HomeMy Public PortalAboutGlossaryFY2018 BUDGET PROJECTION
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Municipal Finance Glossary
May 2008
Massachusetts Department of Revenue Division of Local Services
Navjeet K. Bal, Commissioner Robert G. Nunes, Deputy Commissioner and Director of Municipal Affairs
Department of Revenue/Division of Local Services
Municipal Finance Glossary 1
Abatement – A reduction or elimination of a real or
personal property tax, motor vehicle excise, a fee,
charge, or special assessment imposed by a
governmental unit. Granted only on application of
the person seeking the abatement and only by the
committing governmental unit. (See Commitment)
Accelerated New Growth – MGL Chapter 59
§2A(a) is a local option statute that allows a
community to value and assess new growth (e.g.,
new construction or other physical additions to real
property) occurring by June 30 for the fiscal year
beginning July 1. This local adoption law,
commonly referred to as Chapter 653, allows the
community to assess improved parcels, which
ensures the property owner is paying his fair share
of the cost of government operations for the fiscal
year beginning July 1 rather than a year later.
Accounting System – The total structure of
records and procedures that identify record,
classify, and report information on the financial
position and operations of a governmental unit or
any of its funds, account groups, and organizational
components.
Accrued Interest – The amount of interest that has
accumulated on the bond since the date of the last
interest payment, and in the sale of a bond, the
amount accrued up to but not including the date of
delivery (settlement date). (See Interest)
Ad Valorem – A Latin phrase meaning according to
the value. For example, the property tax is an Ad
Valorem tax because it is based on the full and fair
cash value (FFCV) of the real or personal property.
(See Assessed Value)
Additional Assistance – This state aid program
provides unrestricted, general fund revenue to a
certain number of communities through the Cherry
Sheet. Additional Assistance evolved from the old
resolution aid formula of the 1980s, but following
state budget cuts, it was level funded beginning in
FY92 and then subsequently reduced.
Advance Refunding of Debt – This occurs when
new debt is issued to replace or redeem old debt
before the maturity or call date of the old debt.
Under these circumstances, the proceeds of the
new debt must be placed in escrow and used to pay
interest on old, outstanding debt as it becomes due,
and to pay the principal on the old debt either as it
matures or at an earlier call date. (See Refunding
of Debt, Current Refunding of Debt)
Agency Fund – This is one of four types of
fiduciary funds. It is used to report resources in a
purely custodial capacity by a governmental unit.
Agency funds generally involve only the receipt,
temporary investment, and periodic transfer of
money to fulfill legal obligations to individuals,
private organizations, or other governments. For
example, certain employee payroll withholdings
typically accumulate in an agency fund until due
and forwarded to the federal government, health
care provider, and so forth.
Amended New Growth – When the assessors
discover properties that were inadvertently omitted
that would have been new growth (See Omitted and
Revised Values), they may submit an “Amended
Tax Base Growth Report (Form LA-13A) to BLA
before setting the tax rate for the next fiscal year.
BLA will certify the amount of any additional tax
base growth and notify BOA. BOA will then
recalculate the community’s levy limit and notify the
assessors of the new base for the purposes of
calculating the succeeding year’s levy limit.
Amortization – The gradual repayment of an
obligation over time and in accordance with a pre-
determined payment schedule.
Appellate Tax Board (ATB) – Appointed by the
governor, the ATB has jurisdiction to decide
appeals from local decisions relating to property
taxes, motor vehicle excises, state owned land
(SOL) valuations, exemption eligibility, property
classification, and equalized valuations.
Department of Revenue/Division of Local Services
Municipal Finance Glossary 2
Appropriation – An authorization granted by a
town meeting, city council or other legislative body
to expend money and incur obligations for specific
public purposes. An appropriation is usually limited
in amount and as to the time period within which it
may be expended. (See Encumbrance, Line-Item
Transfer, Free Cash)
Arbitrage – As applied to municipal debt, the
investment of tax-exempt bonds or note proceeds in
higher yielding, taxable securities. Section 103 of
the Internal Revenue Service (IRS) Code restricts
this practice and requires (beyond certain limits)
that earnings be rebated (paid) to the IRS.
Arbitrage Certificate – A certified statement
requested by bond or note purchasers, and by law
firms serving as bond counsel in Massachusetts
that borrowing proceeds of a specified bond issue
shall not be used for the purposes of arbitrage.
Arm’s Length Sale – A transfer of property
ownership between a willing seller not under
compulsion to sell and a willing buyer not under
compulsion to buy. The sale price is the amount of
money, or its equivalent, that probably would be
arrived at through fair negotiations taking into
consideration the uses to which the property may
be put and allowing a reasonable time for exposure
to the market.
Assessed Valuation – A value assigned to real
estate or other property by a government as the
basis for levying taxes. In Massachusetts, assessed
valuation is based on the property's full and fair
cash value as set by the Assessors. (See Ad
Valorem; Full And Fair Cash Value)
Assessment date – The date property tax liability
is fixed. In Massachusetts, property taxes are
assessed as of the January 1 prior to the fiscal
year. Assessors determine the physical status of
taxable real and personal property, its ownership,
fair cash value and usage classification as of that
date. By local option (MGL Ch. 59 §2D), the
physical status of real property on June 30 is
deemed to be its condition on the previous January
1.
Assessment Sale Ratio (ASR) – Property
assessed value divided by sales price. Expresses
the relationship between the assessed value of a
sold property and the most recent sales price of the
property. The ASR is instrumental in the triennial
certification of municipal property values by BLA.
Assessors’ Maps – (See Tax Maps)
ATFC – Association of Town Finance Committees
Audit – An examination of a community's financial
systems, procedures, and data by a certified public
accountant (independent auditor), and a report on
the fairness of financial statements and on local
compliance with statutes and regulations. The audit
serves as a valuable management tool for
evaluating the fiscal performance of a community.
