Inside Shutesbury’s Cash Stockpile

Shutesbury’s cash save-a-thon started me wondering why and how this fiscal strategy came to pass. I did some more digging into Shutesbury’s past, trying to come up with the answers to the following burning questions. Here’s what I found.

Was there a Calamitous Event that Necessitated Creating this New Policy?

I delved into the last 20 years of Shutesbury’s finances to see if a fiscal crisis or large cash expenditure caused the town to start amassing Free Cash. I decided to take a look at spreadsheets from the state’s Division of Local Services from fiscal years 2000 to 2020 to see if I could find any high debt levels that may have contributed to the current savings extravaganza.

What I found is that Shutesbury has been whittling down its debt year after year since fiscal year 2000, when outstanding debt was $3.02 million, to fiscal year 2020 with debt a smidgeon below $232,000. This has reduced the town’s total debt service (the amount necessary to fulfill all debt obligations each fiscal year) significantly.

This was a commendable feat, but it doesn’t explain why the town continues to save money at such exorbitant levels now that our debt level is low. 

In these minutes of November 2011, the Finance Committee discusses this “policy” of

using a mix of borrowing and reserve funds for large expenditures. In this way, FinCom felt better able to manage the town’s debt levels.

The FinCom noted that a new library building would likely be a debt exclusion, adding “1.5% to a household tax bill” over 20 years.

Did the failure of the debt exclusion vote in late 2011 prompt the town to ramp up savings for the next attempt to fund a new library? Possibly, since the town began funding a line item in fiscal year 2013 called “Library Building Fund” under the heading, “Transfer to Capital Projects”. The amount was raised from $13,000 in 2013 to $25,000 the next year, and for every year thereafter. Currently, that fund should contain a minimum of $238,000.

Whether the town will spend any of its Free Cash on such a venture remains to be seen.

Has Shutesbury Borrowed Less Since Instituting This Policy?

Based on the above information, it appears that Shutesbury has indeed reduced its borrowing over the years. You might expect that the town would forgo any borrowing at all as its cash kitty expanded, but that has not been the case. 

A few years back, debt was incurred to purchase the fire truck and dump truck, and the retired debt remains a continuing expense for taxpayers. Instead of taking that amount out of the tax levy when the debt was paid off, FinCom continues to bury this amount on line 178 of the expense budget, using the $112,695 as a yearly influx of cash to bolster the Stabilization account. The town also plans to borrow $201,000 to help fund the Locks Pond Road culvert project, despite having sufficient Free Cash on hand to pay for the culvert outright.

Is This Policy Good or Bad for Shutesbury’s Taxpayers?

The whittling down of Shutesbury’s debt has been a good thing for the town and its inhabitants. Reducing debt has stabilized town finances, motivated the town to save more cash, and inspired confidence that the town should be able to weather any financial storm that might occur. Every taxpayer in town deserves a pat on the back for helping to make this debt disappear.

All this optimism comes with a cost to taxpayers, however. Remember that DLS suggests a savings rate of 3% to 5% of a municipality’s operating budget each year to generate and maintain a comfortable cash cushion. Based on a budget of $6.6 million, 4% would equal $264,000--a substantial amount to maintain year to year. Assuming that there are unused funds from the previous fiscal year and conservative spending policies, Shutesbury could expect to build a large reserve account quickly.

Currently, Shutesbury has $1.04 million in Free Cash, a whopping 19.73% of our operating budget! This amount is nearly double the amount FinCom itself purports to support in its own Municipal Finance Guidelines document. That means that the town has raised at least $500,000 in excess funds over the past few years.

This has cost the town’s property owners extra money over the years and has pushed our tax rate ever higher. This year, the following amounts will add $0.78 to the tax rate (Expense/total assessed values X 1000):

          ➤ $112,695 transfer to Stabilization

➤ $25,000 for the Library Building Fund

➤ $40,200 (first payment of $201,000 5-year culvert loan)

The average single-family house value in Shutesbury is $250,434, so that’s an additional $195 added to the annual $5662 tax bill. With such a huge cash cushion in place, isn’t it time the taxpayers in Shutesbury get a break?

