Article II Financial Management Policies

§ 410-3 A-1 Annual Budget Process.

Purpose. The purpose of this policy is to articulate the principles to be followed in the formulation of the recommended annual operating budget, formalize the steps that culminate in the adoption of the annual budget, and identify the parties responsible for preparing and presenting the budget.

Applicability. This policy applies to the Finance Committee regarding its role in the development of the proposed annual operating budget, the Selectboard, the Town Administrator, the Town Accountant, the Board of Assessors, and the Town Meeting.

Definitions. As used in this section, the following terms shall have the meanings indicated:

ANNUAL BUDGET

Comprised of requests for funding for General Fund operations, Enterprise Fund operations and capital projects.

ENTERPRISE FUND

A separate accounting and financial reporting mechanism for municipal services for which a fee is charged in exchange for goods or services. Revenues and expenses of the service are segregated into a fund with financial statements separate from all other governmental activities.

GENERAL FUND

The primary fund used by a government entity to account for general government services. This fund is used to record all revenues and expenditures that are not associated with special-purpose funds, e.g., Enterprise Funds and Grant Funds. The activities being paid for through the General Fund constitute the core administrative and operational tasks of a municipality.

Policy. The following principles shall guide Town officials in the preparation of the recommended annual operating budget for presentation to the Town Meeting:

(1)

As required by Massachusetts General Law (MGL c. 44, § 31 and MGL c. 59, §§ 21C through 23), the recommended annual operating budget shall be balanced; that is, total recommended appropriations shall be supported by estimates of revenue equal to those appropriations.

(2)

Recommended appropriations shall be realistically budgeted and revenues shall be conservatively estimated.

(3)

As a general rule, sources of estimated revenue shall be reasonably expected to recur annually to sustain recurring annual expenditures.

(4)

The document presenting the recommended annual budget shall include a presentation of estimated revenues and the assumptions underlying the estimates.

(5)

The Town will seek to avoid using budgetary relief offered by statute or regulation that balances the budget at the expense of future years, such as amortizing deficits over multiple years.

(6)

The Town shall maintain reserves for emergencies and other purposes (see Financial Reserves Policy[1]) and shall maintain liquidity sufficient to pay bills on time to preclude the need to borrow in anticipation of revenue.

[1]

Editor's Note: Said policy is on file in the Town offices.

Procedures. The following procedures shall be followed in the development and presentation of the recommended annual operating budget:

(1)

The recommended annual operating budget, inclusive of General Fund operations and Enterprise Fund operations, shall be the responsibility of the Finance Committee.

(2)

Prior to the beginning of the budget process, the Town Administrator shall develop a calendar outlining the steps to be followed in the development of the budget and the proposed dates they are scheduled to occur. The calendar shall be distributed to the Selectboard and the Finance Committee for their review and comment. The calendar shall include, but not be limited to, dates for the following:

(a)

Presentation by the Town Administrator to a joint meeting of the Selectboard and the Finance Committee on the status of the current year's budget, preliminary estimates of revenue for the ensuing fiscal year, and proposed budget guidelines to accompany instructions to department heads, boards and committees for submittal of their operating budget requests for the ensuing fiscal year.

(b)

Deadline for submittal to the Town Administrator of operating budget requests of departments, boards and committees for the ensuing fiscal year.

(c)

Presentation by the Town Administrator to the Finance Committee and Selectboard of a multiyear revenue and expenditure forecast.

(d)

Presentation by the Town Administrator to the Selectboard of operating budget requests for the ensuing fiscal year for review and discussion.

(e)

Transmittal to the Finance Committee by the Town Administrator, on behalf of the Selectboard, of operating budget requests.

(f)

Budget hearings by the Finance Committee on operating budget requests.

(g)

Preparation by the Assessors of a new growth estimate on or about March 1, which will inform the final budget figure for use in the annual budget process.

(h)

Joint meeting of the Finance Committee and the Selectboard to discuss, including final revenue estimates, the operating budget to be recommended by the Finance Committee to the Annual Town Meeting as well as other financial articles to be included in the Annual Town Meeting warrant (capital and noncapital financial articles).

(i)

Preparation and transmittal of the Finance Committee's report to the Town Meeting on the recommended budget for the ensuing fiscal year. The report shall include but not be limited to the following:

[1]

A description of the important features of the budget;

[2]

A description of any major changes from the current year in financial policies, expenditures, and revenues, together with the reasons for such changes;

[3]

A summary of the Town's debt position; and

[4]

Other material the Finance Committee deems appropriate.

References.

(1)

Statutes.

MGL c. 41, § 108	MGL c. 44, § 31
MGL c. 59, §§ 21C through 23

(2)

Town of Northfield, Capital Planning Policy.

(3)

Town of Northfield, Financial Reserves Policy.

§ 410-4 A-2 Capital Planning.

Purpose.

(1)

Capital assets — roads and bridges, utility infrastructure, equipment, vehicles, parks, buildings, and technology — are critical components in supporting the delivery of municipal services and contributing to the quality of life in the Town.

(2)

The purpose of this policy is to define an annual capital planning process to identify the need for the acquisition of new capital assets, the replacement of existing assets, and the proposed financing of each.

Applicability. This policy applies to all Town departments, boards, and committees that maintain an inventory of capital assets; to the Town Administrator with responsibility for creating a proposed annual Capital Improvement Plan; to the Selectboard in its role to review capital projects proposed for funding; and to the Finance Committee, acting as the Town's Capital Committee, with responsibility to review and make recommendations on capital projects proposed for funding.

Definitions. As used in this section, the following terms shall have the meanings indicated:

ANNUAL BUDGET

Comprised of requests for funding for General Fund operations, Enterprise Fund operations and capital projects.

AVAILABLE FUNDS

Funds established through previous appropriations or results of favorable operating results at fiscal year-end, e.g., Free Cash, Stabilization Fund(s), Overlay Surplus, and Enterprise Retained Earnings.

CAPITAL IMPROVEMENT PLAN

A six-year plan prepared annually as part of the annual budget process which is comprised of the capital budget proposed for consideration for funding in the upcoming fiscal year (year one of the Plan), and years two through six including capital projects identified as candidates for funding in future fiscal years.

CAPITAL PROJECT

A major, nonrecurring expenditure that generally meets the following criteria:

(1)

Massachusetts General Law permits the Town to issue bonds to finance the expenditure;

(2)

Project cost is $25,000 or greater;

(3)

Proposed project or asset to be acquired has a useful life of five years or more including:

(a)

New public buildings, or additions to existing buildings, including land acquisition costs and equipment needed to furnish the new building or addition for the first time;

(b)

Alterations, renovations, or improvements to existing buildings;

(c)

Land acquisition and/or improvements, unrelated to public buildings, but necessary for conservation, recreation or off-street parking;

(d)

Major equipment acquisition, replacement or refurbishment, including but not limited to vehicles, furnishings, and information technology systems' hardware and software or other items that combined in purpose together make it a capital project;

(e)

New construction or major improvements to Town's physical infrastructure, including streets, sidewalks, stormwater drains, and the sanitary sewer system. Infrastructure improvements must extend the useful life of the infrastructure by at least 10 years to be appropriately classified as a capital project;

(f)

Feasibility studies, engineering design services, or consultant services which are ancillary to a future capital project.

Policy. The following shall be the policy of the Town:

(1)

To maintain its physical assets by providing funding in the annual operating budget to protect its capital investments and minimize future maintenance and replacement costs.

(2)

To pursue a program of preventative maintenance as a cost-effective approach to protecting its capital investments and maximizing the useful life of its capital assets including the procurement of outside services where Town staff capacity or expertise appears insufficient to perform such preventative maintenance.

(3)

To endeavor to provide and preserve the infrastructure and equipment needed for achieving the highest levels of public services and quality of life possible by annually developing a six-year Capital Improvement Plan to ensure adequate investment in the Town's capital assets.

