Author: Municipal Finance Legal Guidance
This month's Ask DLS features frequently asked questions on year-end issues that cities and towns may face before Fiscal Year 2025 ends on June 30, 2025. 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.
What is an encumbrance and are they allowed in cities and towns?
Encumbrances are an accounting device to ensure that municipalities do not close out operating appropriation balances against which vendors and employees may have enforceable contractual claims at the end of the fiscal year. Appropriations, whether for operating purposes or special purposes, constitute a delegation of the municipality's power to make contracts. Without an appropriation or other funding source such as a grant, municipal officials generally do not have the power to incur obligations that will bind the city or town. G.L. c. 44, § 31. The determination of what constitutes adequate documentation for an encumbrance may depend upon local practice, bylaws and the allocation of responsibilities among various town officials. See our FAQs on encumbrances.
How do year end appropriation transfers work in towns?
During May and June, and the first 15 days of July of the new fiscal year, the selectboard, with the agreement of the finance committee, may transfer any amount appropriated to any other appropriation. This procedure may not be used, however, to transfer funds from a municipal light or school department budget. An end-of-year transfer using this alternative procedure requires a majority vote of the selectboard and a majority vote of the finance committee.
Any end-of-year transfer from the municipal light or school department budget requires town meeting approval. For more information on how this topic and how this works in cities see IGR-2017-13.
Is there an alternative end of year transfer process for cities?
Yes. During May and June, and the first 15 days of July in the new fiscal year, the city council, upon the recommendation of the mayor, may transfer any amount appropriated to any another appropriation. This procedure may not be used, however, to transfer from a municipal light or school department budget. An end-of-year transfer using this alternative procedure requires only a majority vote of the council. Approval of the department from which the transfer is being made is not required. Any end-of-year transfer from the municipal light or school department budget requires approval under the applicable general transfer procedure.
What else should I know about year-end transfers?
The relevant statute which addresses this process is G.L. c. 44, §33B. This addresses year-end budget transfers for the last two months of the fiscal year, i.e., May and June, and the first 15 days of July of the new fiscal year, which is the statutory period for closing municipal financial records for the fiscal year. G.L. c. 44, §§ 56 and 56A. The relevant Informational Guideline Release (IGR) for appropriation transfers is IGR-2017-13. The procedures explained here govern appropriation transfers unless a charter or special act provides otherwise. Officials should consult with municipal counsel about any applicable charter or other provisions.
What is the city budget process?
Assuming there are no relevant city charter provisions or special acts establishing a different process, approval of a city’s annual budget is governed by G.L. c. 44, § 32. In a city, the mayor recommends a budget to the city council in advance of the fiscal year commencing. G.L. c. 44, § 32. The city council may authorize any recommended appropriation by majority vote and may also reduce or outright reject by majority vote any recommended appropriation, absent a statute, charter provision or bylaw to the contrary. G.L. c. 44, § 32. Reductions should be in clearly specified amounts for each item, as opposed to a flat dollar amount or percentage reduction to the overall budget. The council has 45 days to act on the mayor’s recommendation – otherwise, the recommendation is deemed accepted. G.L. c. 44, § 32. The city council may not increase a recommended appropriation or add a new appropriation and may not increase the overall amount of the proposed budget, unless the mayor recommends it. G.L. c. 44, § 32.
For more information on what must be included in a budget, and how to reduce a mayor’s budget see our City Budget FAQs.
What is the budget process for a town?
Any town with aggregate property valuation of more than a million dollars must have a finance committee responsible for advising on and recommending appropriations. G.L. c. 39, § 16. DLS valuation data demonstrates that currently every municipality in the Commonwealth has an aggregate valuation of more than a million dollars, so every city and town should have a finance committee. Accordingly, the finance committee is frequently responsible for developing a recommended budget. In towns where a bylaw provides otherwise or for any reason there is no finance committee, the select board is responsible for recommending appropriations. G.L. c. 39, § 16.
In the event the finance committee is responsible for preparing the recommended budget, the select board remains integral to the budget-making process in its capacity as the executive body of the town and having general supervision of the town’s departments. The select board should be actively engaged in the process of developing budget recommendations, as it is many times responsible for managing disbursement of those funds throughout the year.
Per G.L. c. 41, § 60, the town accountant must prepare a report after the end of the calendar year (midway through the fiscal year) summarizing the disbursements and receipts made and projecting expected disbursements and receipts for the remainder of the fiscal year. The statute indicates that the report should be delivered to the select board or the finance committee depending on who is responsible for recommending the budget, but as a practical matter, the report should be delivered to both. That report should assist the town’s officials, including any manager or administrator and department heads, in formulating budget requests for the coming year.
G.L. c. 41, § 60 further directs responsible officials to prepare their recommended budget in a format with sufficient information to enable town meeting participants to understand the proposal. That document must be printed and distributed to the community prior to convening town meeting.
See our City & Town FAQs on this topic for more information.
How do special purpose appropriations work when it comes to the end of the fiscal year?
An appropriation is the act of designating or setting aside specified amounts of public funds for particular uses and of granting authority to particular public officials to spend for those purposes. Typically, appropriations are made to fund annual operating expenses which are intended to be available for a particular fiscal year. Since only obligations incurred during that year can be charged to such appropriations, any unspent or unencumbered balances at year’s end close out. Alternatively, special purpose appropriations are intended by the legislative body to be available until the stated purpose of the appropriation is fulfilled. Special purpose appropriations carry over from year to year and are spent by the board or officer in charge of the appropriation until the purpose of the appropriation is fulfilled. Given their nature, special purpose appropriations are typically made for capital or other non-recurring expenditures. For more information see our FAQs on closing our special purpose appropriations.
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City & Town is brought to you by:
Editor: Dan Bertrand
Editorial Board: Tracy Callahan, Sean Cronin, Janie Dretler, Emily Izzo, Christopher Ketchen, Paula King, Jen McAllister, Jessica Sizer and Tony Rassias
| Date published: | July 17, 2025 |
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