Financial Management

This is an update to an article that was previously printed in the August-September 2018 edition of the VLCT News.

There are nine situations in which a legislative body (selectboard, city council, or village trustees) may borrow funds without voter approval. Outside of these situations, there must be specific voter approval at an annual or special town meeting. 24 V.S.A. § 1786a(b). Voter approval to borrow is not required in the following instances:

1. Borrowing to pay current expenses so long as the term is one year or less. 24 V.S.A. § 1786. There is no statutory definition or explanation of a “current expense.” Our rule of thumb is that a current expense is one that will be paid for in a year or less. A current expense could arise from provision of a service or from the acquisition of a public improvement or asset. In our opinion, simply because something is an asset or a public improvement does not mean that it cannot be considered a current expense under 24 V.S.A. § 1786. We view the term of the note (one year or less/more than one year) as the defining characteristic.  

2. Borrowing in anticipation of taxes so long as the term is one year or less and the amount borrowed does not exceed 90 percent of the municipal taxes assessed for that year. 24 V.S.A. § 1786.  

3. Borrowing in anticipation of the sale of bonds as long as the term is one year or less. 24 § V.S.A. § 1773(a).   

4. Borrowing in anticipation of grants as long as the term is one year or less. 24 V.S.A. § 1773(c).  

5. Borrowing for the purchase of tools, equipment, and materials necessary for the construction, maintenance, or repair of highways and bridges, as long as the term is five years or less. 19 V.S.A. § 304(a)(3); 24 V.S.A. § 1786a(b).  

6. Borrowing from the State Municipal Equipment Loan Fund for the purchase of construction, fire, emergency, or heavy equipment or vehicles, as long as the term is five years or less. 19 V.S.A. § 304(a)(3); 24 V.S.A. § 1786a(b); 29 V.S.A. § 1601.  

7. Alternative financing of personal property, fixtures, technology, and intellectual property. 24 V.S.A. § 1789. The selectboard may enter into leases, lease-purchase agreements, installment sales agreements, and similar agreements to acquire assets for the municipality either singly or as a participant in an interlocal contract. Such agreements, however, must contain a “nonappropriation clause” that states that the annual payments by the municipality must be approved by the voters.  

8. Borrowing to retire a deficit with “refunding bonds.” The selectboard may opt to convert a deficit into debt by issuing municipal refunding bonds for an amount equal to the deficit. 24 V.S.A. § 1771. This bond acts by creating a replacement debt which will be paid off over a period of years. 

9. Borrowing for the preparation of engineering studies or plans for public water/wastewater supply systems/ facilities, provided such debt is included in any subsequent public authorization of municipal indebtedness to construct the project for which the planning loans were used. 24 V.S.A. § 4756(e). 

If the municipal borrowing does not fit into any of the above nine categories, there must be specific voter approval at a regular or special town meeting. “The voters of a municipality may authorize specific public improvements and the acquisition of capital assets and finance the same, temporarily or permanently, through debt instruments other than bonds for a term not to exceed the reasonably anticipated useful life of the improvements or assets as provided in this section.” 24 V.S.A. § 1786a. If the improvements or assets are to be financed for a term of five years or less, the borrowing is approved at a regular or special town meeting. If the financing is for a term of more than five years, the municipality must go through the traditional bond authorization process, even if the final form of the borrowing is not a bond. 24 V.S.A. §§ 1755, 1756, and 1786a(c).  

Garrett Baxter, Senior Staff Attorney
VLCT Municipal Assistance Center

It’s that time when we are all preparing budgets and ballot items for Town Meeting Day. Perhaps you have a bond vote planned or a question about a community investment, such as a new piece of equipment or a park. Because the COVID-19 pandemic has alerted the public to the increase in costs this year, it will be more important than ever to carefully explain your proposed budget or project to your community.

From the many hours that you and your staff work to bring forward a reasonable budget proposal or capital project, you are deeply aware of the details. However, your community is not*. This is where a well-crafted communication plan can help you get the word out.

Depending on the budget or project, the communications plan may be simple or complex and may use multiple channels and phases. Let’s walk through preparing for town meeting and informing your community about the proposed budget.

Step 1: Create a communication campaign fact sheet. Who has time to create and then recreate material for every incoming request or outlet for information on your budget? None of us! However, a communication fact sheet will help you easily produce the outreach materials you need for each information channel. As you craft the materials, you will find that you can often copy and paste sections of this fact sheet, adding a photo or a point of emphasis.