(4)

The following shall be considered in the identification of financing of capital:

(a)

Town budgeted general operating revenues, Enterprise Fund revenues, available funds, (e.g., Special Purpose Stabilization Funds, Free Cash, Retained Earnings and Overlay Surplus), and Grant Funds from the federal and state governments.

(b)

Long-term debt shall be considered an appropriate funding source for capital requests whose costs cannot be accommodated within the annual operating budget without adversely affecting the financing of services.

(c)

The target for spending from General Fund operating revenue in the annual capital budget, to finance debt service on projects proposed for funding with debt and those proposed for funding with cash (pay-as-you-go projects), shall be equal to 5% of the prior year's General Fund operating budget. The 5% shall be comprised of the following:

[1]

Two percent of the prior year's General Fund operating budget shall be targeted for building renewal and equipment replacement on a pay-as-you-go basis.

[2]

Three percent of the prior year's General Fund operating budget shall be targeted to fund debt service on nonexempt debt-financed projects.

(d)

If, in any year, funds needed for the capital budget recommended to the Town Meeting are below the target of 5% of the prior year's General Fund operating budget, the difference in revenue allocated for this purpose shall be appropriated into a Capital Stabilization Fund to offset the costs of future capital projects.

(e)

The term for which debt is issued shall comply with the limits in Massachusetts General Law. Notwithstanding these limits, debt maturities should be equal to or less than the useful life of the asset being financed.

(f)

To the extent practicable, assets with short useful lives that are replaced regularly, e.g., police cruisers, shall be funded in the operating budget.

Procedures.

(1)

The Town Administrator shall have responsibility for coordinating the development of a proposed annual Capital Improvement Plan, to be delivered on a timeline that supports the annual budget process. The Town Administrator shall create the form on which capital project requests are submitted. On or about November 1, the Town Administrator shall develop and transmit to the Selectboard and the Finance Committee a calendar identifying dates in the development of the Plan including:

(a)

A schedule for the submission to the Town Administrator of capital project requests for years one through six of the Capital Improvement Plan by Town departments, boards and committees.

(b)

Presentation by the Town Administrator to the Selectboard and Finance Committee of capital budget requests for the ensuing fiscal year (year one of the Capital Improvement Plan) for review and discussion.

(c)

Dates, if needed, for departments, boards and committees requesting capital projects to appear before the Selectboard and/or the Finance Committee to respond to questions about project proposals for any projects proposed for the ensuing fiscal year.

(d)

A joint meeting of the Finance Committee and Selectboard to discuss the recommended Capital Improvement Plan, and for the Finance Committee to vote to approve its recommended capital budget to the Annual Town Meeting.

(2)

The Capital Improvement Plan shall:

(a)

Include projects recommended for funding in the upcoming fiscal year (the capital budget);

(b)

Identify prospective sources of funding for projects in the capital budget (see the Town's Financial Reserves and Debt Management Policies[1]);

[1]

Editor's Note: Said policies are on file in the Town offices.

(c)

A schedule of current debt service and projected annual debt service based on projects in the capital budget identified as candidates for debt financing;

(d)

A list of requested projects by department with estimated costs and indication of departmental priority for years two through six of the Capital Improvement Plan.

(3)

Only projects that have gone through the annual capital planning process will be considered for funding unless required by an emergency, which may be determined based on their hazard to public safety, potential damage to people or property, regulatory requirements, grant availability, or other factors. Emergency requests will be submitted to the Town Administrator, in a form prescribed by the Town Administrator, for review and consideration. If the Town Administrator deems the request constitutes an emergency, he/she shall transmit the request, including a recommendation of the source of funding, to the Finance Committee and the Selectboard for consideration.

(4)

In prioritizing each capital request, the Selectboard in its Capital Improvement Plan proposed to the Finance Committee, and the Finance Committee in its Capital Improvement Plan recommended to the Town Meeting, shall determine how the project addresses the following criteria:

(a)

Eliminates a hazard to public health and safety?

(b)

Required by state or federal laws or regulations?

(c)

Uses outside financing sources, such as grants?

(d)

Stabilizes or reduces operating costs?

(e)

Replaces a clearly obsolete facility, makes better use of an existing facility, or relieves an overburdened situation?

(f)

Maintains or improves productivity or existing standards of service?

(g)

Supports adopted plans, goals, objectives, and policies of the Town?

(h)

Directly benefits the Town's economic base by protecting and increasing property values?

(i)

Provides new programs having social, cultural, historic, economic, or aesthetic value?

(j)

Increases operational or personnel costs?

(5)

Generally, in consultation with the Town Administrator, within six months after the completion of a capital project or acquisition financed through a special article, the Town Accountant shall close out the project so any unexpended balance financed with cash or bond proceeds can be redeployed for other purposes pursuant to Massachusetts General Law or regulation.

References.

(1)

Statutes.

MGL c. 41, § 106B	MGL c. 44, §§ 7 and 8
MGL c. 44, § 20	MGL c. 44, § 33B

(2)

Division of Local Services Best Practice: Presenting and Funding Major Capital Projects.

§ 410-5 A-3 Debt Management.

Purpose. Pursuant to Massachusetts General Law, municipalities may issue debt to finance capital projects and, under extraordinary circumstances, for noncapital purposes. The purpose of this policy is to guide the Town of Northfield in making decisions regarding the issuance of debt needed to maintain capital assets, at a level that recurring revenue can support without adversely affecting the delivery of local services.

Applicability. This policy applies to the Selectboard, Town Administrator, and Finance Committee in their capacity as operating and capital budget decision makers, and to the Treasurer/Collector in regard to his/her responsibility to manage the issuance of debt.

Definitions. As used in this section, the following terms shall have the meanings indicated:

ANNUAL BUDGET

Comprised of requests for funding for General Fund operations, Enterprise Fund operations and capital projects.

ARBITRAGE

Investing funds borrowed at a lower interest cost in investments providing a higher rate of return.

BETTERMENT OR SPECIAL ASSESSMENT

A special property tax that is permitted where real property within a limited and determinable area receives a special benefit or advantage, other than the general advantage to the community, from the construction of a public improvement.

BOND ANTICIPATION NOTE (BAN)

A short-term note issued to provide cash for initial project costs. BANs may be issued for a period not to exceed five years but require a reduction of principal after two years. At maturity a BAN can be retired in full, or converted to a long-term bond.

BOND COUNSEL

Special legal counsel with expertise in the issuance of municipal bonds hired to ensure that all aspects of a bond issue - from Town Meeting authorization to bond sale to post-sale reporting and disclosure - conforms to all applicable state and federal law and regulation.

CAPITAL OUTLAY EXPENDITURE EXCLUSION

Authorized by Massachusetts General Laws (MGL c. 59, § 21C (i 1/2)) is a mechanism that allows a community to raise the total dollar cost of a capital purchase or capital project through a one-year increase in the tax levy. In this way, the municipality avoids long-term interest costs, if it were to borrow the needed funds. A capital exclusion can only be used to fund purposes, specified in MGL c. 44, §§ 7 and 8, for which a community may incur debt.

DEBT SERVICE

The annual amount of principal and interest paid on a bond, typically twice a year with one payment for principal and interest and the other for interest only.

ENTERPRISE FUND

A separate accounting and financial reporting mechanism for which revenues and expenditures are segregated into a fund with financial statements separate from all other governmental activities. An Enterprise Fund identifies the total direct and indirect costs to provide the service and also identifies the sources and amounts of revenues that support a service for which a fee is charged in exchange for the service, an example being the delivery of sewer services.

EXEMPT DEBT

Authorized by Massachusetts General Laws [MGL c. 59, § 21C(j)], is General Fund debt financed outside the limits of Proposition 2 1/2 pursuant to a debt exclusion vote approved by a majority vote of registered voters in the Town.

