general fund and must be appropriated before they can be used for their intended purposes. The administration’s proposal would let communities separately account for these payments and spend them for the dedicated purpose without appropriation.

• Section 12 would also create a “general fund revenue exception.” Under state law (Ch. 44, Sect. 53), all money received or collected from any source by a municipality belongs to its general fund and can only be spent after appropriation, unless a general or special law provides an exception. This rule can present accounting challenges when unexpected, conditional revenue is received, because the law requires this revenue to become part of the general fund even though it is intended for a specific purpose. As a result, these funds often become part of the next year’s free cash certification, creating confusion around how the funds can be used.

The administration’s proposal would allow municipalities to reserve such one-time revenue in a special fund, thus keeping it out of the general fund and preventing it from eventually becoming free cash. The proposed language would clarify how the receipts in special funds can be spent: if the receipt is for one specific purpose, a municipal executive would be able to spend the funds without further appropriation.

• Section 18 would address potential violations of the state conflict-of-interest law regarding shared municipal employees.

• Section 24 would temporarily allow school districts to reserve some of their Chapter 70 funding for future years without facing state financial penalties, thereby helping them spend time-limited federal funds.