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The Finance Committee got a preview of the Fiscal Year 2026 operating and capital budgets at the January 13 meeting. The discussion was broad, with an occasional deep dive into a technical topic. Members questioned if the Town was making sufficient progress towards compliance with the financial policies adopted by the Select Board in recent years. Some members voiced disappointment that anticipated debt-funded projects would not be paid for within the operating budget. Some scoffed at a plan to establish new reserve accounts. Others bemoaned the amount of free cash the Town generated from the last fiscal year. Here are the highlights:
Free Cash – DLS Calls for 5%-7% In Revised Guidance
Finance Director Victor Garofalo informed the committee that the Division of Local Services (DLS) recently updated their guidance on free cash. They now recommend that municipalities generate free cash equivalent to 5% to 7% of the annual budget.
“Under sound financial policies, a community strives to generate free cash in an amount equal to five to seven percent of its annual budget.”
Division of Local Services Free Cash Guidance
That puts Sudbury’s free cash square in the range recommended by the State agency that exists to provide expert guidance on municipal finance.
However, the Finance Committee was not eager to accept that guidance. Long after Garofalo shared the updated guidance, Member Eric Poch accused the Town of overtaxing residents.
“I would just add, I mean the notion that we have seven million dollars in free cash suggests, I mean that’s 6% of the budget. So the fact that we have seven million dollars in free cash is, by default, evidence of an error in our planning process. We shouldn’t have that much free cash in a given year. You can say it’s great we’ve got money, we’ve got free cash around, we can spend it on other things. But the fact of the matter is we charged residents more for the levy in the prior year than we should have. So therefore it is a symptom of poor planning.”
(1:19:45)
Co-chair Mike Joachim added “I think there’s so much more to talk about. In my prior conversations over the years the Town was targeting that 3% to 5% in free cash, so in some ways it was a plan. But I agree seven million is a lot. Victor, when you said that the State has now issued guidance that they’re recommending five to seven, my eyebrows went up.”
Proposed New Reserves Land with a Thud
Garofalo discussed the Town’s desire to set up two reserve accounts. Those included a $175,000 Pension Stabilization Fund which would cover any unexpected pension assessments, and an Accrued Leave Reserve at approximately $25,000. In short, when a longtime employee retires, the Town has to pay out for any qualifying accrued unused sick or vacation time they have amassed in their years with the Town. If the retirement is expected, they can budget for it. But if it’s unexpected that could cause problems.
The Division of Local Services has also issued guidance on the value of using reserves, going so far as to give the guidance the headline “Highly Recommended: Financial Reserves.”
Some members raised concerns about establishing those funds. Member Baranowsky said “I’m not sure that creating new buckets will solve our financial lack of revenue. I mean, it seems like a shell game.” (1:08:30)
Other members suggested it could be better to leave the money in free cash so that it could be used for any purpose, or that the Town should “absorb” such unexpected costs in the operating budget. Garofalo acknowledged that it could be possible to absorb the costs associated with unexpected retirements, but there could be years in the future when the Town doesn’t have the ability to do it.
The feedback to Town Staff was mixed, as some committee members voiced frustration about the amount of free cash the Town generated, while others suggested the flexibility of free cash may be better than putting money in a fund designated for one specific purpose. Yet others wanted to see more free cash placed in the Capital Stabilization Fund rather than carrying forward free cash into future fiscal years. Member Poch argued:
“It’s like retained earnings, it becomes a slush fund. And that doesn’t incent[ivize] better discipline in the planning stages of things, which is what we’ve been lacking for a number of years. And the way to hold ourselves honest is to transfer those balances into the reserve funds that cover the things that we know we have problems, like Capital Stabilization. So we created this Capital Stabilization fund a number of years ago and we’ve continued to not fund it and also not use it. We haven’t created disbursement policies around that fund specifically, which is part of our problem I think and it’s why we’re kind of treading water on better capital fiscal management.”
(1:17:50)
That comment was false. Town Meeting appropriated $250,000 to the Capital Stabilization Fund in 2024 and has done so in prior years as well. (Article 13, ATM 2024) The Finance Committee recommended approval of that article in 2024. Here is the history of money sent to the fund from the Town website:
The financial policies also call for any spending from the fund to be avoided until it reaches its target balance of 2% of the prior year general fund budget. “Withdrawals from the Capital Stabilization Fund should be avoided until the target balance has been achieved. Once achieved, funds can be used towards items on the CIP. Once funds are used, the Town will seek to make annual contributions to the fund until the target balance is achieved.” (Page 6)
Cost Center Guidance Demystified?
Co-Chair Mike Joachim took a stab at an “apples to apples” comparison of the budget increases by cost center. The exchange may have only illustrated the futility of the exercise. (23:00)
When comparing the FY25 actuals with the proposed FY26 budget, Lincoln-Sudbury is getting a 3% increase, the Town is getting 3.57% and Sudbury Public Schools is getting 4.51% according to Garofalo. But there are variables everywhere.
They tried to isolate out benefits, since Lincoln-Sudbury pays its own benefits and the Town pays the benefits for Sudbury Public Schools. But even then, it’s hard to compare because State aid goes straight to Lincoln-Sudbury as a regional school district, while it goes through the Town to get to Sudbury Public Schools. And just to make matters even more interesting – the Town gave Lincoln-Sudbury more than Lincoln-Sudbury assessed the Town last year, which means you can calculate the increase based on what the Town sent to the high school, or what the high school assessed the Town.
Garofalo told the Finance Committee that neither school district voiced any concern when they met to discuss the guidance for FY26 late last year. In theory that makes the comparison of percent increases irrelevant if cost center leaders are working together and everyone is getting what they think they need – but that’s a nuanced point in an era of disinformation. Representatives of some cost centers have used the percentages to claim the guidance is inequitable in recent years, without acknowledging any of the underlying complexity that Joachim pointed out during the discussion. He emphasized the importance of clear communication on the matter.
Financial Policies Meet Fiscal Reality
Much of the discussion came back to the Town’s Financial Policies which were, in part, based on a 2020 Division of Local Services review of Sudbury’s capital improvement program. The Town has made strides to move towards full compliance with those policies in recent years, but Garofalo indicated that they’re still building their way towards full compliance. With a gloomy financial forecast, that may prove difficult in the coming years.