FINANCIAL ADVISOR

Hired by a municipality to advise on the structure of a bond issue, finalize bond financing plans, develop offering documents, prepare for any rating agency and investor presentations, market the bond offering to investors, price the bonds, close the transaction and assist with any post-closing disclosure requirements.

GENERAL FUND

The primary fund used by a governmental entity. This fund is used to record all revenues and expenditures that are not associated with special-purpose funds, e.g., Enterprise Funds, Grant Funds and Revolving Funds. The activities being paid for through the General Fund constitute the core administrative and operational tasks of a municipality.

NON-EXEMPT DEBT

General Fund debt financed within the limits of Proposition 2 1/2.

OFFICIAL STATEMENT

A document containing information about a prospective bond issue or a note issue which contains information about the issue and the issuer and is intended for the potential investor. The official statement is sometimes published with a notice of sale. It is sometimes called an offering circular or prospectus.

PROPOSITION 2 1/2

Pursuant to Massachusetts General Law [MGL c. 59, § 21C(f)], a limit in the annual increase in a municipality's property tax levy to 2 1/2% plus an increase attributable to new construction in the Town. In addition, upon voter approval, property taxes may increase beyond the limits of Proposition 2 1/2 on a permanent basis to fund increases in the operating budget or on a temporary basis to fund capital improvements.

REVENUE ANTICIPATION NOTE (RAN)

Pursuant to authority granted by MGL c. 44, § 4, a short-term loan issued to provide operating cash in anticipation of estimated revenue yet to be received, such as tax collections and state aid.

Policy. The Town's policy regarding debt management shall be as follows:

(1)

The means of identifying projects that are candidates for debt financing shall be part of an annual capital planning process (see the Town's Capital Planning and Financial Reserves Policies[1]).

[1]

Editor's Note: Said policies are on file in the Town offices.

(2)

It is recognized that multiple capital investments may not be able to be financed on a pay-as-you-go basis in a given fiscal year without the risk of adversely affecting General Fund or Enterprise Fund operating budgets. Therefore, it shall be policy that any capital project in excess of $25,000 may be a candidate for financing through the issuance of debt.

(3)

Major new construction projects or significant renovations and capital expenditures to be funded with General Fund revenue, where the Town's share is in excess of $250,000, shall be candidates for funding through a Proposition 2 1/2 debt exclusion.

(4)

The Town will endeavor to structure nonexempt, exempt and Enterprise Fund debt in a manner that will minimize the impact on taxpayers and ratepayers.

(5)

Projects recommended for funding through the issuance of debt shall not be approved without an estimate of the annual debt service that will result from bonds to be issued and consideration of the impact the debt service will have on the Town's annual budget. In this regard, the Town will endeavor to manage debt so as not to exceed the following target:

(a)

Total General Fund, nonexempt, long term debt service as a percentage of the Town's prior year's General Fund operating budget shall not exceed 10% with a target of 3%. In addition, as a general rule, the Town shall strive to maintain a debt service floor of 2% of the prior year's General Fund operating budget representing a commitment to maintaining its capital assets from recurring revenue.

(6)

Annual debt service shall not, in any fiscal year, grow at a rate that exceeds the projected percentage increase in General Fund revenue for that year.

(7)

Notwithstanding the maximum terms allowed by Massachusetts General Law (MGL c. 44, §§ 7 and 8) for the issuance of bonds, the Town will: 1) seek to limit the term so that it is equal to or less than the Town's estimate of the useful life of the asset being financed; 2) for a given purpose, strive to issue debt for a shorter period than the maximum term allowed when that term exceeds 10 years; and 3) except for major buildings, sewer projects and land acquisition, limit bond maturities to no more than 10 years. Under no circumstances should the Town schedule debt for repayment for a term greater than 30 years unless required to do so by what is determined to be an advantageous funding program, such as those offered by USDA.

(8)

In an effort to free up capacity within the annual General Fund debt service budget to accommodate proposed capital projects to be financed through the issuance of debt, the Town will: 1) attempt to maintain a long-term debt schedule so that at least 50% of the outstanding principal will be retired at the end of 10 years; and 2) generally, issue debt on a level principal/declining interest basis (so that annual debt service will decline over the term of the bond).

(9)

The Town, with advice from its financial advisor, shall endeavor to issue debt with call dates to facilitate refunding if the interest rate environment changes to the Town's advantage.

(10)

The Town will strive to maintain, if not enhance, its bond rating through the development of policies and procedures that address the following evaluative criteria used by rating agencies in evaluating a municipality's creditworthiness.

(a)

Debt factors. Debt per capita, debt as a percentage of equalized valuation, rate of debt amortization and the amount of exempt versus nonexempt debt.

(b)

Financial factors. Operating surpluses or deficits, free cash as a percentage of revenue, state aid reliance, property tax collection rates, unfunded pension liability.

(c)

Economic factors. Property values, personal income levels, tax base growth, tax and economic base diversity, unemployment rates and population growth.

(d)

Management factors. Governmental structure, the existence of a capital improvement plan, the quality of accounting and financial reporting, etc.

(11)

Short-term financing for capital projects, reimbursable grants, or in anticipation of property tax collections through internal borrowing or the issuance of bond, grant or tax anticipation notes is appropriate. Internal borrowing shall be in compliance with Massachusetts General Laws (MGL c. 44, § 20A) based on the Treasurer's assessment of the Town's cash flow position and the availability of surplus cash, and the current interest rate environment for: 1) the investment of Town funds, and 2) rates for short- and long-term borrowing, with the understanding that an internal borrowing not retired by June 30 of a fiscal year through the issuance of a short-term note, a bond or the receipt of Grant Funds may adversely affect the Department of Revenue's certification of the Town's free cash.

(12)

Notwithstanding the maximum terms for the issuance of debt prescribed by Massachusetts General Laws (MGL c. 44, §§ 7 and 8), it shall be the policy of the Town to limit the term of a bond issued to finance a project that yields a special benefit or advantage to property owners within a limited and determinable area, and whose costs will be recovered through the assessment of a betterment pursuant to Massachusetts General Laws (MGL c. 80, § 13), to 15 years or less.

Procedures. It shall be the responsibility of Treasurer to:

(1)

Work with bond counsel to draft motions for review by the Town Administrator and the Selectboard for transmittal to Town Meeting for approval of debt authorizations.

(2)

Work with the Town Administrator to project the cash flow needs of individual projects and schedule bond and or BAN sales accordingly.

(3)

Coordinate the compilation of information from Town departments and, where applicable, regional school districts for transmittal to the Town's financial advisor for inclusion in the official statement.

(4)

Identify Town staff to participate in presentations to bond rating agencies, lead the presentation, and coordinate timely responses to any questions raised by a rating agency.

(5)

Work with bond counsel and the Town's financial advisor to draft motions required to be voted by the Selectboard at the time of the award for the sale of bonds.

(6)

For capital projects authorized to be funded through the issuance of debt, in order to avoid arbitrage penalties, insure that the amount borrowed at any given time for individual bond authorizations can be expended on a schedule that complies with Internal Revenue Service requirements.

(7)

Ensure that bond proceeds are segregated, and insure that they are expended for the purpose for which they were borrowed.

(8)

Ensure that the investment of bond proceeds complies with limitations imposed by the Internal Revenue Service.

(9)

In consultation with the Town's financial advisor, insure that all debt-related filings with the federal government (the Internal Revenue Service and the Municipal Securities Rulemaking Board) and the Massachusetts Department of Revenue be done timely.

References.

(1)

Statutes.

MGL c. 41, § 59	MGL c. 41, § 61
MGL c. 44, § 4	MGL c. 44, § 6
MGL c. 44, § 6A	MGL c. 44, § 7
MGL c. 44, § 8	MGL c. 44, § 17
MGL c. 44, § 19	MGL c. 44, § 20
MGL c. 44, § 20A	MGL c. 44, § 21A
MGL c. 59, § 21C(f)	MGL c. 59, § 21C (i1/2)
MGL c. 59, § 21C(j)	MGL c. 80, § 13
26 U.S.C. § 148

(2)

Town of Northfield, Capital Planning Policy.