Audit Committee – A committee appointed by the
selectmen, mayor, or city council, with specific
responsibility to review a community's independent
audit of financial statements and to address all
issues relating to it as well as those outlined in the
accompanying management letter.
Audit Management Letter – An independent
auditor's written communication to government
officials, separate from the community's audit. It
generally identifies areas of deficiency, if any, and
presents recommendations for improvements in
accounting procedures, internal controls and other
matters.
Audit Report – Prepared by an independent
auditor, an audit report includes: (a) a statement of
the scope of the audit; (b) explanatory comments as
to application of auditing procedures; (c) findings
and opinions; (d) financial statements and
schedules; and (e) statistical tables, supplementary
comments, and recommendations. It is almost
always accompanied by a management letter.
Available Funds – Balances in the various fund
types that represent non-recurring revenue sources.
As a matter of sound practice, they are frequently
appropriated to meet unforeseen expenses, for
capital expenditures or other onetime costs.
Examples of available funds include free cash,
Department of Revenue/Division of Local Services
Municipal Finance Glossary 3
stabilization funds, overlay surplus, water surplus,
and enterprise net assets unrestricted (formerly
retained earnings).
Balance Sheet – A statement that discloses the
assets, liabilities, reserves, and equities of a fund or
governmental unit at a specified date.
BAN – Bond Anticipation Note
Bank Qualified – When a municipality issues
$10,000,000 or less in bonds or notes in a calendar
year, the bonds and or notes issued are designated
as “bank qualified.” The bank which purchases the
security receives a tax deduction (80% of the
interest cost) for this type of purchase. This
deduction makes bank qualified bonds and notes
an attractive purchase.
Betterments (Special Assessments) – Whenever
part of a community benefits from a public
improvement, or betterment (e.g., water, sewer,
sidewalks, etc.), special property taxes may be
assessed to the property owners of that area to
reimburse the governmental entity for all, or part, of
the costs it incurred in completing the project. Each
property parcel receiving the benefit is assessed a
proportionate share of the cost which may be paid
in full, or apportioned over a period of up to 20
years. In this case, one year’s apportionment along
with one year’s committed interest computed from
October 1 to October 1 is added to the tax bill until
the betterment has been paid.
BLA – Bureau of Local Assessment
Block Grant – A Block Grant is a Federal grant of
money awarded by formula under very general
guidelines that allow grantees broad latitude in
spending activities. Recipients are normally state or
local governments.
BMFL – Bureau of Municipal Finance Law
BOA – Bureau of Accounts
Boat Excise – In accordance with MGL Chapter
60B, this is an amount levied on boats and ships in
lieu of a personal property tax for the privilege of
using the Commonwealth’s waterways. Assessed
annually as of July 1, the excise is paid to the
community where the boat or ship is usually
moored or docked.
Bond – A means to raise money through the
issuance of debt. A bond issuer/borrower promises
in writing to repay a specified sum of money,
alternately referred to as face value, par value or
bond principal, to the buyer of the bond on a
specified future date (maturity date), together with
periodic interest at a specified rate. The term of a
bond is always greater than one year. (See Note)
Bond and Interest Record (Bond Register) – The
permanent and complete record maintained by a
treasurer for each bond issue. It shows the amount
of interest and principal coming due each date and
all other pertinent information concerning the bond
issue. (See Debt Statement)
Bond Anticipation Note (BAN) – Short-term debt
instrument used to generate cash for initial project
costs and with the expectation that the debt will be
replaced later by permanent bonding. Typically
issued for a term of less than one year, BANs may
be re-issued for up to five years, provided principal
repayment begins after two years (MGL Ch. 44
§17). Principal payments on school related BANs
may be deferred up to seven years (increased in
2002 from five years) if the community has an
approved project on the Massachusetts School
Building Authority (MSBA) priority list. BANs are full
faith and credit obligations.
Bond Authorization – The action of town meeting
or a city council authorizing the executive branch to
raise money through the sale of bonds in a specific
amount and for a specific purpose. Once
authorized, issuance is by the treasurer upon the
signature of the mayor, or selectmen. (See Bond
Issue)
Bond Buyer – A daily trade paper containing
current and historical information of interest to the
municipal bond business.
Bond Counsel – An attorney or law firm engaged
to review and submit an opinion on the legal
aspects of a municipal bond or note issue.
Department of Revenue/Division of Local Services
Municipal Finance Glossary 4
Bond Issue – The actual sale of the entire, or a
portion of, the bond amount authorized by a town
meeting or city council.
Bond Premium – The difference between the
market price of a bond and its face value (when the
market price is higher). A premium will occur when
the bond’s stated interest rate is set higher than the
true interest cost (the market rate). Additions to the
levy limit for a Proposition 2 ½ debt exclusion are
restricted to the true interest cost incurred to
finance the excluded project. Premiums received at
the time of sale must be offset against the stated
interest cost in computing the debt exclusion. If
receipt of the premium and the payment of interest
at maturity of an excluded debt occur in different
fiscal years, reservation of the premium for future
year’s debt service is required at the end of the
fiscal year when the premium was received. (See
DOR Bulletin 2003-20B)
Bond Rating (Municipal) – A credit rating assigned
to a municipality to help investors assess the future
ability, legal obligation, and willingness of the
municipality (bond issuer) to make timely debt
service payments. Stated otherwise, a rating helps
prospective investors determine the level of risk
associated with a given fixed-income investment.
Rating agencies, such as Moody's and Standard
and Poors, use rating systems, which designate a
letter or a combination of letters and numerals
where AAA is the highest rating and C1 is a very
low rating.
Bonds Authorized and Unissued – Balance of a
bond authorization not yet sold. Upon completion or
abandonment of a project, any remaining balance
of authorized and unissued bonds may not be used
for other purposes, but must be rescinded by town
meeting or the city council to be removed from
community's books.
