Don't Trash Our Cash!

The thoughts expressed are my own and not those of the Board of Selectmen.

Many people have reached out to “congratulate” or thank me for protecting town finances in the Board of Selectman meeting of March 5th. But I am saddened greatly by the meeting. The discussion was not about moving Stoneham forward but about squandering the financial stability of the town’s future.

This town has been roiled by financial crisis in years past. School programs, sports programs and public safety were slashed. Those who were here remember, those that are new should know. It was not a proud time for Stoneham. We recently celebrated getting back to reasonable staffing levels for fire and police. Our schools are rebuilding programs and scoring well. I do not want to risk returning to those times. Times when we cut public safety and in 2007 we risked losing the high school accreditation. To prevent it, we need strong fiscal policy and strong financial reserves. When I say financial reserves, I mean a rainy-day fund or savings we use when the economy turns as it does every decade or so.

Despite its name, free cash is not free. Free cash is something we work very hard to have at the end of the year and it is the sign of conservative spending.

You may remember my concerns last year about reckless spending of Water & Sewer reserves. In Water and Sewer, our reserves are called “retained earnings”. Our retained earnings are down $1.6 million over 2 years and now we don’t have enough money to pay our bills. The Town Accountant asked for an emergency increase in rates in Q3 of this year to prevent running out of money. Now, the same person that bankrupted Water & Sewer proposed harming the general fund reserves in a warrant article to spend “Free Cash” on trash. Despite its name, free cash is not free. Free cash is something we work very hard to have at the end of the year and it is the sign of conservative spending. It is money we have left over from last year’s budget that we did not spend. The state recommends a yearly free cash target between 3% to 5% of the budget or $1.98m to $3.3million. This is the first year we hit that target. Congratulations Stoneham! But now there is a Warrant Article asking you to spend that free cash on Trash. Yes, don’t be fooled, it is a spending article.

Stoneham’s reserves are less than half what they should be.

What should be done with Free Cash? We should keep it right where it is. We have an opportunity to build up Stoneham’s reserve funds that consist of Stabilization, Capital Stabilization and Free Cash. These three accounts are our savings; our “rainy-day” accounts. According to Stoneham’s Financial Guidelines and the state’s best practices, our reserves should be 10% of the general fund or $6.6M. You should know that Stoneham’s reserves are less than half what they should be. If we don’t waste the free cash, the reserves will go from 45% of the recommended level to 71% of the recommended levels. Great progress for one year. We should have more, but this is a huge opportunity to secure our future. Remember, the reserve accounts exist to prevent major cuts in fire, police, school and other town services when the economy turns down. We need strong reserves.

There are also more immediate concerns. The Town Accountant expressed concerns that we could have dangerously low or even negative free cash next year if this article is passed. The TA stated the proposed spending of $1.1m on trash causes a “structurally imbalanced” budget.

Free cash should be used for “funding capital projects, or replenishing other reserves.”

This spending is also against best practices. The Department of Revenue expressly states that “As a non-recurring revenue source, free cash should be restricted to paying one-time expenditures”. Trash is a recurring cost. We pay it every year. A one-time payment of free cash does not change the fact that trash is a recurring cost. Per the Massachusetts best practices, free cash should be used for “funding capital projects, or replenishing other reserves.” In short, this use of free cash for trash is a poor financial practice and will be noticed by auditors and creditors. When creditors notice, our bond rating could be reduced, making borrowing more expensive. We risk making loans for large items such as the new High School significantly more difficult and expensive.

We risk making loans for the new High School significantly more difficult and expensive.

If lowering fees and taxes is truly your goal, please speak up. But do not suggest where to cut revenue but suggest where to cut expenses. The insidious truth about what is going on is that costs are not being cut; only revenue is being cut. It is popular to cut a fee. But to do so, the costs need to be cut from somewhere or a deficit is created. What do we cut? School programs? The library? The arena? Public safety? But these cuts are never suggested because they are not popular. Don’t believe people who suggest cutting taxes or fees without identifying which programs and services will be affected. We need a balanced budget.
So what do you do?

1. Support a balanced budget
2. Build strong reserves for a strong Stoneham
3. Get the word out your friends to protect our schools and town services
4. Vote NO to spending $1.1million of free cash on Trash at town meeting at 7pm on May 7th

Let’s build our reserves, lower our borrowing costs, and strengthen our community. Let’s grow a strong town that is ready to weather the next storm. Keep the free cash in our reserves for when we need an umbrella.
References
1. http://www.mass.gov/dor/docs/dls/mdmstuf/technical-assistance/best-practices/freecash.pdf
2. http://www.stoneham-ma.gov/sites/stonehamma/files/file/file/fiscal_guidelines_amended12-20-12_3.pdf