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Got a question? Try Ask the MMA Is there a difference between a “free cash” account and a “stabilization fund”?
Q: Is there a difference between a “free cash” account and a “stabilization fund”?
A: According to the Division of Local Services, “free cash” is defined as: Remaining, unrestricted funds from operations of the previous fiscal year, including unexpended free cash from the previous year, actual receipts in excess of revenue estimates shown on the tax recapitulation sheet, and unspent amounts in budget line items. Unpaid property taxes and certain deficits reduce the amount that can be certified as free cash. The calculation of free cash is based on the balance sheet as of June 30, which is submitted by the community’s auditor, accountant, or comptroller. Free cash is not available for appropriation until it is certified by the director of accounts.
“Stabilization fund” is defined by the DLS as a fund designed to accumulate amounts for capital and other future spending purposes, although it may be appropriated for any lawful purpose (M.G.L. Ch. 40, Sect. 5B). Communities may establish one or more stabilization funds for different purposes and may appropriate into them in any year an amount not to exceed 10 percent of the prior year’s tax levy. The total of all stabilization fund balances shall not exceed 10 percent of the community’s equalized value, and any interest shall be added to and become a part of the funds. A two-thirds vote of town meeting or city council is required to establish, amend the purpose of, or appropriate money from the stabilization fund.
Free cash and stabilization funds are types of “available funds,” defined by the DLS as: Balances in the various fund types that represent non-recurring revenue sources. As a matter of sound practice, they are frequently appropriated to meet unforeseen expenses, for capital expenditures or other one-time costs. Examples also include overlay surplus, water surplus, and enterprise retained earnings.
Got a question? Try Ask the MMA Is there a difference between a “free cash” account and a “stabilization fund”?
Is there a difference between a “free cash” account and a “stabilization fund”?
Q: Is there a difference between a “free cash” account and a “stabilization fund”?
A: According to the Division of Local Services, “free cash” is defined as: Remaining, unrestricted funds from operations of the previous fiscal year, including unexpended free cash from the previous year, actual receipts in excess of revenue estimates shown on the tax recapitulation sheet, and unspent amounts in budget line items. Unpaid property taxes and certain deficits reduce the amount that can be certified as free cash. The calculation of free cash is based on the balance sheet as of June 30, which is submitted by the community’s auditor, accountant, or comptroller. Free cash is not available for appropriation until it is certified by the director of accounts.
“Stabilization fund” is defined by the DLS as a fund designed to accumulate amounts for capital and other future spending purposes, although it may be appropriated for any lawful purpose (M.G.L. Ch. 40, Sect. 5B). Communities may establish one or more stabilization funds for different purposes and may appropriate into them in any year an amount not to exceed 10 percent of the prior year’s tax levy. The total of all stabilization fund balances shall not exceed 10 percent of the community’s equalized value, and any interest shall be added to and become a part of the funds. A two-thirds vote of town meeting or city council is required to establish, amend the purpose of, or appropriate money from the stabilization fund.
Free cash and stabilization funds are types of “available funds,” defined by the DLS as: Balances in the various fund types that represent non-recurring revenue sources. As a matter of sound practice, they are frequently appropriated to meet unforeseen expenses, for capital expenditures or other one-time costs. Examples also include overlay surplus, water surplus, and enterprise retained earnings.
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