Your fact sheet should include the key points that voters should know about the budget, including the total budget amount, the tax rate, the increase over the prior year, and the major items that are affecting the rate (such as paving costs, special projects, increased healthcare costs for employees, etc.). Be sure to include the date, times, and location(s) for the meeting and voting.

Step 2: Determine how information flows. In order to ensure that you create a great campaign, you need to understand how your community gets its information. Is it from the local newspaper, Front Porch Forum, a Twitter feed or Facebook group, or posters in the grocery store? (Don’t forget word of mouth!) Do a quick assessment and create a list of the sources your voters use.

Step 3: Build your plan using your resources. Next, build your plan using your list of sources. Let’s talk about some of them.

Website (FREE). Your website is your flagship source for dispensing accurate information to the public. In addition to providing access to meeting minutes and agendas, zoning information, and annual reports, your website can highlight current information on projects or ballot items. Carve out a space on the front page for an image or teaser that links to a full page about your budget.

Then, build a page that features the information that you need the community to know. Create sections on the page that organize the information logically. For a budget proposal, it might include the budget adoption process, capital improvement program, or general fund budget. Use bullets where possible to make it easy for the reader to skim the details. For example, under general fund budget, you could break down the information into proposed areas such as revenue and expenses, and include a bullet for the school district information.

Remember, your web-based information can be easily and continually updated at no cost!

Social Media (FREE). Keeping multiple social media channels updated can become time-consuming. Therefore, choose one channel to start and post to it regularly. For example, create a Facebook page for your town or city and plan to post to it twice each week in the months leading up to Town Meeting Day.

What do you post? You can share required information such as when and where the vote will take place. Highlight any new projects or items in the budget. Include a picture of regular work that is part of the budget – like paving or grading roads, fire fighters headed to a call, or a family using a park – and note in your text that the budget provides these resources. Be sure to always include a link to your website to access more information.

Front Porch Forum (limited posts). Front Porch Forum (FPF) is a widely used resource throughout our state and can be highly effective as it lands directly in a resident’s email box. There are limitations on how many times you can post each month, so be sure to use each one. If you are allowed two posts per month, plan to include a succinct overview of the key points of the budget and refer readers to your website for more details.

Print Media ($). You know you need to provide notice of the vote/annual meeting in your paper of record, but you can also use the newspaper to provide an easy-to-read advertisement. A well-designed ad should include the critical points that are affecting your budget this year along with a recap of the important services that are provided in the budget. Plan to publish it once or twice. Always refer readers to your website for more information.

You can also create printed materials, such as a flyer that can be hung in your library, grocery store, or other community facility. Many times, the flyer is handy for your city council or town selectboard to use when they are speaking with constituents. It can also be inserted into your local newspaper.

Using these communication channels, you can circulate your information widely, which in turn can help get your budget passed.

Coralee Holm
Director of Community Engagement & Innovation
City of South Burlington

Note: Regarding the legal context for “campaigns,” please see Do Towns Need to Fill Out Campaign Finance Reports? and Vermont’s improper influence law.

’Tis the season for budget preparations. The pandemic has wrought havoc on our lives and municipal finances. From the unexpected costs of local emergency management to the unforeseen economic turmoil that will be realized for months to come, towns will have to be creative in order to ensure fiscal resilience. VLCT provides this advice for budgeting amid COVID-19 and global economic uncertainty. 

As Bob Dylan sang way back in the ’60s (a time many of us remember fondly, assuming we can remember it at all), “a hard rain is gonna fall.” Well, it fell, and the next budget is going to be a challenging one for most of us in the municipal world. I’ve outlined some best practices for you to consider in planning for that next budget. 

1. Keep long-term goals in mind when developing your budget. Be aware of future needs and be sure the budget incorporates a way to reach those goals. Your budget is NOT just a one-year commitment: your annual budgets should be the vehicle to finance your Town Plan and Capital Improvement Program goals along with the municipality’s annual operations. If you continually defer these costs, you will most certainly pay for them down the road with higher maintenance, repairs, or exorbitant financing costs. Careful capital investment planning and funding should continue through a crisis. Temporarily suspending funding, rebalancing project loads, or refinancing debt are ways to relieve some fiscal stress in a given year. Just be sure you have a catch-up plan in place for future budgets.
2. Analyze your historical data for trends and use that in forecasting. This is particularly important when there is uncertainty about future revenues and expenses. DO NOT use the old incremental budgeting method (adding a percentage increase to the current budget). It’s a poor practice and can lead to disaster. Historical data tells an important story. Look at the past 3 to 5 years of revenues and expenses, and factor in any information you have about what the future may hold for each of your major line items (taxes, salaries, benefits, etc.). Be conservative with revenues and consider eliminating any lower priority programs or costs.
3. Pay attention to collective bargaining agreements and other multiple-year contractual arrangements such as leases, consulting, and professional services. Understand your contracts thoroughly and brainstorm options for cost-cutting. You may be able to re-negotiate some lease or service agreements depending on contract language and vendor flexibility. Union contracts are a bit more challenging. Read the contracts carefully and determine where you may have some wiggle room. A discussion with bargaining unit representatives may yield positive results if they are faced with unpalatable consequences but are treated fairly and with respect.

