Canton, Massachusetts · Saved source text
Article 30 - Vote to Establish a Capital Stabilization Fund - revised 4-22-22.pdf pdf file
Saved text from 5 source pages. Transcription and OCR may contain errors; verify figures and wording against the original. Retrieved 2026-10-15.
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Jones, Ellen
From: Scollins, William
Sent: Friday, April 22, 2022 8:56 AM
To: Cindy Thomas; Dan Cole; David Clough; Emilio Mauro; Karen Foley; Reuki Schutt;
Thomas Emery; Tim McKenna
Cc: Jones, Ellen
Subject: Capital Stabilization Funds
Dear Fincom Members,
I thought this timely recommendation from Mass DOR was worth sharing given than we are proposing to establish such
a fund at the upcoming ATM.
Highly Recommended: Establishing a Capital Projects Special
Purpose Stabilization Fund
Financial Management Resource Bureau
The DLS Financial Management Resource Bureau (formerly the Technical Assistance Bureau) has offered financial management
advice to municipalities across the state for over 30 years. To share this guidance more broadly, we thought it would be helpful to
highlight some of our more useful, timely, or interesting recommendations for the benefit of City & Town readers.
A city or town’s capital assets are a vital part of providing essential services to residents. Capital assets include public buildings and
structures, roadways, parks and fields, large equipment like dump trucks, mowers, fire engines, fire breathing apparatus, police
cruisers, radio equipment, as well as land acquisitions. Major repairs to a capital asset, or when it needs to be replaced unexpectedly or
reaches its expected useful life early, can be a significant shock to the budget. Additionally, deferred maintenance of existing capital
assets is a major contributor to capital failures, as these necessary upkeep costs are sometimes avoided in the interest of balancing the
budget. One way to better prepare for capital expenditures, both planned and unexpected, is to establish a special purpose capital
stabilization fund dedicated to funding regular, required capital repairs and maintenance.
A community can create a special purpose stabilization fund under M.G.L. 40 § 5B with a two-thirds vote of the legislative body and
designate capital expenses as its purpose. Additionally, with further acceptance, communities may dedicate all or a portion of a
particular fee, charge, or other receipt to provide a consistent funding source. A capital stabilization fund works best accompanied by a
set of formal financial policies governing the use and replenishment of reserves, as well as capital planning by defining a capital project
(dollar threshold, years of useful life, type of project) and detailing a funding strategy with regard to cash, debt, and uses of the
stabilization fund(s). For example, by authorization, the capital stabilization fund is generally for capital expenses, but by policy, the use
can be more narrowly defined as a funding source for cash-funded capital expenditures or for maintenance/repair projects that may not
qualify to be funded under the capital plan but will preserve the useful life of capital assets.
When adopting policies for capital planning and special purpose stabilization funds, communities should consider the following:
• Overall financing strategy, including use of the capital stabilization fund (balance of debt versus cash capital spending), the
size of the annual capital budget (often in terms of a percentage of revenue), and a statement expressing the preference for
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borrowing terms, such as 10, 15, or 20 years (limited by useful life).
• Definition of a capital project and what can be funded through the capital improvement plan versus what is to be included in
the operating budget.
• Criteria used to evaluate, rank, and prioritize capital projects.
• Special purpose stabilization funding source (dedicated source or annual appropriation) and level (minimum dollar amount or a
percentage of the budget).
• A method to replenish the fund, including establishing indicators for when to appropriate into the funds, such as a percentage
of new growth or free cash above a policy target.
Based on municipal data submitted to DLS on the Schedule A, the below graphics display the number of communities reporting a
general stabilization fund and those reporting at least one special purpose stabilization fund. Our review found that 97% of communities
have a general stabilization fund. The statewide average balance for FY21 is 6.15% of the general fund operating budget. This
represents strong adherence to the best practice of maintaining a balance of between 5-7%. In addition, the number of communities
with at least one specific purpose stabilization funds has grown over the last five years from less than 15% to close to 40%. Target
levels for these funds, either as a total dollar amount or as a percentage, will vary depending on purpose and need.
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Thank you, Randy
Randy Scollins | Finance Director CGA MCPPO / Treasurer Collector | Town of Canton
Treasurer | Revere & Son Heritage Trust Corporation
Treasurer | Canton Affordable Housing Trust
O: 781-575-6612 | E: rscollins@town.canton.ma.us | F: 781-575-6608
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2/22/22, 2:36 PM General Law - Part I, Title Vil, Chapter 40, Section 5B Part I ADMINISTRATION OF THE GOVERNMENT Title VIL = CITIES, TOWNS AND DISTRICTS Chapter 40 Powers AND DUTIES OF CITIES AND TOWNS Section 5B STABILIZATION FUNDS; ESTABLISHMENT [ Section impacted by 2020, 92, Secs. 10, 16 and 17, effective June 5, 2020 relating to the suspension of the dedication of revenue to special funds for fiscal year 2021 in order to address disruptions caused by the outbreak of COVID-19.] Section 5B. Cities, towns and districts may create 1 or more stabilization funds and appropriate any amount into the funds. Any interest shall be added to and become part of the fund. The treasurer shall be the custodian of all stabilization funds and may deposit the proceeds in a trust company, co-operative bank or savings bank, if the trust company or bank is organized or exists pursuant to the laws of the commonwealth or any other state or may transact business in the commonwealth and has its main office or a branch office in the commonwealth; a national bank, federal savings bank or federal savings and loan association, if the bank or association may transact business and has its main office or a branch office in the commonwealth; provided, however, that a state-chartered or federally-chartered bank shall be insured by the Federal Deposit Insurance Corporation or its successor; or https://malegislature.gov/Laws/GeneralLaws/Partl/TitleVIl/Chapter40/Section5b 1/2
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2/22/22, 2:36 PM General Law - Part I, Title Vil, Chapter 40, Section 5B may invest the funds in participation units in a combined investment fund pursuant to section 38A of chapter 29 or in securities that are legal investments for savings banks. At the time of creating any stabilization fund the city, town or district shall specify, and at any later time may alter, the purpose of the fund, which may be for any lawful purpose, including without limitation, an approved school project pursuant to chapter 70B or any other purpose for which the city, town or district may lawfully borrow money. The specification and any alteration of purpose, and any appropriation of funds from any such fund, shall be approved by a two-thirds vote, except as provided in paragraph (g) of section 21C of chapter 59 for a majority referendum vote. Subject to said section 21C of said chapter 59, any such vote shall be of the legislative body of the city, town or district, subject to charter. Notwithstanding section 53 of chapter 44 or any other general or special law to the contrary, a city, town or district that accepts this paragraph may dedicate, without further appropriation, all, or a percentage not less than 25 per cent, of a particular fee, charge or other receipt to any stabilization fund established pursuant to this section; provided, however, that the receipt is not reserved by law for expenditure for a particular purpose. For purposes of this paragraph, a receipt shall not include taxes or excises assessed pursuant to chapter 59, 60A, 60B, 61, 61A or 61B or surcharges assessed pursuant to section 39M or chapter 44B. A dedication shall be approved by a two-thirds vote of the legislative body of the city, town or district, subject to charter, and may be terminated in the same manner. A vote to dedicate or terminate a dedication shall be made before the fiscal year in which the dedication or termination is to commence and shall be effective at least for 3 fiscal years. https://malegislature.gov/Laws/GeneralLaws/Partl/TitleVIl/Chapter40/Section5b 2/2