The undesignated fund balance is sometimes referred to as the Town’s “Rainy Day Fund.” It represents the amount of the Town’s general revenues in excess of expenses since the town’s inception almost 350 years ago. The undesignated fund balance goes up or down every year based on the difference between the annual revenues and expenses. Revenues include property taxes as well as other sources of revenue such as state aid and user fees. Expenses are not only the annual operating expenses of the schools, police, fire and other departments, but also our debt service and capital spending. For the past fiscal year, the Town ran a deficit of $624K, which reduced the undesignated fund balance.
The current year’s budget anticipates the use of an additional $600K. As of June 30, 2017, the undesignated fund balance was $8.4M or approximately 15% of the Town’s budget. The undesignated fund balance serves several very important purposes including use for: reducing annual property tax increases, paying for unanticipated items (such as damage from major storms, unanticipated capital needs, reductions in state aid, etc), short term financing for bonded capital projects, cash liquidity and supporting the Town’s bond rating which is currently a very strong AA+.
The Town’s strong bond rating allows us to borrow at lower interest rates when we need to finance building projects, road repairs and other capital needs. The undesignated fund balance is one of many measures of a Town’s financial well being and the Board of Finance supports maintaining it at between 10-15% of expenditures to provide for unanticipated needs and a favorable bond rating.