Above all, it is important that your staff who are managing department budgets understand the need to stay lean and avoid “cushions” or “padding,” so you may want to consider use of surplus (if you have it) to cover one-time costs or emergency items. If municipal officials believe that they won’t be left in the lurch in the event of unforeseen expenses, they will be less apt to hoard funds, and you will have some flexibility in maintaining your essential services. The good news is that, if you can make it through this budget crisis, the next time it happens you will be prepared.

The times they are indeed a-changing!

B. Michael Gilbar, Chief Financial Officer
VLCT

The above title is inspired by What Pet Should I Get? by Dr. Seuss, a favorite quarantine book of my toddler. The book traces the decision making of two children after receiving the authorization to purchase a pet. Much of the narrative revolves around a fundamental constraint of scarcity as the children explore the pet shop knowing they can only pick one pet despite many options. In the end, the children choose a pet that is shown in a covered basket and unknown to the reader.

The story serves as a fitting synopsis of both how communities approach debt capacity and the way that the personal and professional have become indistinguishable seven months into the pandemic.

The scarcity explored in the story is the key element behind the many inquiries the Bond Bank receives about the amount of overall debt that is appropriate for towns, school districts, and other units of government.

This complicated but essential question boils down to a few considerations for communities:

1. What amount of debt service can be incurred while maintaining an affordable tax burden or other municipal fee structure?
2. What amount of debt is appropriate before crowding out other important areas of community spending?
3. What amount of debt will lenders provide, and at what cost?

These questions inform the related concepts of debt affordability and debt capacity. In addition to statutory considerations, these concepts drive a local government’s analysis of how much debt to incur as part of capital planning efforts.

The answers to the first of these questions is perhaps the most perplexing as it can represent the values of a community as well as their position next to financial benchmarks derived from peer communities.

The Bond Bank recently released our 2020 Vermont Debt Medians, which we will publish annually going forward. These medians provide a starting place within a larger capital and debt planning analysis to measure overall debt affordability. The Government Finance Officers Association (GFOA), for example, advocates for the use of benchmarking to tackle questions of debt capacity.

What the medians cannot do, however, is conclusively answer questions of debt affordability. One community may wish to exceed benchmarks temporarily or permanently to accomplish long-standing community goals such as overcoming historic legacies of underinvestment or other unique self-determined considerations.

The Bond Bank believes that comparative benchmarking can nevertheless provide a critical starting point for planning by introducing a substantive measure of objective criteria in what can otherwise be an exclusively subjective assessment. In other words, the pet selected may remain a mystery, but at least the lid to the basket will be open.

Michael Gaughan
Executive Director & Secretary
Vermont Bond Bank

Editor's note: Peter Elwell retired from the Town of Brattleboro at the end of 2021. 

Peter Elwell has been Brattleboro’s town manager since 2015. He is the son of former Brattleboro town manager Corwin “Corky” Elwell, who served in that position for almost 30 years and who was also a founding member of VLCT. [Editor's note: Corky passed away on June 4, 2022 at the age of 94.] Peter graduated from Brattleboro Union High School, attended Middlebury College, and received a master’s degree in government administration from the University of Pennsylvania. Then, for 26 years, he switched climes to work in Palm Beach, Florida, including 14 years as town manager. That city honored him by proclaiming December 12, 2014, “Peter Elwell Day” as he prepared to leave to become manager of his home town.

Upon returning to in Brattleboro, Peter swiftly discovered the enormous contrasts between the two communities. “About the only thing that’s similar is the year-round population,” he says. Twelve thousand people call Brattleboro home and 10,000 do so in Palm Beach. However, the population of the latter triples in the wintertime. “It’s a very seasonal, very affluent community,” he says. “So, from a budgetary point of view, the main difference is that in Brattleboro, I’m in the real world.”

It was rare in Palm Beach for its government to question whether it could afford to pay for something. In Brattleboro and nearly everywhere else, that decision is always an issue. “Palm Beach had a very large staff and ample financial resources, and I worked there for a long time,” Peter says, “but I can tell you that having been in Brattleboro now for five and a half years, there hasn’t been a day that I haven’t been grateful to be back home and doing the work here.”

