Massachusetts Municipal Slush Funds & Mayors Blogging

"Surplus funds cover surprises"
Wednesday, January 02, 2008
By JEANETTE DeFORGE, jdeforge@repub.com, The Springfield, Massachusetts, Republican

After years of squirreling away money for a rainy day, Chicopee officials learned the value of having a healthy stabilization fund when they were sued by a man wrongly convicted for rape.

The $2.45 million payment made two years ago to Eduardo Velazquez, who spent 14 years in jail in the 1980s and 1990s for a crime he did not commit, ate into the city's stabilization account but still left enough so Chicopee could pay for cost overruns on a new school, prepare to build a new senior center and improve its bond rating.

Few people associated with municipal government question the importance of having a stabilization fund - essentially a savings account - but it seems easier for some communities to set aside money.

"I call it the rainy-day fund," said Chicopee Mayor Michael D. Bissonnette. "It is for emergencies that can hit us or we can use it if there is a drastic downturn in revenues from the state."

The lawsuit is a perfect example of one of those emergency situations. Because Chicopee had the funds in reserve it could settle the lawsuit more quickly for far less than the $15 million it might have faced if a jury ruled against the city, he said.

Chicopee has a reputation of being thrifty. Its fiscal 2006 stabilization account of $7.1 million added to this year's $3.7 million in funds left over at the end of the 2007 fiscal year that ended in July, is about 7.8 percent of its budget.

But Chicopee is not alone in the health of its financial reserves. A number of Western Massachusetts communities including Colrain, Rowe, Holyoke, Deerfield and Granby have much larger reserves.

The state Department of Revenue recommends each community set aside a savings equal to 3 to 5 percent of its budget.

"It is critical to your bond rating, and it is critical to have something to fall back on," said Robert R. Bliss, department spokesman.

Based on revenue department experience, the 3 to 5 percent is the amount a community needs to be prepared to withstand an unexpected blow and is considered an industry standard, he said.

Today, some 273 of the state's 351 communities meet the 3 percent threshold, according to figures that add fiscal 2006 stabilization accounts with "free cash," or funds left unspent at the end of the past fiscal year, he said.

Is it thrift which puts municipalities like Chicopee in good financial standing?

Some communities do benefit from having an extensive industrial tax base to help build their reserves, but, in general, there is no one common characteristic among communities with big surpluses.

Some small rural towns - like Colrain and Rowe, populations 1,809 and 351 respectively - maintain sizable reserves, while their neighbors have saved little.

Some cities - like Chicopee and Holyoke - are doing well, while others - like Westfield and Springfield are not.

"Communities that tend to build up a stabilization account are wedded to the idea of conservative budgeting and spending to their means," Bliss said. "It is critical to your bond rating, and it is critical to have something to fall back on."

In general it is a combination of good management and setting spending priorities, he said.

But there are so many factors that control budgets. Some have a better tax base, others receive more grants and some need more social programs because of a high poverty rate.

Typically cities and towns add to surpluses at the end of a fiscal year when they find they did not spend the full amount budgeted or taxes collected were higher than expected. Some decide to save the extra while others may spend it.

Bissonnette attributes his city's financial standing to conservative budgeting, long-range planning and encouraging employees to think of creative ways to save money.

Hiring good financial managers for positions such as municipal treasurer and school superintendent as well as having a fiscally-minded mayor are vital when administering a healthy budget, said Ronald T. Kuchta, adjunct professor at American International College in Springfield who teaches public administration.

Cities and towns need financial managers who know how to invest their communities' savings, grant writers who can seek, win and administer funds and planners who can attract businesses, Kuchta said.

"The big question is should we have more business people involved in politics. Historically, those positions go to lawyers," he said.

Building up a municipal reserve fund calls for complex long-term planning which includes setting up a capital expenditure program and calling for regular replacement of equipment, he said.

"You have to have a proper tax base. If you have a good number of industries and businesses to help with the tax burden it is a plus," he said.