Budget – A plan for allocating resources to support
particular services, purposes and functions over a
specified period of time. (See Level Funded Budget,
Performance Budget, Program Budget, Zero Based
Budget)
Budget Message – A statement that, among other
things, offers context by summarizing the main
points of a budget, explains priorities, describes
underlying policies that drive funding decisions, and
otherwise justifies the expenditure plan and
provides a vision for the future.
Budget Unit – A board or department to which the
municipality’s legislative body appropriates funds.
Bulk Sale of Tax Receivables – A community may
make bulk assignments of its delinquent property
tax receivables and liens (MGL Ch. 60 §2C) to third
parties. DLS recommends that municipal officers
discuss whether to use this authority and what
receivables would be assigned. (See DOR IGR 05-
208)
Bureau of Accounts (BOA) – A bureau within the
State Division of Local Services charged with
overseeing municipal execution of financial
management laws, rules and regulations.
Bureau of Information Technology (IT) – A
bureau within the State Division of Local Services
charged with enhancing the flow of information
between DLS and communities, maintaining DLS’
Internet site, and providing training, support, and
consulting services to communities using the DOR
Computer Assisted Mass Appraisal (CAMA) and
Tax Administration System.
Bureau of Local Assessment (BLA) – A bureau
within the State Division of Local Services charged
with overseeing municipal execution of state laws,
rules and regulations involving real and personal
property assessments. BLA is also responsible for
determining equalized valuations and overseeing
the valuation of state owned land.
Bureau of Municipal Finance Law (BMFL;
formerly Property Tax Bureau) – A bureau within
the State Division of Local Services charged with
providing legal advice to local officials on municipal
finance or tax issues, legal opinions to
communities, periodic Legislative Bulletins
summarizing recent legislation affecting property
taxation and municipal finance, and Informational
Department of Revenue/Division of Local Services
Municipal Finance Glossary 5
Guideline Releases (IGRs) detailing municipal tax
and financial procedures.
Business-Type Activities – One of two classes of
activities reported in the GASB 34 government-wide
financial statements. These activities are financed
in whole or in part by fees charged to users for
goods or services. Some examples are enterprise
(MGL Chapter 44 §53F½) , special revenue (MGL
Ch. 44 §69B) water, and municipal electric fund.
Capital Assets – All tangible property used in the
operation of government, which is not easily
converted into cash, and has an initial useful live
extending beyond a single financial reporting
period. Capital assets include land and land
improvements; infrastructure such as roads,
bridges, water and sewer lines; easements;
buildings and building improvements; vehicles,
machinery and equipment. Communities typically
define capital assets in terms of a minimum useful
life and a minimum initial cost. (See Fixed Asset)
Capital Budget – An appropriation or spending
plan that uses borrowing or direct outlay for capital
or fixed asset improvements. Among other
information, a capital budget should identify the
method of financing each recommended
expenditure, i.e., tax levy or rates, and identify
those items that were not recommended. (See
Capital Asset, Fixed Asset)
Capital Improvements Program – A blueprint for
planning a community's capital expenditures that
comprises an annual capital budget and a five-year
capital program. It coordinates community planning,
fiscal capacity and physical development. While all
of the community’s needs should be identified in the
program, there is a set of criteria that prioritizes the
expenditures.
Capital Outlay – The exchange of one asset (cash)
for another (capital asset), with no ultimate effect on
net assets. Also known as "pay as you go," it is the
appropriation and use of available cash to fund a
capital improvement, as opposed to incurring debt
to cover the cost.
Capital Outlay Expenditure Exclusion – A
temporary increase in the tax levy to fund a capital
project or make a capital acquisition. Exclusions
require two-thirds vote of the selectmen or city
council (sometimes with the mayor's approval) and
a majority vote in a community-wide referendum.
The exclusion is added to the tax levy only during
the year in which the project is being funded and
may increase the tax levy above the levy ceiling.
Capital Projects Fund – Fund type used to
account for financial resources to be used for the
acquisition or construction of major capital facilities
(other than those financed by proprietary funds).
Cash – Currency, coin, checks and bankers' drafts
on hand or on deposit with an official or agent
designated as custodian of cash and bank deposits.
Cash Book – A source book of original entry, which
a treasurer is required to maintain, for the purpose
of recording municipal receipts, adjustments to
balances, deposits to municipal accounts and
disbursements through warrants.
Cash Management – The process of monitoring
the ebb and flow of money in an out of municipal
accounts to ensure cash availability to pay bills and
to facilitate decisions on the need for short-term
borrowing and investment of idle cash.
Cash Receipts – Any money received by a
municipality or its departments whether by cash,
check or electronic transfer.
Categorical Grant – A type of intergovernmental
payment, which is characterized by extensive
restrictions on the uses to which the funds may be
“spent” by the recipient government.
CD – Certificate of Deposit
Cemetery Perpetual Care – Funds donated by
individuals for the care of gravesites. According to
MGL Ch. 114 §25, funds from this account must be
invested and spent as directed by perpetual care
agreements. If no agreements exist, the interest
(but not principal) may be used as directed by the
Department of Revenue/Division of Local Services
Municipal Finance Glossary 6
cemetery commissioners for the purpose of
maintaining cemeteries.
Certification – Verification of authenticity. Can
refer to the action of a bank, trust company, or
DOR’s Bureau of Accounts (BOA) in the issuance
of State House Notes, to confirm the genuineness
of the municipal signatures and seal on bond
issues. The certifying agency may also supervise
the printing of bonds and otherwise safeguard their
preparation against fraud, counterfeiting, or over-
issue. Also refers to the certification by the Bureau
of Local Assessment (BLA) that a community’s
assessed values represent full and fair cash value
(FFCV). (See Triennial Revaluation)
Certificate of Deposit (CD) – A bank deposit
evidenced by a negotiable or non-negotiable
instrument that provides on its face that the amount
of such deposit, plus a specified interest, is payable
to the bearer or to any specified person on a certain
date specified in the instrument, at the expiration of
a certain specified time, or upon notice in writing.