(3)

Town of Northfield, Financial Reserves Policy.

(4)

Massachusetts Department of Revenue, Division of Local Services - DLS Best Practice: Understanding Municipal Debt.

(5)

Massachusetts Department of Revenue, Division of Local Services - DLS Borrowing Guidelines: Asset Useful Life - Borrowing Limits.

(6)

Massachusetts Department of Revenue, Division of Local Services - DLS Informational Guideline Releases 17-21: Borrowing and 17-22: Premiums and Surplus Proceeds for Proposition 2 1/2 Excluded Debt.

(7)

Government Finance Officers Association Best Practice: Refunding Municipal Bonds.

(8)

Internal Revenue Service Guidance: Arbitrage Guidance for Tax-Exempt Bonds.

§ 410-6 A-4 Cash Flow Forecasting and Budgeting.

Purpose. Managing cash is one of the primary responsibilities of municipal treasurers. A critical component of cash management is projecting balances on-hand to determine that they will be adequate to meet recurring and nonrecurring accounts payable and payroll obligations; and, if not, to identify amounts of revenue anticipation notes (RANs) needed to be borrowed to meet cash flow needs. Conversely, if projections indicate cash on hand will exceed obligations, it can guide treasurers on investment strategies that will maximize returns on investment. The mechanism for making such projections is cash flow forecasting and budgeting.

Applicability. This policy shall apply to the Town Treasurer/Collector given his/her responsibility to manage the Town's cash; the Town Administrator given his/her role in overseeing the financial operations of the Town; the Finance Committee given its roles in the annual budget process; and the Selectboard given its responsibility to authorize the issuance of debt.

Definitions. As used in this section, the following terms shall have the meanings indicated:

ACCOUNTS PAYABLE

The amount that a company owes to its creditors and suppliers.

ANNUAL OPERATING BUDGET

Inclusive of budgets to account for operations of the General Fund and Enterprise Funds.

ENTERPRISE FUND

GENERAL FUND

REVENUE ANTICIPATION NOTES (RANs)

Pursuant to MGL c. 44, § 4, cities, towns and districts may incur debt in any fiscal year for temporary loans in anticipation of the revenue of the fiscal year in which the debt is incurred. The aggregate amount of such notes shall not exceed an amount reasonably required. Such notes shall be payable, and shall be paid, not later than one year from their date and said one-year term may occur within the span of two separate fiscal years. Notes may be authorized and issued under this section by the treasurer of the city, town or district, with the approval of the officer, committee, board or other body required by law to countersign such notes.

Policy. It shall be the policy of the Town that the Treasurer/Collector shall, at the beginning of each fiscal year, prepare a forecast of monthly cash balances to determine their adequacy to meet monthly spending obligations for the fiscal year.

Procedures.

(1)

Upon the adoption of the annual operating budget by the Town Meeting for the upcoming fiscal year, the Treasurer shall prepare a projection of monthly cash balances for the fiscal year beginning July 1 including the General Fund, Enterprise Funds and any other funds of significance, (e.g., Grant Funds). Projections shall include:

(a)

The projected beginning cash balance on July 1.

(b)

The identification of monthly inflows [e.g., tax, utility and departmental revenues (local receipts), state aid distributions, grant revenue, and bond proceeds].

(c)

The projection of monthly outflows (e.g., recurring accounts payable and payroll obligations and non-recurring obligations including but not limited to debt service, capital expenditures, pension obligations, insurance, etc.).

(d)

The projected cash balance at the end of each month.

(2)

If the Treasurer determines that cash will not be sufficient to meet obligations, the Treasurer shall inform the Town Administrator of the need to borrow in anticipation of revenue through the issuance of revenue anticipation notes, the estimated amount to be borrowed and a determination of the adequacy of budgeted funds to cover the estimate of the costs of such borrowing.

(3)

If the Town Administrator validates the Treasurer/Collector's recommendation to borrow in anticipation of revenue, he/she shall inform the Finance Committee and the Selectboard of the intent to issue revenue anticipation notes.

(4)

If the projection of cash indicates monthly surplus balances, the Treasurer shall identify investment opportunities that will maximize the return on investment in accordance with the Town of Northfield Investment Policy.

References.

(1)

Statutes.

MGL c. 44, § 4

(2)

Town of Northfield Investment Policy.

(3)

Massachusetts Department of Revenue, Division of Local Services: Best Practices-Cash Flow Forecast and Short-Term Borrowing, January 2020 (https://www.mass.gov/doc/cash-flow-budgeting-short-term-borrowing).

(4)

Government Finance Officers Association: Best Practice - Using Cash Forecasts for Treasury and Operations Liquidity, 2021 (https://www.gfoa.org/materials/using-cash-forecasts-for-treasury-and-operations-liquidity).

§ 410-7 A-5 Financial Reserves.

Purpose. The creation and maintenance of financial reserves is a critical component of sound and prudent financial management. Reserves serve multiple functions:

(1)

As a source of funding for selected, planned future capital expenditures to reduce the need to issue debt thus avoiding interest and borrowing costs.

(2)

As a source of funding for significant and extraordinary, unforeseen expenditures.

(3)

As a source of funding to substitute for lost revenue during a time of economic downturn thus precluding, or minimizing, cuts to municipal and educational services.

(4)

As evidence to credit rating agencies of a municipality's strong financial management in that the maintenance of significant reserves indicate a commitment to comprehensive long-term planning, a positive factor in credit rating determinations.

Applicability. This policy pertains to short and long-range budget decision-making and applies to the Finance Committee, the Selectboard and Town Administrator in that capacity, and is intended to be advisory to Town Meeting.

Definitions. As used in this section, the following terms shall have the meanings indicated:

ENTERPRISE FUND

Pursuant to Massachusetts General Law (MGL c. 44, § 53F 1/2), municipalities can establish Enterprise Funds to account for services that are delivered on a business-type basis, e.g., water, sewer, trash disposal, golf courses, etc. A municipality adopts an enterprise by a vote of Town Meeting. The Enterprise Fund establishes a separate accounting and financial reporting mechanism for a municipal service for which a fee is charged in exchange for goods or services. Under enterprise accounting, the service's revenues and expenditures are segregated into a separate fund with its own financial statements, rather than being commingled with the revenues and expenses of all other governmental activities.

FINANCE COMMITTEE RESERVE FUND

Pursuant to Massachusetts General Law (MGL c. 40, § 5A), to provide for extraordinary or unforeseen expenditures in each fiscal year, a town may, at an annual or special town meeting, appropriate or transfer a sum or sums not exceeding in the aggregate 5% of the levy of the fiscal year preceding the fiscal year for which the fund, to be known as the Reserve Fund, is established. No direct drafts against this fund shall be made, but transfers from the fund may from time to time be voted by the Finance Committee. At the end of each fiscal year, any unused amount of the Reserve Fund is closed to the surplus of the General Fund.

FREE CASH

Also known as unassigned fund balance, represents the surplus of the General Fund operating budget at the close of a fiscal year resulting from revenues realized in excess of estimates and expenditures less than appropriations plus unused free cash resulting from the prior fiscal year. Use of free cash to support appropriations requires a vote of the Town Meeting. The amount of free cash must be certified by the Massachusetts Department of Revenue before it is available for appropriation. Unpaid property taxes and certain deficits reduce the amount of remaining funds that can be certified as free cash.

GENERAL FUND

The primary fund used by a government entity. This fund is used to record all resource revenues and expenditures that are not associated with special-purpose funds. The activities being paid for through the General Fund constitute the core administrative and operational tasks of a municipality.