Also key is educating residents about the importance of building a reserve.

"You hear the question of why don't we take some of the money and lower the tax rate," he said. "But a $1 million or $2 million reserve is nothing. ... It goes fast."

Thus, communities must decide if their taxpayers' priority is paving roads, upgrading schools or building a reserve, he said.

Westfield's $1.1 million reserve accounts for less than 1 percent of its $119 million budget and is among the smallest in Hampden, Hampshire and Franklin counties.

"I always said my reserve fund is in the classroom," said former Westfield Mayor Richard K. Sullivan. "We could have spent $5 million less on our schools but that is not a community where I want to live or have my children go to school."

For years Westfield officials spent $5 million more than required by state law on education. Its schools, as a result, have low class sizes and three are named Compass Schools because of pupils' high achievement, Sullivan said.

Westfield, which has a higher per-capita income of $20,600 than its counterparts in Chicopee, Springfield and Holyoke with per-capita incomes of $18,646, $16,507 and $15,913 respectively, struggles because it receives fewer entitlement grants and state assistance is often less, Sullivan said.

State assistance factors into a city's financial health, and some of it like lottery aide is dropping while expenses are increasing, said state Sen. Michael R. Knapik, R-Westfield.

Many relied on annual increases of 9 percent in lottery funding, but that has declined to a hike of less than 2 percent this year, he said.

Knapik is among those who are concerned that cities and towns will fall into financial trouble if state assistance does drop and that those with the lowest reserves will be hit hardest.

"There could be a perfect storm of higher property taxes, lottery revenues dropping and Chapter 70 aid (to schools) is inadequate," he said.

The majority of state assistance to communities comes in the form of school assistance, known as Chapter 70 funds, according to Geoffrey C. Beckwith, executive director of the Massachusetts Municipal Association.

The fact that school aid is not keeping pace with salary and supply costs is hurting cities since school budgets are at least 50 percent of all spending.

"Some communities have stabilization funds and short-term funds but that number has been diminishing," Beckwith said. "We are doing a bang-up job in difficult circumstances but more and more communities will be forced to rely on property taxes."

The association is pushing for short-term fixes while working with a committee formed by Gov. Deval L. Patrick to study long-term changes to school funding, he said.

Communities need more flexibility, and Beckwith said they need an option of charging meals and lodging taxes locally and an end to tax loopholes for communications businesses. Both are included in a tax bill proposed by Patrick and are bending in the Legislature.

Barbara C. Anderson, executive director for Citizens for Limited Taxation, disagrees with the idea of allowing local communities to add more taxes. Instead she said the state needs to create efficient ways to handle health and pension costs.

"Our long-term goal is to get education off the property taxes altogether. Why is it paying for education? It is a societal obligation," Anderson said.

State statistics show the town of Warren with a population of 4,766 has one of the highest reserves in the area, saving $1.8 million, or more than 20 percent of its $8.5 million budget.

There has been some new growth, home values have increased and the town aggressively seeks grants, said Marc W. Richard, chairman of the Warren Board of Selectmen. But the credit for the financial management responsible for the situation goes to the town treasurer, accountant and selectmen's assistant, Richard said.

The town does try to save for capital expenses by putting aside money for a couple of years to prepare, but it is difficult because a $1 million expense can wipe out the entire stabilization account, he said.

Warren has spent money recently to replace the roofs on two fire stations and upgrade the heating in a municipal building. Now it needs a new roof for the Warren Elementary School, he said.

"It is real tempting sometimes to take the money and keep the tax rate low but there is always something coming down the road," he said.

Hampden is an example of another town with a small budget, but this one is struggling to build reserves.

Three years ago it had so little money it had to close its library and senior center; two years ago it had just $500 in savings.

State revenue figures show Hampden has reserves of $353,000 but recent deposits in the stabilization account have brought that amount to nearly $600,000.