Chapter 70 School Aid – Chapter 70 refers to the
school funding formula created under the Education
Reform Act of 1993 by which state aid is distributed
through the Cherry Sheet to help establish
educational equity among municipal and regional
school districts.
Chapter 90 Highway Funds – State funds derived
from periodic transportation bond authorizations
and apportioned to communities for highway
projects based on a formula under the provisions of
MGL Ch. 90 §34. The Chapter 90 formula
comprises three variables: local road mileage
(58.33 percent) as certified by the Massachusetts
Highway Department (MHD), local employment
level (20.83 percent) derived the Department of
Employment and Training (DET), and population
estimates (20.83 percent) from the US Census
Bureau. Local highway projects are approved in
advance. Later, on the submission of certified
expenditure reports to MHD, communities receive
cost reimbursements to the limit of the grant.
Chapter Land – Forest, agricultural/horticultural,
and recreational lands classified, valued and taxed
according to MGL Chapters 61, 61A, and 61B. Land
is valued at its current use rather than the full and
fair cash value. The commercial property tax rate is
applicable for land defined under these chapters,
unless the community adopts a local option
provision within each chapter to apply the open
space rate.
Cherry Sheet – Named for the cherry colored
paper on which they were originally printed, the
Cherry Sheet is the official notification to cities,
towns and regional school districts of the next fiscal
year’s state aid and assessments. The aid is in the
form of distributions, which provide funds based on
formulas and reimbursements that provide funds for
costs incurred during a prior period for certain
programs or services. Links to the Cherry Sheets
are located on the DLS website at
www.mass.gov/dls. (See Cherry Sheet
Assessments, Estimated Receipts)
Cherry Sheet Assessments – Estimates of annual
charges to cover the cost of certain state and
county programs.
Cherry Sheet Offset Items – Local aid that may be
spent without appropriation in the budget, but which
must be spent for specific municipal and regional
school district programs. Current offset items
include racial equality grants, school lunch grants,
and public libraries grants. (See Offset Receipts)
CIP – Can refer to an abbreviation for Commercial,
Industrial, and Personal properties by the Bureau of
Local Assessment (BLA). It also can refer to
Capital Improvements Program.
Classification of Real Property – Assessors are
required to classify all real property according to
use into one of four classes: Residential, Open
Space, Commercial, and Industrial. Having
classified its real property, local officials are
permitted to determine locally, within limits
established by statute and the Commissioner of
Revenue, what percentage of the tax burden is to
be borne by each class of real property and by
Department of Revenue/Division of Local Services
Municipal Finance Glossary 7
personal property owners. (See Classification of the
Tax Rate)
Classification of the Tax Rate – Each year, the
selectmen or city council vote whether to exercise
certain tax rate options. Those options include
choosing a residential factor (MGL Ch. 40 §56), and
determining whether to offer an open space
discount, a residential exemption (Ch. 59, §5C),
and/or a small commercial exemption (Ch. 59, §5I)
to property owners.
CMR – Code of Massachusetts Regulations
Code of Ethics – The provisions and requirements
of MGL Ch. 286A pertaining to the standards of
behavior and conduct to which all public officials
and employees are held. (See State Ethics
Commission)
COLA – Cost of Living Adjustment
Collective Bargaining – The process of
negotiating workers' wages, hours, benefits,
working conditions, etc., between an employer and
some or all of its employees, who are represented
by a recognized labor union.
Commitment – This establishes the liability for
individual taxpayers. For example, the assessors'
commitment of real estate taxes fixes the amount
that the collector will bill and collect from property
owners.
Community Preservation Act (CPA) – Enacted as
MGL Ch. 44B in 2000, CPA permits cities and
towns accepting its provisions to establish a
restricted fund from which monies can be
appropriated only for a) the acquisition, creation
and preservation of open space; b) the acquisition,
preservation, rehabilitation, and restoration of
historic resources; and c) the acquisition, creation
and preservation of land for recreational use; d) the
creation, preservation and support of community
housing; and e) the rehabilitation and restoration of
open space, land for recreational use and
community housing that is acquired or created
using monies from the fund. Acceptance requires
town meeting or city council approval or a citizen
petition, together with referendum approval by
majority vote. The local program is funded by a
local surcharge up to 3 percent on real property tax
bills and matching dollars from the state generated
from registry of deeds fees. (See DOR IGR 00-209
as amended by IGR 01-207 and IGR 02-208)
Community Preservation Fund – A special
revenue fund established pursuant to MGL Ch. 44B
to receive all monies collected to support a
community preservation program, including but not
limited to, tax surcharge receipts, proceeds from
borrowings, funds received from the
Commonwealth, and proceeds from the sale of
certain real estate.
Compensated Absences – Time off, with pay,
made available to employees for vacation leave,
sick leave, and similar benefits. For financial
reporting purposes, compensated absences are
strictly limited to leave that is attributable to services
already rendered, and is not contingent on a
specific event (such as illness) that is outside the
control of the employer and employee.
Compensating Balance Agreement – An
alternative to the payment of direct fees for banking
services. In this case, a bank specifies a minimum
balance that the municipality must maintain in non-
interest bearing accounts. The bank can then lend
this money (subject to a reserve requirement) and
earn interest, which will at least cover the cost of
services provided to the municipality.
Compensating balance agreements are permitted
under MGL Ch. 44 §53F and must be approved
annually by town meeting or the city council.
Computer Assisted Mass Appraisal (CAMA) – An
automated system for maintaining property data,
valuing property, notifying owners, and ensuring tax
equity through uniform valuations.
Conservation Fund – A city or town may
appropriate money to a conservation fund. This
money may be expended by the conservation
commission for lawful conservation purposes as
described in MGL Ch. 40 §8C. The money may also
be expended by the conservation commission for
Department of Revenue/Division of Local Services
Municipal Finance Glossary 8
damages arising from an eminent domain taking
provided that the taking was approved by a two-
thirds vote of city council or town meeting.