OTHER POST-EMPLOYMENT BENEFITS (OPEB)

Other post-employment benefits are benefits, other than pension distributions, paid to employees during their retirement years. The major post-employment benefit in Massachusetts is health insurance.

OVERLAY SURPLUS

Excess overlay that is determined to be over and above what is needed to cover abatements and exemptions of property taxes in a given fiscal year. It is determined, certified, and transferred by vote of the Board of Assessors. The use of overlay surplus as a funding source is subject to appropriation by the Town Meeting and can be used for any lawful purpose. Any unused balance of overlay surplus at the end of a fiscal year is closed to the General Fund balance and becomes part of free cash available for appropriation in the subsequent fiscal year.

RETAINED EARNINGS

Similar to free cash, retained earnings is the surplus of an Enterprise Fund budget at the close of a fiscal year resulting from revenues realized in excess of estimates and expenditures less than appropriations plus unused retained earnings carrying over from the prior fiscal year. The use of retained earnings is subject to appropriation by the Town Meeting for expenditures related to the enterprise. The amount of retained earnings available for appropriation must be certified by the Massachusetts Department of Revenue before it can be voted by the Town Meeting.

STABILIZATION FUNDS

Pursuant to Massachusetts General Law (MGL c. 40, § 5B), a municipality, through a vote of the Town Meeting, may establish one or more Stabilization Funds and designate the purpose for which each fund is established. The creation of a Stabilization Fund requires a majority vote of the Town Meeting. Appropriation of funds into a Stabilization Fund is by majority vote. Appropriation of funds out of a Stabilization Fund requires a two-thirds vote of the Town Meeting. Any interest that is earned from the investment of Stabilization Fund monies accrues to the Stabilization Fund. There is no limit on the cumulative balance of all Stabilization Funds in a municipality.

Policy.

(1)

It shall be the general policy of the Town to:

(a)

Maintain reserves to provide the capacity to respond to the costs of unanticipated and extraordinary events, significant reductions in annual revenue streams due to economic disruption, and to provide a source of available funds for future capital expenditures.

(b)

Maintain and manage multiple types of reserves, including Stabilization Funds, free cash, retained earnings, and overlay surplus.

(c)

Maintain overall General Fund reserves including the Town's combined Stabilization Funds and free cash between 5% and 10% of the Town's prior year's General Fund operating budget.

(2)

The following policies shall govern the administration of the following reserves.

(a)

Finance committee Reserve Fund. Annually, the annual operating budget recommendation shall include an appropriation into the Finance Committee Reserve Fund. Every year, the Finance Committee shall review the history of Finance Committee transfers to determine if the annual appropriation into the Finance Committee Reserve is adequate.

(b)

Free cash.

[1]

In the development of the proposed annual General Fund operating budget, the Town shall strive to estimate revenue and recommend appropriations at a level that will generate free cash at fiscal year-end equal to approximately 3% of the Town's prior year's General Fund operating budget. As a general rule, the use of free cash equal to the 3% threshold will be limited to nonrecurring operating or capital budget expenditures, and extraordinary or unforeseen costs that cannot be financed from the Finance Committee Reserve Fund or through transfers between line items in the operating budget.

[2]

It shall be the policy of the Town to avoid the use of free cash to support the operating budget, except under extraordinary or unusual circumstances. Further, to the extent practicable, any amounts of free cash certified in excess of 3% of the Town's prior year general operating revenue shall be appropriated to one or more of the Town's Stabilization Funds and/or to offset unfunded liabilities, e.g. other post-employment benefits (OPEB).

(c)

General Stabilization Fund.

[1]

The Town shall maintain a general Stabilization Fund whose primary purpose is to replace declines in General Fund revenue due to economic downturn. The target level of the fund shall be 5% of the prior year's General Fund operating budget, an amount estimated to support the operating budget through three years of economic downturn. The Town shall strive to annually appropriate to the General Stabilization Fund 35% of certified free cash in excess of 3% of the prior year's General Fund operating budget (see above) until the target minimum balance is met.

[2]

Once the target level of the fund is reached, if any use of the fund reduces the balance below the target level, a plan for replenishment of the Fund shall be developed per the procedure described below.

[3]

In fiscal years when no appropriation into the General Stabilization Fund is required because it is at its target, funding sources historically targeted for this purpose but not needed will be redirected to funding of the Town's OPEB liability.

(d)

Special purpose Stabilization Fund(s).

[1]

The Town shall maintain one or more specialized Stabilization Funds to finance future needs. Sources of financing appropriations into special purpose Stabilization Funds shall include each or some combination of taxation; available funds including but not limited to free cash and overlay surplus; and other nonrecurring or potentially inconsistent revenue sources. Such Stabilization Funds shall include but not be limited to the following:

[a]

Capital Stabilization Fund(s), to finance selected future capital needs as identified through the Town's annual capital planning process (see Capital Planning Policy[1]) on a pay-as-you-go basis or to subsidize debt service of large capital projects, (e.g., municipal or school construction) to mitigate the impact on taxpayers. Use of a Capital Stabilization Fund(s) to finance projects on a pay-as-you-go basis can serve to preserve the Town's debt capacity for major capital projects.

[1]

Editor's Note: Said policy is on file in the Town offices.

[2]

The Town will strive to appropriate 2% of the Town's prior year's General Fund operating budget into a Capital Stabilization Fund(s) annually.

(e)

Overlay surplus. Overlay surplus shall be reserved for nonrecurring costs such as direct capital expenditures, contributions to the general Stabilization Fund or a special purpose Stabilization Fund, or to finance unfunded liabilities, e.g., OPEB.

(f)

Retained earnings. In the development of the proposed annual budget for its Enterprise Fund(s), the Town shall strive to estimate revenue and recommend appropriations at a level that will generate retained earnings at fiscal year-end adequate to address the following:

[1]

To cover potential revenue shortfalls in any given fiscal year;

[2]

To finance unanticipated, extraordinary expenditures not provided for in the adopted annual budget;

[3]

To provide cashflow for the fund to preclude the use of the Town's pooled cash to fund Enterprise Fund operations which would have a negative impact on General Fund interest income; and

[4]

For rate stabilization.

(3)

In addition, the Town shall consider, consistent with guidance from the Department of Revenue (DLS Departmental Procedure Manual: Enterprise Funds), adding to Enterprise Fund budgets a line item ("budget surplus") whose unexpended balance at fiscal year-end would accrue to retained earnings and be available to finance selected future capital needs as identified through the Town's annual capital planning process. These amounts could accumulate as unappropriated retained earnings until the capital need arises, or could be appropriated annually into a Special Purpose Stabilization Fund created to fund capital projects.

Procedures. The following procedures are adopted pursuant to this policy.

(1)

Finance committee Reserve Fund. Requests of the Finance Committee for Reserve Fund transfers shall be based on requests from department heads submitted to the Town Administrator for initial review, who will then bring those requests to the Finance Committee for review and approval, with input from the Town Administrator.

(2)

General Stabilization Fund. Pursuant to the policy governing the General Stabilization Fund, if use of the Fund results in a balance that falls below the target of 5% of the prior year's General Fund operating budget, the Town Administrator, in consultation with the Selectboard, shall develop a plan for transmittal to and consideration by the Finance Committee to bring the balance of the Fund back to its target level.

(3)

Overlay surplus.

(a)

Pursuant to the policy governing the use of overlay surplus, the Selectboard shall periodically request that the Board of Assessors conduct an analysis of the overlay to determine the amount, if any, that can be declared overlay surplus. The analysis shall consider the following:

[1]

Current cumulative balance in the overlay accounts of all fiscal years after reconciling with the Town Accountant's records;

[2]

Balance of property tax receivables, which represents the total real and personal property taxes still outstanding for all levy years; and

[3]

Estimated amount of potential abatements, including any cases subject to State Appellate Tax Board hearings or other litigation.

