This month's Ask DLS features frequently asked questions concerning the recent legislative changes contained in Chapter 77 of the Acts of 2023. For more information, see BUL-2023-7, BUL-2023-8 and BUL-2023-10. Please let us know if you have other areas of interest or send a question to cityandtown@dor.state.ma.us. We would like to hear from you.
How are opioid settlement funds impacted?
On December 4, 2023, Governor Healey signed Chapter 77 of the Acts of 2023, Section 9 of which provides, in part, for the following exception to the general rule that all receipts are to be recorded as general fund revenue per G.L. c. 44, § 53:
“(4) non-recurring, unanticipated sums received by multiple cities, towns or districts and not otherwise provided for by general or special law, may, upon the approval of the director of accounts, be expended at the direction of the chief executive officer without further appropriation only for the singular purpose for which the monies were received”
Pursuant to this new exception, the director of accounts has determined that cities and towns that have received or will receive funds in Fiscal Year 2024, or thereafter, pursuant to settlement agreements entered into by the Commonwealth with opioid distributors and opioid-makers for prevention, harm reduction, treatment, and recovery, may place said funds into a special revenue fund. The proceeds can then be expended, without further appropriation, at the direction of the chief executive officer only for the purpose identified in said settlement agreements.
Section 197 of the Act further allows a community to consolidate all monies previously received for this purpose into the special revenue fund, mentioned above, in the following ways:
1.) If prior year settlement funds have not otherwise been reserved (i.e., dedicated to a stabilization fund) or become part of certified free cash, then those funds may be placed directly into the special revenue fund.
2.) If already dedicated to a stabilization fund, said dedication can be revoked at any time by vote of the legislative body. Upon revocation, all statewide opioid settlement receipts previously received may be placed in the special revenue fund.
3.) If a community has settlement funds in a stabilization fund but did not dedicate future settlement receipts, the money currently in stabilization can be placed directly into the special revenue fund.
4.) Settlement funds that have become part of free cash may be appropriated into the special revenue fund by vote of the community’s legislative body.
How are stabilization funds impacted?
§ 8 of the Act amends G.L. c. 40, § 5B, which governs the establishment of stabilization funds and regulates their administration. As is the practice in many cities and towns, municipalities may create a general purpose stabilization fund or a special purpose stabilization fund. In practice, most general purpose stabilization funds are broadly created for any lawful purpose while a special purpose stabilization fund delineates the intent of future expenditures more distinctly. The Act changed the quantum of votes to appropriate funds from special purpose stabilization funds so that it is now a simple majority. The present two-thirds quantum of votes needed for appropriating funds from a general purpose stabilization remains the same. Likewise, a two-thirds vote is still needed to create either stabilization fund or to change its purpose.
How are municipal receipts impacted generally?
§ 9 of the Act amends G.L. c. 44, § 53, which governs municipal receipts, in the following two ways:
First, Clause 2 has been amended. Presently, a municipal or district department in charge of property that was damaged and for which the municipality or district receives insurance proceeds or restitution payments of $150,000 or less could spend the monies, without appropriation and with the approval of the chief executive officer, to replace or repair the property. In many cases, however, that replacement or repair must be made immediately. The change now allows spending for this purpose in advance of the monies being received, for amounts of $150,000 or less. However, if the monies are not received by the close of the fiscal year after the fiscal year in which the damage occurred, the municipality must report the same in the determination of the applicable annual tax rate or otherwise make provision therefor. The amendment is patterned after the change made by the Municipal Modernization Act to G.L. c. 44, § 53A, which allows spending in advance of certain grant funds.
Second, new Clauses 4 and 5 have been added. Generally, all money received or collected from any source by a city, town or district belongs to its general fund and can only be spent after appropriation unless a general or special law provides an exception, i.e., expressly restricts use for a particular purpose or allows expenditure by a department or officer without appropriation. This general rule of municipal finance occasionally presents communities with accounting and procedural difficulties in situations where an unexpected, conditional receipt is received. Such receipts, by law, would become part of the general fund, eventually close and become part of the next year’s free cash certification. When it becomes part of free cash, the original restrictions on the funds become muddied, as under current law they must sit in an available fund that can be appropriated for any lawful purpose. Additionally, this process can take several months and many times these one-time monies are intended for immediate expenditure for their specific purpose. The new Clauses 4 and 5 create exceptions to this general rule. With the approval of the Director of Accounts, in certain circumstances, both clauses allow certain one-time monies to be reserved in a special revenue fund, thereby not closing to fund balance at the end of the fiscal year and not becoming part of the free cash certification. Clause 4 does so for monies received for one specific purpose and can be spent without further appropriation, while Clause 5 does so for monies received for multiple purposes and requires appropriation. In both scenarios, there must an authorization from the Director of Accounts and is limited to one-time, unanticipated receipts that affect multiple communities.