Consumer Price Index (CPI) – The statistical
measure of changes, if any, in the overall price level
of consumer goods and services. The index is often
called the "cost-of-living index."
Contingent Appropriation – An appropriation that
authorizes spending for a particular purpose only if
subsequently approved in a voter referendum.
Under MGL Ch. 59 §21C (m), towns may make
appropriations from the tax levy, available funds or
borrowing, contingent upon the subsequent
passage of a Proposition 2½ override or exclusion
question for the same purpose. If initially approved
at an annual town meeting, voter approval of the
contingent appropriation must occur by September
15. Otherwise, the referendum vote must occur
within 90 days after the town meeting dissolves.
The question may be placed before the voters at
more than one election, but if not approved by the
applicable deadline, the appropriation is null and
void. If contingent appropriations are funded
through property taxes, DOR cannot approve the
tax rate until the related override or exclusion
question is resolved or the deadline passes,
whichever occurs first.
Contingent Debt – Debt that is not in the first
instance payable as a direct obligation of the
governmental unit, but has been guaranteed by a
pledge of its faith and credit. The obligation to pay
by the guarantor arises upon the default of the
borrower. An industrial revenue bond guaranteed
by a municipality would constitute contingent debt.
Contingent Liabilities – Items that may become
liabilities as a result of conditions undetermined at a
given date, such as guarantees, pending law suits,
judgments under appeal, unsettled disputed claims,
unfilled purchase orders, and uncompleted
contracts.
Control Board – (See Finance Control Board)
Corporations Book (Corp. Book) – Annually
updated and published on the Internet, the Corp
Book provides a listing of domestic and foreign
corporations doing business in Massachusetts as of
January 1 and which are subject to a tax or excise
under MGL Chap. 59 (local property tax), 60A
(motor vehicle excise), or 63 (corporation excises).
The listing provides information primarily to
assessors about the taxable status of businesses
located within their community. Links to the Corp.
Book are located on the DLS website at
www.mass.gov/dls.
Cost Approach – A method used to estimate the
present market value of an existing property by
calculating the current cost to rebuild it, then
adjusting the cost downward for depreciation based
on the property's actual age. Land is valued
separately and added to the depreciated
replacement cost.
Cost of Living Adjustment (COLA) – It is often
used in municipal contracts that provide for annual
or periodic increases in salaries and wages for
employees over the course of the contract. The
amount of an increase is most often negotiated
based on a community's ability to pay, but is
sometimes tied to the annual change in a specified
index, i.e., consumer price index (CPI). In
Massachusetts, it is also used in the Optional Cost
of Living Adjustment for Property Exemptions.
Cost-Benefit Analysis – A decision-making tool
that allows a comparison of options based on the
level of benefit derived and the cost to achieve the
benefit from different alternatives.
CPI – Consumer Price Index
Current Refunding of Debt – When the proceeds
of the refunding debt are applied immediately to
redeem the old debt. That is, the maturity date on
the old debt coincides with the issuance date of the
new borrowing obligation. (See Refunding and
Advance Refunding of Debt)
Cyclical Inspection Program – A cyclical
reinspection program involves completing an
interior and exterior inspection of all property over a
multi-year period, not exceeding nine years.
Department of Revenue/Division of Local Services
Municipal Finance Glossary 9
Data Collection – Process of inspecting real and
personal property and recording its attributes,
quality, and condition.
Debt Authorization – Formal approval by a two-
thirds vote of town meeting or city council to incur
debt, in accordance with procedures stated in MGL
Ch. 44 §§1, 2, 3, 4a, 6-15.
Debt Burden – The amount of debt carried by an
issuer usually expressed as a measure of value
(i.e., debt as a percentage of assessed value, debt
per capita, etc.). Sometimes debt burden refers to
debt service costs as a percentage of the total
annual budget.
Debt Exclusion – An action taken by a community
through a referendum vote to raise the funds
necessary to pay debt service costs for a particular
project from the property tax levy, but outside the
limits under Proposition 2½. By approving a debt
exclusion, a community calculates its annual levy
limit under Proposition 2½, then adds the excluded
debt service cost. The amount is added to the levy
limit for the life of the debt only and may increase
the levy above the levy ceiling.
Debt Limit – The maximum amount of debt that a
municipality may authorize for qualified purposes
under state law. Under MGL Ch. 44 §10, debt limits
are set at 5 percent of EQV. By petition to the
Municipal Finance Oversight Board, cities and
towns can receive approval to increase their debt
limit to 10 percent of EQV.
Debt Policy – Part of an overall capital financing
policy that provides evidence of a commitment to
meet infrastructure needs through a planned
program of future financing. Debt policies should be
submitted to elected officials for consideration and
approval.
Debt Service – The repayment cost, usually stated
in annual terms and based on an amortization
schedule, of the principal and interest on any
particular bond issue.
Debt Service Fund – Governmental fund type used
to account for the accumulation or resources for,
and the payment of, general long-term debt
principal and interest. In Massachusetts, these are
only allowed by special legislation.
Debt Statement – Reference to a report, which
local treasurers are required to file with the DOR,
showing authorized and issued debt, debt retired
and interest paid by a community during the prior
fiscal year, as well as authorized but unissued debt
at year-end. Also known as the "Statement of
Indebtedness."
Deferred Revenue – Amounts that do not meet the
criteria for revenue recognition. Also, earned
amounts that are not yet available to liquidate
liabilities of a current period.
Deficit – The excess of expenditures over revenues
during an accounting period. Also refers to the
excess of the liabilities of a fund over its assets.
Deficit Bonds – Long-term borrowing vehicle
intended to fund operating deficits and available to
cities and towns only through special legislation.
Demand Letter – Notice to a delinquent taxpayer of
overdue taxes or charges typically mailed soon
after payment period has ended. While it is a
courtesy, there is no requirement to issue
correspondence of this type.