Why is Shutesbury so Obsessed with Saving Money?

There is no doubt that the town of Shutesbury is exceptionally good at bulking up its cash reserves, particularly Free Cash. This is laudable and has placed our town in a financially stable position.

But, we might ask, when is enough, enough? When will town leaders feel comfortable with the cushion we’ve accumulated over the years and begin to wind down its extensive savings program? When will the taxpayers of Shutesbury begin to see the fruits of these labors in the form of a lower tax rate?

Extreme Saving: Shutesbury is the Champ

We’ve already seen how much more money Shutesbury socks away each year than Leverett, but what about other towns?  Using the Division of Local Services data, I did a five-year comparison of Shutesbury to a few other Franklin county towns with similar populations and saw that we are also miles ahead of those communities:

Besides Shutesbury, only Whately consistently appropriates to Free Cash a double-digit percentage of its annual budget. Still, with numbers between 10.48% and 11.97%, Whately’s percentages are much lower than Shutesbury’s, which spanned 17.81% to 19.73% during the same time period. 

The disparity between the dollar amounts saved in any given year is vast, as well. In 2018, the year with the smallest difference, Shutesbury saved $458,000 more than Whately.

As Whately’s budget decreased between the fiscal years 2016 and 2021, the percentage saved as Free Cash also decreased. When Shutesbury’s budget decreased from fiscal years 2020 to 2021, the percentage saved based upon the smaller budget total increased by 0.49%.

A Long-Standing Policy

I once again consulted the Division of Local Services to find out how long this super-saver mentality has existed here in Shutesbury. I looked at the past 12 years, as far back as DLS had consecutive data. What I found is that Shutesbury saved 10.13% of its budget in fiscal year 2010, and bumped up that percentage by 2%+ over the next three years. By 2013, we were saving 18.20% of our operating budget. After 2013, with only two fiscal-year exceptions, Shutesbury never ventured below that percentage again.

What Factors Drive Shutesbury’s Leadership to Stockpile so much Cash?

Shutesbury’s tendency to save pots of money has increased over the years and roots in the town’s Finance Committee policies. The Municipal Finance Guidelines document, available on the FinCom page of Shutesbury.org and promulgated with Franklin Regional Council of Governments financial consultant Joe Markarian, references this issue by saying that the town should bolster Free Cash to maintain levels of 10% or more of its annual budget. General Stabilization should be maintained at 5% of the budget and the town should “build balances” in the Capital Stabilization Fund to meet projected needs.

One problem here is that this document was approved in the fall of 2018--at least eight years after Shutesbury had been saving much, much more than 10% of its annual operating budget to boost its Free Cash fund.

Referring back to FinCom’s pre-Town Meeting forum on June 7, committee member George Arvanitis explained that the Finance Committee decided approximately 10 years ago to avoid swings in the tax rate, ostensibly to help citizens plan their budgets. One way to do this is to build up Free Cash, which could be collected through the tax rate during years when budget expenses were low. When needs arose, this money could be called upon to help defray costs during times when expenses were higher. The tax rate, supposedly, would remain about the same (it hasn’t--it’s gone up year after year).

One way to do this is to continue to collect tax money for debts that have been retired. Mr. Arvanitis discussed this issue again at Town Meeting, because of a question and proposed amendment for a line item for $112,695. These funds, which were the combined debt amount of a fire truck and a dump truck purchased years ago and since paid off, were not identified in the budget but simply listed as a “transfer to Capital Stabilization”. Some taxpayers thought this was disingenuous. 

Probably, the $201,000 the town plans to borrow for the Locks Pond Road culvert will also wind up as “savings” once the debt is paid if FinCom sticks to its current policy.

Has this policy helped Shutesbury avoid debt by paying upfront for projects that would otherwise have required extensive borrowing? Were there specific projects the town had in mind 10 years ago that would require large sums of money? Was there a particular event that sparked this new policy? Is this policy truly in the best interests of Shutesbury taxpayers?

For the next post, I’ll try to find answers to these questions regarding this “borrow to save” strategy.