(b)

Upon determining any excess in the overlay account, the Board of Assessors shall present the analysis to the Selectboard for its review. If the Selectboard determines that the excess is needed to support proposed spending, it shall, pursuant to Massachusetts General Laws (MGL c. 59, § 25), formally request that the Board of Assessors convene to consider a vote to transfer overlay to overlay surplus within 10 days of such request. Notification of that vote shall be made to the Selectboard, Town Administrator, Town Accountant, and Finance Committee.

(4)

Appropriations from reserves. The overall level of financial reserves is critical to maintaining the Town's bond rating and ensuring sufficient funds to manage unanticipated needs. Funds shall be recommended for appropriation from reserves only after an initial review by the Town Administrator and/or Town Accountant and their presentation to the Selectboard and Finance Committee. Consideration of the use of reserves shall include an assessment of whether the balance of relevant reserve accounts after their proposed use are adequate to offset potential downturns in revenue sources and provide sufficient cash balance for daily financial needs.

References.

(1)

Statutes.

MGL c. 40, § 6	MGL c. 40, § 5A
MGL c. 40, § 5B	MGL c. 59, § 25
MGL c. 44, § 53F 1/2

(2)

DLS Best Practices. Free Cash and Special Purpose Stabilization Funds.

(3)

DLS Departmental Procedure Manual. Enterprise Funds.

(4)

DLS Informational Guideline Releases 17-20. Stabilization Funds and 17-23: Overlay and Overlay Surplus.

(5)

Government Finance Officers Association Best Practices. Fund Balance Guidelines for the General Fund and Working Capital Targets for Enterprise Funds.

§ 410-8 A-6 Investments.

Purpose. The purpose of this policy is to establish guidelines to govern the investment of town funds by the Treasurer/Collector. It pertains to the investment of revenue of a variety of funds (e.g., General, Enterprise, Revolving, Special Revenue, Agency), as well as trust funds including but not limited to Stabilization Funds and the other post-employment benefits (OPEB) Liability Trust Fund. It does not pertain to investment of pension funds for Northfield employees, which is invested and managed by Franklin County Retirement System.

Applicability. This policy applies to the Treasurer/Collector regarding his/her duties to invest and manage Town funds and to the Town Accountant regarding his/her role accounting for investment activities.

Definitions. As used in this section, the following terms shall have the meanings indicated:

ARBITRAGE

Investing funds borrowed at a lower interest cost in investments providing a higher rate of return.

LIQUIDITY

The degree to which invested cash is readily accessible to finance the cost of current operations ready access to cash to finance the cost of current.

MASSACHUSETTS MUNICIPAL DEPOSITORY TRUST (MMDT)

An investment pool for state, local, county governments and other independent governmental authorities under the auspices of the Treasurer of the Commonwealth.

REPURCHASE AGREEMENT (REPO)

A form of short-term borrowing for dealers in government securities. In the case of a repo, a dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day at a slightly higher price.

SAFETY

The degree to which investment principal is protected which is achieved through the mitigation of credit risk and interest rate risk.

YIELD

The interest rate on an investment.

Policy. It shall be the policy of the Town of Northfield as follows:

(1)

That the Treasurer/Collector shall have the authority and responsibility to invest all Town funds subject to the requirements of all federal and state law and regulations governing the investment of municipal funds, including arbitrage restrictions on the investment of bond proceeds.

(2)

That the Treasurer/Collector will invest funds in a manner that meets the Town's daily operating cash flow requirements.

(3)

That the Treasurer/Collector shall seek the highest possible return on investment taking into consideration the following in the priority order shown when investing Town funds:

Safety.

Liquidity.

Yield.

That the Treasurer/Collector may invest in the following instruments:

(a)

The MMDT.

(b)

U.S. Treasuries up to one-year maturity from the date of purchase.

(c)

U.S. Agency obligations up to one-year maturity from the date of purchase.

(d)

Bank accounts and certificates of deposit up to one year fully insured by the FDIC and in some cases also Depository Insurance Fund of Massachusetts (DFIM).

(e)

Unsecured bank deposits such as checking, savings and money market accounts and certificates of deposits (with maturities not greater than three months) not covered in the categories above, with the amount invested limited to no more than 5% of an institution's assets and no more than 10% of a municipality's cash. The creditworthiness of the institution shall be tracked by a creditworthiness reporting system such as Veribanc or Sheshunoff.

(f)

Repurchase agreements.

(5)

That the Treasurer/Collector shall seek to diversify the Town's investments in terms of maturity as well as instrument type and issuer. Diversification should include prohibition against the overconcentration of maturities and investments in a single institution. With the exception of U.S. Treasury obligations or investments fully collateralized by U.S. Treasuries or agencies, and state pools (e.g., the MMDT), no more than 10% of the Town's investments shall be invested in a single financial institution.

(6)

That the Town set performance expectations that the Treasurer/Collector, and any assistant Treasurer, act in strict adherence with the state conflict of interest law.

(7)

To make overall investment decisions in accordance with "prudent person" standards under MGL c. 203C or as otherwise allowed by state law.

Procedures. The following procedures shall be followed by the Treasurer/Collector in executing his/her investment responsibilities:

(1)

Upon receipt of statements of interest earned, post to the Treasurer's cashbook and transmit earnings information to the Town Accountant for posting to the general ledger.

(2)

For any brokerage houses and brokerage dealers wishing to do business with the Town, the Treasurer/Collector will require submittal of the following information for review:

(a)

Audited financial statements;

(b)

Proof of National Association of Security Dealers certification;

(c)

A statement from that the dealer has read the Town's investment policy and will comply with it; and

(d)

Proof of creditworthiness (minimum standards at least five years in operation and minimum capital of $10,000,000.

(3)

No later than 30 days after fiscal year-end, the Treasurer/Collector will prepare a report for transmittal to the Town Accountant to include the following:

(a)

A listing of the individual accounts and individual securities held as of June 30;

(b)

A listing of the short-term investments portfolio by security type and maturity to demonstrate compliance with the diversification and maturity guidelines of this,

(c)

A summary of income earned on a monthly basis and at fiscal year-end.

References.

(1)

Statutes.

MGL c. 29, § 38A	MGL c. 44, § 54
MGL c. 44, § 55	MGL c. 44, § 55A
MGL c. 44, § 55B	MGL c. 167, § 15A
MGL c. 203C	MGL c. 268A

(2)

Office of the Commissioner of Banks: List of Legal Investments.

(3)

Governmental Accounting Standards Board Statement 40: Deposit and Investment Risk Disclosures.

(4)

Massachusetts Collectors' and Treasurers' Association: Investment Policy Statements.

§ 410-9 A-7 Other Post-Employment Benefits (OPEB).

Purpose.

(1)

At retirement, in addition to eligibility for a pension, funded in whole or in part by an employee's regular contributions to a pension fund while an active employee, municipal employees in the commonwealth are entitled to receive what is referred to as other post-employment benefits (OPEB) which include post-retirement health insurance and may also include dental and life insurance. The Town's share of this future benefit for current retirees, as well as the future benefit for current active employees (future retirees), if not funded annually results in an ever-increasing unfunded liability, that when it comes due can have severe impacts on a municipality's operating budget.

(2)

To ensure fiscal sustainability, this policy sets guidelines for a responsible plan to meet the Town's obligation to provide other post-employment benefits for current and future retirees.

Applicability. This policy encompasses OPEB-related budget decisions, accounting, financial reporting, and investment and applies to the Finance Committee in its role to recommend the proposed annual budget; to the Selectboard in its role as participant in the annual budget development process; the Treasurer, pursuant to MGL c. 32B, § 20, as custodian of the "OPEB Liability Trust Fund"; and to the Town Administrator with responsibility for OPEB-related activities.

