Municipal finance changes included in supplemental budget law

The closeout fiscal 2023 supplemental budget signed into law on Dec. 4 included a number of changes to modernize and streamline certain municipal finance rules.

The MMA had long advocated for the municipal finance changes, which are now in effect.

The changes, itemized in outside sections of the law, are as follows:

• Section 8 allows 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 is still required to establish both types of stabilization funds — general and special purpose — but the threshold has been lowered for drawing from special purpose funds.

• Section 9 allows municipal departments to repair property damages under $150,000 before the related insurance claim comes through, without seeking appropriation, with the expectation that appropriate accounts will 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 9 also creates 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 law now allows municipalities, with authorization from the Division of Local Services’ director of accounts, 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 language clarifies 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 197 allows cities and towns that have created a dedicated stabilization fund for statewide opioid settlement receipts to consolidate all monies previously received for this purpose into the special revenue fund, with clarifying language for how to proceed.

• Section 10 establishes a new Section 53k under Chapter 44, Section 53 to allow municipalities 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. Section 10 allows communities to separately account for these payments and spend them for the dedicated purpose without further appropriation.

• Section 205 allows a city or town to amortize over fiscal 2025 through 2027 the amount of its fiscal 2024 major disaster-related deficit.

The Department of Revenue’s Division of Local Services has issued further clarifications about these changes in two municipal bulletins: BUL-2023-7 and BUL-2023-8.