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?
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