Definitions. As used in this section, the following terms shall have the meanings indicated:

ANNUAL REQUIRED CONTRIBUTION

An actuarially calculated amount which if appropriated annually will retire a municipality's unfunded OPEB liability over a prescribed schedule.

GOVERNMENTAL ACCOUNTING STANDARDS BOARD (GASB)

Is an independent, private-sector organization that establishes accounting and financial reporting standards for U.S. state and local governments that follow generally accepted accounting principles (GAAP).

OPEB LIABILITY TRUST FUND

(1)

A trust fund established by a governmental unit for the deposit of appropriations, gifts, grants and other funds for the benefit of retired employees and their dependents; payment of required contributions by the governmental unit for the group health insurance benefits provided to employees and their dependents after retirement; and reduction and elimination of the unfunded liability of the governmental unit for those benefits. It is an expendable trust fund, subject to appropriation, that is managed by a trustee or board of trustees.

(2)

The Town of Northfield created this trust fund under Article 21 of the May 7, 2018, Annual Town Meeting. On July 29, 2019, the Selectboard voted to recommend investing the assets of the Trust Fund in the State Retiree Benefit Trust Fund, and the Treasurer signed an agreement with the commonwealth to this end. Further, the Selectboard designated the Treasurer as Trustee of the Fund.

THE STATE RETIREE BENEFIT TRUST FUND (SRBTF)

An investment vehicle established by Massachusetts law that enables political subdivisions of the Commonwealth to invest funds set aside to fulfill other post-employment benefits (OPEB) for retirees such as healthcare or dental coverage in retirement. Governmental accounting regulations prevent commingling these assets with traditional retirement investment funds, but the SRBTF allows for these eligible state and municipal entities a turnkey option to set aside money to be invested through the Pension Reserves Investment Management Board (PRIM).

Policy. It shall be the policy of the Town as follows:

(1)

The Town is committed to a disciplined and methodical annual funding of the long-term cost of OPEB due its current and future retirees.

(2)

The Town will engage the services of an actuary every two years to perform an updated actuarial valuation of its OPEB liability as a source of information for decision makers about progress toward funding of the liability and to comply with reporting requirements promulgated by GASB.

(3)

The Town will periodically assess strategies to mitigate its OPEB liability by evaluating the structure of benefits offered and their cost drivers while at the same time avoiding benefit reductions that would place undue burdens on employees or risk making the Town an uncompetitive employer.

Procedures.

(1)

Accounting for and reporting the OPEB liability.

(a)

Every two years, the Town Administrator will engage the services of an actuary to conduct a valuation or interim update of the Town's OPEB liability to be transmitted to the Town's independent auditor for integration into the Town's annual financial statements in compliance with guidelines of the Governmental Accounting Standards Board.

(b)

Upon completion of an actuarial valuation, the Town Administrator shall transmit the document to the Selectboard and Finance Committee for their information and consideration.

(2)

Trust management and investment. Appropriations by Town Meeting into the Town's OPEB Trust Fund are to be invested by the Treasurer through the State Retire Benefits Trust Fund administered by the Massachusetts Pension Reserves Investment Management Board (PRIM), unless and until the Treasurer, as Trustee of the Fund, selects an alternative approach to investment as permitted by MGL c. 32B, § 20. Any change in approach to investment shall be made only after consultation with the Town Administrator, Selectboard and Finance Committee.

(3)

Mitigation.

(a)

On an ongoing basis, the Town will assess health care cost containment measures and evaluate strategies to mitigate its OPEB liability. The Town Administrator will monitor proposed laws affecting OPEBs and Medicare and analyze their impacts.

(b)

The Treasurer will regularly audit, subject to periodic review by the Town Administrator, the Town's health insurance bills and request removal of any Town of Northfield subscribers to the Hampshire County Group Insurance Trust deemed ineligible based on work hours, active Medicare status, or other factors.

(4)

OPEB funding strategies.

(a)

To address the Town's OPEB liability, the Town Administrator shall annually recommend a funding schedule to the Selectboard and Finance Committee based on the most recent actuarial valuation, and review that schedule every year following the issuance of an updated actuarial valuation.

(b)

Potential sources of funding for the annual appropriation to the OPEB Liability Trust Fund may include, but not be limited to, General Fund revenue, free cash, and overlay surplus. In addition, the Finance Committee's recommended Enterprise Fund budget(s) shall include a line item to fund all or part of the enterprise operations' annual share of the Town's OPEB liability, to be funded through user charges.

(c)

To move toward full funding of the actuarially derived annual required contribution to the OPEB Trust Fund, the Finance Committee, with assistance from the Town Administrator, shall periodically evaluate the potential of the following:

[1]

Transfer unexpended funds from insurance line items to the OPEB Liability Trust Fund.

[2]

Determine and commit to appropriating an annual portion of free cash.

[3]

Appropriate an annually increasing percentage of General Fund revenue.

[4]

At a future time when the pension reserve for Northfield employees is fully funded, direct any reduction in the Town's annual pension assessment to the OPEB Liability Trust Fund.

References.

(1)

Statutes.

MGL c. 32B, § 20	MGL c. 32B, § 20A
MGL c. 44, § 54	MGL c. 44, § 55	MGL c. 203C

(2)

Town of Northfield Investment Policy.

(3)

Town of Northfield Financial Reserves Policy.

(4)

GASB Statements 75: Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions and 74: Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans.

(5)

Government Finance Officers Association Best Practices: Ensuring Other Postemployment Benefits (OPEB) Sustainability and Sustainable Funding Practices for Defined Benefit Pensions and Other. Postemployment Benefits (OPEB).

(6)

Article 21 of the 2018 Annual Town Meeting vote creating the Town's OPEB Liability Trust Fund.

§ 410-10 A-8 Annual Audit.

Purpose.

(1)

The purpose of this policy is to recognize the value and importance of conducting an annual audit of the Town's finances by an external, independent certified public accountant (CPA).

(2)

An annual audit performed by an external, independent auditor serves multiple purposes.

(a)

It provides an opinion that a municipality's year-end financial statements are complete, accurate and in conformance with rules established by the Governmental Accounting Standards Board (GASB).

(b)

It provides an opportunity to review the internal controls of the Town to ensure operational procedures are in place to ensure the protection of public assets.

(c)

It serves as a tool to foster taxpayer confidence in the Town's management of its resources.

(d)

It provides valuable information to credit rating agencies used in its determination of the Town's credit rating. (The absence of an annual audit can have a negative effect on the rating assigned to the Town, resulting in higher interest costs over the life of bonds issued).

Applicability. This policy shall apply to the Selectboard and the Town Administrator or his/her designee, in the administration of this policy.

Definitions. As used in this section, the following terms shall have the meanings indicated:

GOVERNMENT FINANCE OFFICERS ASSOCIATION (GFOA)

Founded in 1906, it represents public finance officials throughout the United States and Canada. GFOA's mission is to advance excellence in public finance.

GOVERNMENTAL ACCOUNTING STANDARDS BOARD (GASB)

The Governmental Accounting Standards Board (GASB) is the source of generally accepted accounting principles (GAAP) used by state and local governments in the United States. The GASB is subject to oversight by the Financial Accounting Foundation (FAF), which selects the members of the GASB and the Financial Accounting Standards Board. GASB's mission is to establish and improve standards of state and local governmental accounting and financial reporting that will result in useful information for users of financial reports and guide and educate the public, including issuers, auditors, and users of those financial reports.

INTERNAL CONTROL

Procedures put in place to safeguard assets, promote accountability, increase efficiency, and prevent fraudulent behavior.

MANAGEMENT LETTER

A letter prepared by the auditor which discusses findings and recommendations for improvements in internal control that were identified during the audit and were not required to be included in the auditor's report on internal control, and other management issues.

Policy. It shall be the policy of the Town that:

(1)

An audit of the Town's finances shall be performed annually by a CPA.

