GloucesterTimes.com, Gloucester, MA

November 7, 2012

City's free cash set at $4.8M

By Steven Fletcher Staff Writer
Gloucester Daily Times

---- — The city has rung up its highest “free cash” surplus in four years.

And while Mayor Carolyn Kirk and some city officials say the numbers show that Kirk’s conservative budgeting approach is working, some city councilors say that running a record surplus when city services aren’t at full capacity shows its time to take another look at budget priorities.

Gloucester posted a $4,849,638 municipal or “free cash,” surplus from its Fiscal Year 2012 budget. The Department of Revenue certified the 2012 free cash on Monday; the free cash surplus amounts to roughly 5 percent of the city’s $87.5 million fiscal 2012 expense budget.

City Chief Financial Officer Jeff Towne said maintaining a solid “free cash” places the city back on solid financial footing. Once there, Towne said, the city can invest back into services and infrastructure.

But Paul McGeary, the council’s Budget and Finance Subcommittee chairman, said he would rather not make cuts only to restore positions when the city runs a surplus.

This is the third straight year Gloucester has certified “free cash,” after a period of running deficits. The fiscal 2010 budget had $1.9 million in “free cash,” while the fiscal 2011 budget ran a $3.2 million surplus. Over the past three fiscal years, Gloucester has seen nearly $10 million in “free cash.”

According to the new certifications, Gloucester ran a $1.7 million surplus in its Water Enterprise Fund, a $1.9 million surplus in its Sewer Enterprise Fund, a $518,891 surplus in the Waterways enterprise fund, and a $118,856 surplus in the Talbot Rink enterprise fund.

Kirk did not return a call or email seeking comment Wednesday. In a memo announcing the “free cash” numbers, Kirk said the city would plan to use the surplus funding to invest in infrastructure, reduce pension and health care liabilities, and make mid year budget adjustments. She said the lion’s share of the surplus will go in the stabilization fund.

In fiscal 2009, she noted, the city ran a $2.3 million deficit. Towne said a municipal surplus is a sign of a community’s financial health and Gloucester isn’t running nearly the percentages it should. The Government Finance Officers Association recommends at least two months of revenue in surplus and stabilization funds combined, he added. That’s about 7 to 10 percent of the operating budget.

A municipal surplus helps lower the city’s overall bond rating, which lowers the cost of borrowing for bind projects. When that goes down, Towne said, the city can start building back up.

“It’s better to have a mid-year guaranteed funding source (free cash) than estimating funding sources you don’t receive because you’re overly ambitious,” Towne said.

Gloucester has tightened its financial belt over Kirk’s time as mayor and cut its way out of the deficits. Paul McGeary said the city has started to make cuts it doesn’t need to make. He said the budget and finance subcommittee is going to work with the city to be more accurate in revenue and expense projections.

“When you’re over conservative, you end up making cuts you don’t need to make,” McGeary said, “That being said I don’t want us to budget down to the last farthing, we need to have a cushion,”

Most of the city’s free cash comes from one-time revenues, or revenues that the city can’t project to bring in every year. This year, the city brought in $1.07 million in tax takings, carried over $756,962 from last year’s free cash, and brought in $300,000 in money it didn’t spend on snow removal.

The city, Towne said, can’t predict what those will be when it estimates its revenues at the start of the fiscal year.

But some tax and fee collections brought in more funding than expected this year, McGeary said. Parking fees brought in an extra $311,000, the city share of the meals tax brought in an extra $169,000, and building permits brought in an extra $91,000 along with other fees.

McGeary said the city should project those revenues more accurately, rather than make up for its belt tightening in free cash spending.

“If we can not make cuts only to restore them later, that’s a much more fluid and effective way of running an organization,” McGeary said.

He added that that doesn’t mean spending the last dime of the surplus, either. He said he’d be comfortable with a $2.5 million surplus, rather than the near $5 million surplus. While past performance isn’t a guarantee of future return, McGeary said the city also shouldn’t say the sky is falling when the economic climate is starting to improve.

Towne said the city did some re-calibrating when it crafted the current fiscal 2013 budget. That budget, he said, raised the revenue estimates on several fees and the motor vehicle excise tax. But growing the budget and growing city services with it should be a slow and careful process, he added. The surplus, he said, lets the city weather financial storms without cutting positions.

This year, he said, the city was able to provide additional funding to the School District from stabilization, and has started hiring on police, firefighters and maintenance workers. The city, he said, still has to tackle its pension and employee benefit obligations. The surplus, he added, will help with that.

“Kirk has been doing a wonderful job running (the city’s finances),” said Councilor Bruce Tobey, “but they’ve been managed too finely, and it’s time to re calibrate.”

Tobey said the city shouldn’t be running a surplus anywhere near $4.9 million. He said two percent would be a good rule of thumb for “free cash.” A city, Tobey said, isn’t a for profit organization and should concentrate on filling out its services rather than building large “free cash” reserves.

He added that the council should hear from the Fire Department and the Schools about what it would take to get to a better level of service on January 1. The city, he said, has the resources to do that.

Steven Fletcher may be contacted at 1-978-283-7000 x3455, or sfletcher@gloucestertimes.com. Follow him on Twitter at @stevengdt.