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9-21-2023 1:17am
State Certifies Almost $11 Million in Free Cash, a Welcome Infusion of Unrestricted Funding for Town of Westwood
Darlene Cancell
Editor
The Town of Westwood on July 1st has received certification of free cash in the unexpectedly large amount of $10,959,301, which resulted from a unique set of circumstances likely not to be repeated, reported Assistant Town Administrator/Finance Director Stephanie McManus at last week’s Select Board meeting.
Explaining why free cash is so high this year, Ms. McManus stated that an increase in local receipts due to borrowing for construction of Pine Hill Elementary School, higher interest rates, and use of reserve revenue sources (such as Meals and Hotel Tax) for capital projects were drivers of the increase.
The almost $11 million in free cash this year exceeds the amount of free cash last year by $3.2 million. The difference is even greater when looking at prior years, beginning from July 2019. According to Ms. McManus, this is the free cash certified from prior years:
- $7.7 million (July 2022)
- $7.3 million (July 2021)
- $6.1 million (July 2020)
- $6.6 million (July 2019)
- $5.9 million (July 2018)
Free cash technically represents unrestricted funds from the previous fiscal year. However, free cash is not to be used for operating expenses due to “our financial policies,” said Ms. McManus. It may be used by the Town of Westwood for one-time expenditures or for funding capital projects, she said.
The Massachusetts Department of Revenue Division of Local Services (DLS) explains that using free cash to supplement current-year operating expenses may imprudently create an expectation of such revenue resources in future years. To avoid inaccurate and unrealistic future budgets, DLS notes that free cash should be used to pay for one-time capital projects, one-time expenditures, or replenishing reserves.
Current priorities competing for Westwood taxpayer dollars include the construction or rebuilding or renovation of Fire Station 1, a possible purchase of a conservation restriction from Hale Education, and renovations of Sheehan School, for example. Additionally, if state design requirements for the Canton Street Sidewalk Project are not met and the prospect of obtaining a state grant dissolves away, Westwood may need to find a source of funding for the sidewalk project as well.
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Indeed, following Ms. McManus’s presentation, Select Board member Joseph Previtera asked whether free cash could fund “design and bid documents for the new fire station.” Ms. McManus answered that it would be a one-time capital expenditure. The inference is that it would be consistent with fiscal policy for using free cash.
However, not all of the $11 million in free cash may be available to spend. Fiscal policy indicates that about $4 million of free cash should be reserved to provide protection for the town and preserve its high credit rating, said Ms. McManus.
Additionally, free cash has already been preliminarily allocated in estimated amounts to familiar line items for a developing FY25 budget. To inform her FY25 estimates, Ms. McManus looked to free cash allocations for FY24:
- $2,372,500 to school and municipal capital
- $125,000 to Stabilization Fund
- $405,000 to Finance and Warrant Commission Reserve Fund
- $339,000 to Town Meeting Article 2 Transfers.
Based on free cash allocations in FY24 and prior years, Ms. McManus proposed allocating $6,030,000 of the $11 million in free cash for FY25 as follows:
- $3,000,000 to Capital
- $125,000 to Stabilization Fund
- $405,000 to Finance and Warrant Commission Reserve Fund
- $2,500,000 to Articles.
The big difference between Ms. McManus’s most recent proposed allocation of free cash is her estimate of $2.5 million for “miscellaneous Articles and additional capital articles.” In the prior 5 years, the corresponding amount ranged from $0 to $1.3 million. Following Ms. McManus's estimated FY25 allocations, of the $11 million in free cash, just $4.9 million remains unallocated.
However, the above line items could also be funded from other revenue sources such as Meals and Hotel Tax receipts, as they have in past years, said Ms. McManus. If that happens, free cash could be expected to become available to budget for additional Westwood priorities.