(2)

The CPA selected shall have no personal interests, direct or indirect, in the fiscal affairs of the Town of Northfield or of any of its officers or employees.

(3)

The annual audit shall conform to the requirements of GASB.

(4)

Notwithstanding the exemption of auditing services from competitive procurement [pursuant to MGL c. 30B, § 1(b)], in conformance with recommendation of the GFOA, every five years the Town shall consider conducting a competitive procurement of audit services with the intent of bringing a fresh perspective to the review of the Town's finances and financial operations.

(5)

If the results of a competitive procurement result in the selection of the Town's existing auditor, the Town shall seek to have the firm assign a different audit manager to bring the fresh perspective that otherwise would have resulted from engaging a different firm.

(6)

Each contract for the annual audit shall include a provision that a management letter be included as a companion to the presentation of financial statements and the auditor's opinion regarding the statements.

(7)

November of each year be established as the target for completion of the annual audit.

Procedures. The Town Administrator, or his/her designee, shall:

(1)

Manage the procurement of audit services and recommend an auditor to the Selectboard;

(2)

Insure that information required by the auditor from Town departments and other relevant entities is transmitted timely; and

(3)

Transmit timely the completed annual audit and management letter to the Selectboard.

References.

(1)

Statutes.

MGL c. 40, § 441

(2)

MA DOR Division of Local Services Best Practice: Annual Audits.

§ 410-11 A-9 User Fees.

Purpose. One source of revenue to finance the operations of municipalities in Massachusetts is the broad category of "local receipts." A subset of local receipts is user fees which encompass excises and charges for services. The amount that can be charged for certain user fees, excises and charges for services is established by statute, e.g., motor vehicle excise, hunting licenses, and firearms permits. Other fees and charges are determined by each municipality, e.g., building permit fees, recreation fees, and sewer charges, to name a few. The purpose of this policy is to guide the Town in making determinations of the amount to be set as a user fee for a particular service.

Applicability. This policy shall apply to Town boards and commissions with responsibility for setting user fees not fixed by statute and the Town Administrator with responsibility for overseeing the implementation of this policy.

Definitions. As used in this section, the following terms shall have the meanings indicated:

DIRECT COSTS

The costs to deliver a service that are funded by Town Meeting appropriations to a Town department that delivers the service.

INDIRECT COSTS

The costs incurred by Town departments in support of a service delivered by another Town department, e.g., pension costs, accounting, payroll, employee benefits, etc.

USER FEES

The Emerson College case [Emerson College v. Boston, 391 Mass. 415 (1984)] established that fees imposed by a municipality tend to fall into one of two categories: user fees, based on the rights of the municipality as proprietor of the instrumentalities used, or regulatory fees (including licensing and inspection fees), founded on the police power to regulate particular businesses or activities. Further, such fees are distinguishable from taxes in that: 1) they are charged in exchange for a particular governmental service which benefits the party paying the fee in a manner "not...shared by other members of society"; 2) they are paid by choice, in that the party paying the fee has the option of not utilizing the governmental service; and 3) the charges are collected not to raise revenues but to compensate the governmental entity providing the services for its expenses.

Policy. It shall be the policy of the Town's boards and commissions with authority to set user fees to:

(1)

Identify those services that are candidates for the establishment of a user fee because they benefit a party in a manner not shared by the broader community.

(2)

Establish a user fee based on the total cost of delivering the service including direct costs, indirect costs and capital costs.

(3)

Identify factors to be considered in determining whether a user fee shall recover the full or partial cost of delivering a service.

(4)

Review, at a minimum every three years, with the exception of sewer charges which shall be reviewed annually, existing user fees to determine if they are capturing the total cost of delivering the service.

Procedures. It shall be the responsibility of the Town Administrator, or his/her designee, to:

(1)

Compile an inventory of all user fees charged by the Town including a reference to the authority for charging such a fee, the current fee, whether it recovers all or part of the total cost of the service, and the date it was last reviewed.

(2)

Provide technical assistance to all Boards and Commissions with fee setting responsibility in determining the total cost of delivering the services under their jurisdiction for which a fee is currently or is proposed to be charged.

(3)

Assist Town Boards and Commissions with authority to set fees in their periodic review of their fees to determine if they are capturing the total cost of the service being delivered.

References.

(1)

Statutes.

MGL c. 40, § 22F (authority to fix reasonable fees for licenses, permits, or certificates issued pursuant to statutes or regulations).

MGL c. 41, § 69B (water commissioners; powers and duties)

MGL c. 44, § 53G (employment of outside consultants)

MGL c. 45, § 14 (fee setting authority - recreation commissions)

MGL c. 83, § 16 (charges for use of sewers)

(2)

Emerson College v. Boston, 391 Mass. 415 (1984).

(3)

Costing Municipal Services. Workbook and Case Study, MA DOR Division of Local Services workbook. Establishing Government Charges and Fees, Government Finance Officers Association Best Practice, February 2014.

(4)

DLS Guidance of user fees. MA DOR Division of Local Services February 2016. https://www.mass.gov/doc/user-fees-0/download

(5)

Best practices: establishing government charges and fees. Government Finance Officers Association. https://www.gfoa.org/materials/establishing-government-charges-and-fees.

§ 410-12 A-10 Risk Management.

Purpose. The purpose of this policy is to heighten the importance of acknowledging potential liabilities that can affect public and employee safety, Town property, the Town's delivery of services and its financial condition; and to develop strategies and programs to identify, minimize, or reduce risk associated with these liabilities.

Applicability. The Town Administrator shall have overall responsibility for the risk management program with assistance from a Risk Management Committee comprised of members selected by the Town Administrator.

Definitions. As used in this section, the following terms shall have the meanings indicated:

RISK MANAGEMENT

Risk management encompasses identifying risks, evaluating potential losses, and ultimately planning and developing a risk management program to mitigate these risks to an acceptable level.

Policy. It shall be the responsibility of the Town Administrator, on an ongoing basis, to identify, analyze, and evaluate risks associated with the delivery of Town services and develop programs to mitigate these risks. Such programs shall include but not be limited to the following:

(1)

The procurement of property, liability, automobile and workers' compensation insurance at levels adequate to protect the Town against loss and litigation.

(2)

At minimum, every five years the Town Administrator shall evaluate the need to seek competitive bids to replace existing property and liability coverages.

(3)

The evaluation of Town property to identify unsafe conditions that could jeopardize employee and/or public safety; the identification of modifications to property to address such conditions; and the promulgation of protocols governing the use of property that will protect employee and public safety.

(4)

The evaluation of Town services to identify risks associated with service delivery, and the identification of changes in service delivery to mitigate such risks.

(5)

Work with Town Counsel to develop language for construction and service contracts that, where appropriate, results in the transfer of risk to other parties.

(6)

The development of training programs for Town employees to protect against accident and injury on the job.

(7)

The evaluation of the Town's information technology infrastructure to identify the potential for damage to the integrity of the Town's data from internal and external intrusion and to develop systems and protocols to protect against such damage.

Procedures.

(1)

The Town Administrator shall create a Risk Management Committee to assist in the implementation of this policy. The Committee shall be chaired by the Town Administrator, or his/her designee as approved by the Selectboard. Candidates for consideration to serve on the Committee shall include but not be limited to heads of departments whose activities expose the Town to liability through injury to employees, clients or damage to Town assets, e.g., the Highway Superintendent, the Fire Chief, the Police Chief, the Director of EMS and the Senior Center Director.

(2)

Upon recommendation of the Risk Management Committee, the Town Administrator shall seek funding to engage the services of outside consultants, including IT consultants, to assist in the identification of risk and make recommendations for its mitigation.

(3)

Annually, the Town Administrator shall schedule a meeting with the Town's insurer(s) to review outstanding claims against the Town and the materiality of such claims on the Town's financial condition.

References.

(1)

Government finance officers association best practice. Creating a Comprehensive Risk Management Program, March 2009.