Demand Notice – When a tax bill becomes past
due, the collector sends a demand notice
requesting payment. The collector is required to
issue a demand before initiating a tax taking.
Deputy Collector – If 14 days after the mailing of a
demand payment is not received, the collector may
issue warrants to one or more deputy collectors
authorizing them to collect delinquent taxes,
commonly motor vehicle excise. For outstanding
excise, the deputy may mark licenses/registrations
or provide evidence (e.g., death absence, poverty,
insolvency or other inability of the persons
assessed to pay) that the accounts are
uncollectable. All amounts collected by the deputy
collector should be deposited to a municipal bank
account from which the deputy may be paid his
compensation by check signed by the collector
Department of Revenue/Division of Local Services
Municipal Finance Glossary 10
once the tax payments have cleared (MGL Ch. 60
§92). However, if a community requires all receipts
be paid over to the treasurer, the deputy collector
must be paid through the warrant process. (See
DOR IGR 90-219)
Designated Unreserved Fund Balance – A
limitation on the use of all or part of the expendable
balance in a governmental fund.
DLS – Division of Local Service
DOR – Department of Revenue
Education Reform Act of 1993 – State law that
authorized the seven-year, Ch. 70 funding program
for education and that established spending targets
for school districts as a means to remedy
educational inequities. Scheduled to end by FY00,
the program has been extended, pending
agreement on further reforms.
Electronic Transfer – The electronic transmission
of payments from one bank to another through a
wire system, used in lieu of checks. (See Wire
Transfer)
ESE – Department of Elementary & Secondary
Education (formerly Department of Education,
DOE)
Emergency Board – A board authorized by MGL
Ch. 44 §8 (9) to review and approve emergency
loan requests of municipalities. As used in this
clause, emergency means a sudden, unavoidable
event(s) that could not have been reasonably
foreseen or anticipated at the time of submission of
the annual budget for approval.
Emergency Finance Board (EFB) – This board
was abolished July 31, 2003. (See Municipal
Finance Oversight Board)
Emergency Spending – MGL Ch. 44 §31 allows a
community to spend in excess of appropriation in
cases of major disasters that pose an immediate
threat to the health or safety of persons or property,
following the emergency declaration by council or
selectmen and the approval of the Director of
Accounts.
Eminent Domain – The power of a government to
take property for public purposes. Frequently used
to obtain real property that cannot be purchased
from owners in a voluntary transaction. Property
owner receives fair compensation (market value at
the time of the taking) as determined through court
proceedings.
Encumbrance – A reservation of funds to cover
obligations arising from purchase orders, contracts,
or salary commitments that is chargeable to, but not
yet paid from, a specific appropriation account.
End User – The person or persons for whom a
particular hardware device or software application
was designed to be used.
Enterprise Fund – An enterprise fund, authorized
by MGL Ch. 44 §53F½, is a separate accounting
and financial reporting mechanism for municipal
services for which a fee is charged in exchange for
goods or services. It allows a community to
demonstrate to the public the portion of total costs
of a service that is recovered through user charges
and the portion that is subsidized by the tax levy, if
any. With an enterprise fund, all costs of service
delivery--direct, indirect, and capital costs--are
identified. This allows the community to recover
total service costs through user fees if it chooses.
Enterprise accounting also enables communities to
reserve the "surplus" or net assets unrestricted
generated by the operation of the enterprise rather
than closing it out to the general fund at year-end.
Services that may be treated as enterprises include,
but are not limited to, water, sewer, hospital, and
airport services. See DOR IGR 08-101
Equalized Valuations (EQVs) – The determination
of an estimate of the full and fair cash value (FFCV)
of all property in the Commonwealth as of a certain
taxable date. EQVs have historically been used as
a variable in distributing some state aid accounts
and for determining county assessments and other
costs. The Commissioner of Revenue, in
accordance with MGL Ch. 58 §10C, is charged with
the responsibility of biannually determining an
equalized valuation for each city and town in the
Commonwealth.
Department of Revenue/Division of Local Services
Municipal Finance Glossary 11
Estimated Receipts – A term that typically refers to
anticipated local revenues listed on page three of
the Tax Recapitulation Sheet. Projections of local
revenues are often based on the previous year's
receipts and represent funding sources necessary
to support a community's annual budget. (See Local
Receipts)
Excess and Deficiency (E&D) – Also called the
"surplus revenue" account, this is the amount by
which cash, accounts receivable, and other assets
exceed a regional school district’s liabilities and
reserves as certified by the Director of Accounts.
The calculation is based on a year-end balance
sheet, which is submitted to DOR by the district’s
auditor, accountant, or comptroller as of June 30.
The regional school committee must apply certified
amounts exceeding five percent of the district’s
prior year operating and capital costs to reduce the
assessment on member cities and towns.
Important: E&D is not available for appropriation
until certified by the Director of Accounts.
Excess Levy Capacity – The difference between
the levy limit and the amount of real and personal
property taxes actually levied in a given year.
Annually, the board of selectmen or city council
must be informed of excess levy capacity and their
acknowledgment must be submitted to DOR when
setting the tax rate.
Exemption – A discharge, established by statute,
from the obligation to pay all or a portion of a
property tax. The exemption is available to
particular categories of property or persons upon
the timely submission and approval of an
application to the assessors. Properties exempt
from taxation include hospitals, schools, houses of
worship, and cultural institutions. Persons who may
qualify for exemptions include disabled veterans,
blind individuals, surviving spouses, and seniors.
Exemption Date – Exemption status is determined
as of July 1. All qualifying factors must be met as of
that date.
Expenditure – An outlay of money made by
municipalities to provide the programs and services
within their approved budget.
Expense – An identified cost incurred to
accomplish a particular goal.