Are there any changes to mitigation funds?
§ 10 of the Act inserts new section 53K into G.L. c. 44. Municipalities often enter into host or mitigation agreements with developers or other entities, including cannabis establishments and casinos, to address the impacts of new development or location of a facility within the city or town and receive cash payments to mitigate these impacts. In addition, a developer may make a cash payment in lieu of undertaking a particular condition or obligation required by a zoning or other permitting by-law or ordinance, or a party renting municipal property may make payments in addition to the lease. Examples include a developer of a commercial property making a payment required under the town’s zoning bylaw in lieu of constructing sufficient parking spaces with the monies to be used by the town for the acquisition, improvement and maintenance of municipal parking; or a cell phone company that is leasing town-owned property for its equipment agreeing to give the municipality a “one-time payment” in addition to its lease. Under current municipal finance law, these mitigation payments or regulatory exactions are general fund monies that must be appropriated before they can be used for the dedicated purposes for which they are given and received. G.L. c. 44, § 53. The parties often try to characterize the monies as gifts, so as to be able to spend them without appropriation, but they are not gifts within any ordinary meaning of the term. The new § 10 addition of Section 53K allows communities to separately account for such payments in a special revenue fund and spend them for the dedicated purposes without further appropriation.
Are there any updates to the ability to fund FY24 emergency deficit spending?
§ 205 of the Act allows a city or town to amortize over fiscal years 2025 to 2027 the amount of its fiscal year 2024 major disaster related deficit. To do so, the select board or, in a city, the council, with the mayor's approval when required by law, must adopt a deficit amortization schedule before setting the municipality’s fiscal year 2025 tax rate. The amortization process will be comparable to the process that was used to amortize snow-related deficits in 2015. Examples of a major disaster include flood, drought, fire, hurricane, earthquake, storm or other catastrophe, whether natural or otherwise, which poses an immediate threat to the health or safety of persons or property. To utilize this section, there must be a declaration of emergency, either locally or by the Governor, and an approval to expend for the liabilities incurred by the Director of Accounts.
In conjunction with the major disaster, if there is any expected reimbursement from either the federal or state government, or any other expected funding source, for qualifying expenditures incurred, the Bureau of Accounts (BOA) will allow local accounting officials to transfer that portion of the deficit into a separate account in anticipation of any reimbursement. Amortization, therefore, need only be for the net FY2024 deficit. Major disaster costs that will be covered by borrowing proceeds should also be deducted from the qualifying expenditures when calculating the net deficit. For cities and towns not authorizing this amortization, the June 30, 2024 major disaster related deficit, less any transfer to a separate account as indicated above, must be fully raised or otherwise funded on the FY2025 Tax Rate Recap as usual.
Further, the Bureau will allow city and town accounting officials to transfer a portion of their FY2024 major disaster related deficit into a separate special revenue account in anticipation of any expected reimbursement. Documentation for any amount noted as expected reimbursement may be requested by the Bureau of Accounts during the June 30, 2024 free cash or tax rate certification process. The deficit in this special revenue account is to be offset as reimbursements are received. After all final reimbursements to the city or town are received, any remaining deficit in this account must be raised or otherwise funded on the next tax rate recap, or any remaining surplus must be closed to the General Fund on the next June 30. If final reimbursements occur during the amortization time period described above, the city or town may add any remaining deficits to the amount being amortized. During the expected reimbursement period, the Bureau will not reduce free cash due to the deficit in this special account if properly recorded.
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Editor: Dan Bertrand
Editorial Board: Marcia Bohinc, Linda Bradley, Sean Cronin, Emily Izzo and Tony Rassias
| Date published: | February 1, 2024 |
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