A crucial part of that work is preparing the annual town budget, and Peter and his staff have established an exceptionally effective process. Specific budget-related tasks are scheduled throughout the entire year, so some part of the annual budgetary cycle is always in motion. “We have an engaged group of community members who appreciate the fact that we don’t focus on the budget only in the winter,” he says.

How does Brattleboro’s budget development correspond to particular events in the town’s municipal calendar? Read on.

1. Following town meeting in March and through June, Peter and his staff begin the process by updating their Comprehensive Review of Town Operations (CRTO), a document that tracks municipal projects that have been accomplished as well as those still on the to-do list, and identifying the highest priority goals for the coming year. In the CRTO, projects are categorized as short-term, medium-term, or long-term, and each town department identifies ways to reduce costs and improve municipal services.

At the same time, the CRTO is part of the selectboard’s goal-setting strategy for the year.

It sounds complex, but it isn’t. For example, the document does not include details of the items on the to-do list. But the CRTO keeps Peter, his staff, and the selectboard aware of longer-term trends, and its flexibility allows adjustments to it based on any shift in priorities.

2. The second part, the staff’s completion of the Long-Term Financial Plan (LTFP), takes place during the summer. This five-year financial forecast is explicitly not a budget. Rather, it tries to show how decisions made in the upcoming budget process will impact future town finances. “By showing how the things we can anticipate with a lot of certainty will change in the proposed budget for the coming fiscal year,” says Peter, “we can reflect that in the LTFP, and then use what we already know plus trend information to forecast the four additional years and beyond.”

When completed, the LTFP is reviewed, typically in August or September.

3. Part 3 occurs in September and October when Peter’s staff prepares the proposed budget for the coming year. An eight-to-ten-page written narrative that accompanies the budget explains the major issues and any significant changes from the prior year’s budget. Updates to the LTFP are also included in this narrative.

4. Part 4, unveiling the staff’s proposed budget to the public and distributing it to the selectboard, takes place at the first selectboard meeting in November. The detailed narrative is released at this time.

5. In part 5, from November through January, Peter’s staff works with the selectboard to finalize the budget. If (or when) the selectboard makes changes to the staff’s proposed budget, the budget message is updated correspondingly. This process typically involves between eight and twelve public meetings, permitting ample access for – and input from – the community.

6. Snow on the ground is a normal accompaniment to part 6, in January, when the selectboard finalizes its recommended budget and composes the warning for town meeting. The budget narrative becomes the budget’s cover document in the annual town report.

7. Part 7 occurs during February, when Brattleboro, like everyone else involved in municipal government across the state, prepares for town meeting.

8. The process comes full circle with part 8 at town meeting in March when direct democracy is practiced in its purest form as voters assemble to discuss issues, debate the budget, air grievances, and elect officers for the coming year.

Once Brattleboro voters approve the budget, the process starts anew.

The year-round process allows the community to stay abreast of financial conditions and how they change over time. “We’re really intentional about working throughout the year,” says Peter. “It’s CRTO and goal-setting in the spring, LTFP in the summer, staff introducing a budget in the fall, the selectboard working on [the budget] with public input in the winter, and then town meeting.”

The COVID-19 pandemic, however, presented a one-time twist to the process. On March 11, the town held its information meeting to prepare for its March 21 representative town meeting. (Brattleboro holds its meeting on the third Saturday after Town Meeting Day.) On March 13, the governor issued his “Stay Home, Stay Safe” order, compelling Brattleboro to cancel the meeting. In early June, the Vermont Legislature acted to allow a handful of town governing bodies – including Brattleboro’s – to approve their budgets instead of relying on a vote of registered voters at town meeting. So, on June 16, the Brattleboro Selectboard adopted the town’s FY21 budget.

“As we struggled in June and July with how to have a town meeting [ultimately rescheduled for September 12],” says Peter, “it became evident that the biggest issue of any town meeting would actually not be on the warning this year because it was a matter of business the selectboard had already completed.” They explained to the community that it was a one-time permission by the state and a one-time action by the town because of the extraordinary circumstances. “I think most people understood [our reasoning],” says Peter. “But now as we look forward to September 12, there are 19 items of business to do but none of them is the budget – and that certainly makes for a different flavor for town meeting.”

Different, probably, but also the same in that it will be the impetus for Brattleboro’s next annual cycle of budget preparation.

David Gunn
VLCT News editor