Fair Market Value – (See Full and Fair Cash
Value)
Federal Aid Anticipation Note (FAAN) – Short-
term debt instrument used to generate cash with
the expectation that the debt will be paid from
anticipated federal aid. As a note, FAANS are
typically issued for a term of less than one year and
are full faith and credit obligations.
FFCV – Full and Fair Cash Value
Fiduciary Funds – Repository of money held by a
municipality in a trustee capacity or as an agent for
individuals, private organizations, other
governmental units, and other funds. These include
pension (and other employee benefit) trust funds,
investment trust funds, private-purpose trust funds,
and agency funds.
Field Review Audit – A review of assessment
valuation methods and support documentation by
the BLA performed as a prerequisite to a triennial
certification of property values.
Finance Control Board – A board created by
special legislation and comprised of state officials to
oversee the financial management of a community,
which may have received deficit borrowing
authorization or state loans to finance operating
deficits.
Financial Advisor – An individual or institution that
assists municipalities in the issuance of tax exempt
bonds and notes. The public finance department of
a commercial bank or a non-bank advisor usually
provides this service.
Financial Disclosure Law – MGL Chapter 268B
requires certain individuals, officials and candidates
for elected office to file statements of financial
interests (SFI) with the State Ethics Commission.
Department of Revenue/Division of Local Services
Municipal Finance Glossary 12
Financial Management Review – At the request of
the chief executive officer(s) of a community, DLS
will assemble a consulting team to study a
municipality's financial operations and condition to
determine its strengths and weaknesses. Additional
information on this and other consulting services
may be found on the DLS website at
www.mass.gov/dls. (See Municipal Data
Management and Technical Assistance Bureau)
Financial Statement – A presentation of the assets
and liabilities of a community as of a particular date
and most often prepared after the close of the fiscal
year.
Fiscal Year (FY) – Since 1974, the Commonwealth
and municipalities have operated on a budget cycle
that begins July 1 and ends June 30. The
designation of the fiscal year is that of the calendar
year in which the fiscal year ends. Since 1976, the
federal government fiscal year has begun on
October 1 and ended September 30.
Fixed Assets – Long-lived, tangible assets such as
buildings, equipment and land obtained or
controlled as a result of past transactions or
circumstances.
Fixed Costs – Costs that are legally or
contractually mandated such as retirement,
FICA/Social Security, insurance, debt service costs
or interest on loans.
Float – The difference between the bank balance
for a local government’s account and its book
balance at the end of the day. The primary factor
creating float is clearing time on checks and
deposits. Delays in receiving deposit and
withdrawal information also influence float.
Foreclosure – (See Tax Title Foreclosure)
Foundation Budget – The spending target
imposed by the Education Reform Act of 1993 for
each school district as the level necessary to
provide an adequate education for all students.
Free Cash (Also Budgetary Fund Balance) –
Remaining, unrestricted funds from operations of
the previous fiscal year including unexpended free
cash from the previous year, actual receipts in
excess of revenue estimates shown on the tax
recapitulation sheet, and unspent amounts in
budget line-items. Unpaid property taxes and
certain deficits reduce the amount that can be
certified as free cash. The calculation of free cash is
based on the balance sheet as of June 30, which is
submitted by the community's auditor, accountant,
or comptroller. Important: free cash is not available
for appropriation until certified by the Director of
Accounts. (See Available Funds)
Full Accrual – Basis of Accounting – A method of
accounting that recognizes the financial effect of
transactions, events, and interfund activities when
they occur, regardless of the timing of related cash
flows.
Full and Fair Cash Value (FFCV) – Fair cash
value has been defined by the Massachusetts
Supreme Judicial Court as "fair market value, which
is the price an owner willing but not under
compulsion to sell ought to receive from one willing
but not under compulsion to buy. It means the
highest price that a normal purchaser not under
peculiar compulsion will pay at the time, and cannot
exceed the sum that the owner after reasonable
effort could obtain for his property. A valuation
limited to what the property is worth to the
purchaser is not market value. The fair cash value
is the value the property would have on January
first of any taxable year in the hands of any owner,
including the present owner." (Boston Gas Co. v.
Assessors of Boston, 334 Mass. 549, 566 (1956))
Full Faith and Credit Obligations – A pledge of
the general taxing powers for the payment of
governmental obligations. Bonds carrying such
pledges are usually referred to as general obligation
or full-faith-and-credit bonds.
Full Measure and List – An inspection program
completed by assessors to maintain up-to-date
property records. Inspections are usually carried out
by assessors, in-house staff or by contract data
collectors. Properties are literally measured and re-
listed in the assessors' records with any changes in
Department of Revenue/Division of Local Services
Municipal Finance Glossary 13
conditions since the last inspection as indicated on
field cards. Also referred to as a cyclical inspection
program, BLA recommends a full measure and list
be completed at least every 7-to-10 years.
Fund – An accounting entity with a self balancing
set of accounts that is segregated for the purpose
of carrying on identified activities or attaining certain
objectives in accordance with specific regulations,
restrictions, or limitations.
Fund Accounting – Organizing the financial
records of a municipality into multiple, segregated
locations for money. A fund is a distinct entity within
the municipal government in which financial
resources and activity (assets, liabilities, fund
balances, revenues, and expenditures) are
accounted for independently in accordance with
specific regulations, restrictions or limitations.
Examples of funds include the general fund and
enterprise funds. Communities whose accounting
records are organized according to the Uniform
Municipal Accounting System (UMAS) use multiple
funds.
Fund Balance – The difference between assets
and liabilities reported in a governmental fund. Also
known as fund equity. (See Unreserved Fund
Balance)
GANS – Grant Anticipation Notes
GASB 34 – A major pronouncement of the
Governmental Accounting Standards Board that
establishes new criteria on the form and content of
governmental financial statements. GASB 34
requires a report on overall financial health, not just
on individual funds. It requires more complete
information on the cost of delivering services and
value estimates on public infrastructure assets,
such as bridges, road, sewers, etc. It also requires
the presentation of a narrative statement analyzing
the government's financial performance, trends and
prospects for the future.