Hampden's annual operating budget is about $10 million, said Selectman John D. Flynn. "We have been fortunate there has been growth in town," he said.

Town officials watch every dollar spent, according to Flynn, and taxpayers do pass overrides to the Proposition 2½ law that limits increases in the tax levy by 2.5 percent, to pay for capital improvements, he said.

Although Holyoke is known by per-capita income as one of the poorest communities in the state with a median household income of $30,411, its $12.5 million in stabilization funds and free cash is one of the largest reserve accounts among Western Massachusetts communities.

"I think you have to separate the population from the municipality," said Mayor Michael J. Sullivan. "The municipality still needs to run in a prudent and fiscally-sound manner."

Budgeting is a balancing act, says Sullivan. For example does the city increase the size of the Police Department or pay existing officers overtime if there is a crime problem, he said.

A key to sustaining reserves is to avoid using the money for expenses that will continue year after year, such as creating a new job. Sullivan said he only supports using savings for one-time expenses like the recent replacement of damaged voting machines.

Sullivan said he will support transferring about $600,000 into the school budget this year to cover an estimated $2 million shortfall. The School Department is expected to consolidate two schools next year to cut costs long-term.

He agreed the state especially needs to work closer with communities when funding schools.

"They need to take a more hands-on approach as they have in Holyoke. Here they say we are going to give you the money but we are going to be in town making sure you are meeting the needs of students," he said.

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"Mayors are posting municipal musings: Officials using blogs to stir up civic activity"
By Matt Viser, Boston Globe Staff, March 9, 2008

Mayor Jim Fiorentini of Haverhill has one. So does Bill Manzi in Methuen. Joe Curtatone of Somerville is doing it, and so is Lowell City Manager Bernie Lynch.

They're all blogging, trying to target younger constituents and promote civic engagement in a virtual forum. But the posts are, well, kind of boring.

Fiorentini talks about roof inspections, police details, and City Council meetings.

Amid writing about budget proposals and a sewer infrastructure agreement with Dracut, Manzi has blogged about Tony Blair leaving the office of British prime minister, Benazir Bhutto's assassination in Pakistan, and results from presidential primaries.

"Yesterday was another great day in the life of the mayor," Mayor Ken Reeves of Cambridge wrote in an August post, published among photos of him with US Senator John F. Kerry, billionaire Bill Gates, and Harvard's president, Drew Faust. "I had my Senior Citizen's Picnic."

It's not exactly the type of saucy language that blogs typically thrive upon. But the municipal-centric blogs are increasingly being utilized in Massachusetts to stir up more civic activity.

Sometimes not the kind they want.

Curtatone started blogging in June 2006 on space provided though the local newspaper, the Somerville Journal. His first post, which was fairly innocuous and about how excited he was to have a new communications tool, inspired a barrage of negative comments, some of them insinuating wrongdoing by City Hall.

"Joe, your administration is woefully mediocre," wrote one person.

"You're not the white knight you make yourself out to be," wrote another.

"I strongly believe your administration is the worst by most measures. . . . Somerville's repuation [sic], which took almost a generation to restore, has been seriously damaged by you and your administration," wrote Mike C.

Curtatone fired back, writing that the "specific charges are baseless and so is the overall impression you're trying to create."

His next post, two weeks later, was about the budget.

"Blogging is this uncharted territory," Curtatone said in a phone interview yesterday. "You put yourself out there in real time, and you get responses in real time. And it may not always be the response you want. You may talk about how great it was to work at the Special Olympics, and then they say, 'That's great, Mr. Mayor, but what about my pothole?' It's par for the course."

Blogs, short for Web logs, have emerged over the past decade as sort of an online bulletin board, where users post diaries, political commentary, and gossip. The most successful blogs have become must-reads and rake in millions through advertising revenue. There are 112.8 million blogs - and about 175,000 created every day - according to Technorati, a site that monitors the blogosphere.

Members of Congress set up blogs to court voters, and federal agencies use them up to address complaints. Largely in response to political gadflies starting blogs to critique local politicians, municipal officials started establishing blogs.

Mayor Bill Gentes of Round Lake, Ill., was among the first to start, in 2005.

"I once did a three-part series about storm water, and people loved it," Gentes told American City & County, a magazine devoted to government trends, in its January issue. "They were calling to ask what was going to happen, and I had to say, 'You'll have to wait and read tomorrow.' "

Many of the posts read like news releases and are heavy on government jargon.

But they also encourage residents to get involved, find out the views of their elected officials, and, in some cases, criticize those views.

Government trade publications have started issuing tips for municipal officials thinking of starting a blog, among them: write often, use spellcheck, and don't give out too much information.

Oh, and don't blog in the middle of the night and write something you'll regret in the morning. The mayor pro tem of a Dallas suburb last year posted a 2:03 a.m. expletive-laden tirade against the city's police department. The City Council revoked her duties and issued an official apology to the police.

Lynch started his blog in January. He posts several times a week, and he says the site averages about 100 to 150 visitors a day.

"It doesn't have to be controversial, it just has to be interesting," Lynch said. "People aren't reading it for scandal and titillation as much as for information . . . we put some information about taxes up there, we put up some charts and graphs so people could see those."

Fiorentini, mayor of Haverhill, started blogging in January, but hasn't received much of a response to his posts on police details, ladder trucks, and high school construction. He does get feedback on his e-mailed newsletter.

"I get a lot of response to my e-mail," he said. "I have 6,000 to 8,000 on my e-mail list."

Several big-city mayors have attempted to communicate by keyboard. Mayor Gavin Newsom of San Francisco has had a blog since December 2006, but it mostly consists of news releases.

Mayor Tom Potter of Portland, Ore., has a blog, but hasn't posted in nine months. Mayor R.T. Rybak of Minneapolis last posted on his blog on May 17, 2005.

Mayor Thomas M. Menino, who doesn't have a computer in his office, does not have a blog.

Boston City Councilor John Tobin started his in December 2006 and frequently posts information about snow emergencies, office hours, and photos from community events he attended.

He also posts video commentaries.

"It's a great tool," Tobin said. "Some of the stuff can be really drab, but then again 90 percent of government is drab and boring. Everyone wants to read the salacious stuff, but there are those policy wonks out there, and for those folks it's great."
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Matt Viser can be reached at maviser@globe.com.
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"Finding a balance on taxes"
The Berkshire Eagle - Editorial
Thursday, April 10, 2008

A report by the Beacon Hill Institute arguing that the state's corporate tax rate could be dropped to 5.3 percent and the lost revenue made up with adjustments elsewhere comes as Governor Patrick and the Legislature explore ways to generate revenue in a poor economy. The governor would like to prevent companies from avoiding taxes by shifting income to out-of-state subsidiaries (a so-called corporate "loophole") and House Speaker Salvatore DiMasi is receptive if the state will lower the corporate tax rate at the same time.

The speaker has proposed reducing it from 9.5 percent to 7 percent over three years while the governor offers a reduction to 8.3 percent over four years. Given the state's projected deficit and the legitimate demands for revenue, the governor's proposal is more realistic.

The Beacon Hill Institute argues that the corporate rate could be lowered to the same 5.3 percent that individuals pay, with the projected loss of $323 million in tax revenue negated by eliminating tax incentives as well as the income shift to out-of-state subsidiaries. Tax incentives, however, are one of the few methods the state, and communities like Pittsfield, have to attract business and the attendant tax revenues.

Businesses assert that the state has the fourth highest corporate tax rate in the country, but a Council on State Taxation study referenced by The Boston Globe finds that state businesses pay less than the national average in state and local business taxes. Tax burdens are in the minds of the beholder to an extent, but it can be said that state officials are aware of the state's poor reputation as a place to do business, have addressed it and will continue to do so, to the extent the state's growing financial obligations allow.

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