GASB 45 – This is another Governmental
Accounting Standards Board major pronouncement
that each public entity account for and report other
postemployment benefits (See OPEB) in its
accounting statements. Through actuarial analysis,
municipalities must identify the true costs of the
OPEB earned by employees over their estimated
years of actual service.
General Fund – The fund used to account for most
financial resources and activities governed by the
normal town meeting/city council appropriation
process.
General Fund Subsidy – Most often used in the
context of enterprise funds. When the revenue
generated by rates, or user fees, is insufficient to
cover the cost to provide the particular service,
general fund money is used to close the gap in the
form of a subsidy. The subsidy may or may not be
recovered by the general fund in subsequent years.
General Ledger – The accountant's record of
original entry, which is instrumental in forming a
paper trail of all government financial activity.
General Obligation Bonds – Bonds issued by a
municipality for purposes allowed by statute that are
backed by the full faith and credit of its taxing
authority.
Generally Accepted Accounting Principles
(GAAP) – Uniform minimum standards and
guidelines for financial accounting and reporting
that serve to achieve some level of standardization.
Generally Accepted Auditing Standards (GAAS)
– Auditing standards established by the Auditing
Standards Board of the American Institute of
Certified Public Accountants. All financial statement
audit engagements must follow GAAS.
Generally Accepted Government Auditing
Standards (GAGAS) – These are auditing
standards established by the U.S. Governmental
Accountability Office (GAO) publication
"Government Auditing Standards" also known as
the "Yellow Book". GAGAS for financial statement
audits incorporate the fieldwork and reporting
standards of GAAS.
GIS (Geographical Information System) – A
computerized mapping system and analytical tool
Department of Revenue/Division of Local Services
Municipal Finance Glossary 14
that allows a community to raise information on a
parcel, area or community wide basis. It also allows
parcels to be identified and sorted on the basis of
certain specified criteria. The system can integrate
assessors' property data, water and sewer line
networks, wetlands, floodplains and as well as other
data.
Governing Body – A board, committee,
commission, or other executive or policymaking
body including the school committee of a
municipality.
Government Finance Officers Association
(GFOA) – A nationwide association of public
finance professionals.
Governmental Accounting Standards Board
(GASB) – The ultimate authoritative accounting and
financial reporting standard-setting body for state
and local governments.
Governmental External Investment Pool – An
arrangement that commingles money of more than
one legally separate entity and invests, on the
participants’ behalf, in an investment portfolio. A
pool can be sponsored by an individual
government, jointly by more than one government,
or by a nongovernmental entity. An example is the
Massachusetts Municipal Depository Trust.
Governmental Funds – Funds generally used to
account for tax-supported activities. There are five
different types of governmental funds: the general
fund, special revenue funds, capital projects funds,
debt service funds, and permanent funds.
Grant Anticipation Notes (GANS) – Short-term,
interest-bearing notes issued by a government to
raise capital to be repaid by grants proceeds, which
are anticipated at a later date. GANS allow the
recipient of the grant to begin carrying out the
purpose of the grant immediately.
Home Rule – This refers to the power of
municipalities to regulate their affairs by by-
law/ordinance or home-rule charter subject to
certain limitations.
Home Rule Charter – An alternative, under MGL
Ch. 43B, to create a charter commission by which
cities and towns create, adopt, revise and amend
local charters.
Hotel/Motel Excise – A local option since 1985 that
allows a community to assess a tax on short-term
room occupancy. The community may levy up to 4
percent of the charge for stays of less than 90 days
at hotels, motels and lodging houses. The
convention center legislation imposed an additional
2.75 percent charge in Boston, Cambridge,
Springfield and Worcester.
House 1 or 1A – Designation given to the
Governor's annual budget request, which is
submitted to the House of Representatives by the
fourth Wednesday of January. Except that a newly
elected governor has eight weeks from the day
he/she takes office to submit a budget. The budget
is designated House 1 in the first year of the two-
year legislative session and House 1A in the
second year.
HUD – U.S. Department of Housing and Urban
Development
IAAO – International Association of Assessing
Officers
IG – Inspector General
Income Approach – A method of estimating
property value by converting anticipated net rental
revenue, generated by the property, into an
indication of market value. Used primarily to value
commercial/industrial properties and apartment
buildings, which are normally bought and sold on
the basis of their income producing capability.
Incurred But Not Reported (IBNR) – Per Ch. 61 of
the Acts of 2005, any political subdivision that self-
insures its group health plan under G.L. Ch. 32B
§3A must conduct an annual audit of its health
insurance claims fund to ensure that all claims
incurred but not reported are properly accrued at
the end of the fiscal year. Any year-end deficit must
be funded in the succeeding year. Any political
subdivision that has a deficit in its self-insurance
Department of Revenue/Division of Local Services
Municipal Finance Glossary 15
health fund at the end of FY2005 because it has not
been accruing these IBNR claims is allowed a one-
time opportunity to amortize that deficit over a
period not to exceed three years, beginning in
FY2007. (See IGR No. 05-101)
Indirect Cost – Costs of a service not reflected in
the operating budget of the entity providing the
service. An example of an indirect cost of providing
water service would be the value of time spent by
non-water department employees processing water
bills. A determination of these costs is necessary to
analyze the total cost of service delivery. The
matter of indirect costs arises most often in the
context of enterprise funds.
Informational Guideline Release (IGR) – A DLS
publication that outlines a policy, administrative
procedure, or provides a law update related to
municipal finance. Refer to online listing of IGRs.
Inside Debt – Municipal debt incurred for purposes
enumerated in MGL Ch. 44, §7, and measured
against the community's debt limit as set under Ch.
10. Consequently, the borrowing is inside the debt
limit and referred to as inside debt. (See Outside
Debt)
Interest – Compensation paid or to be paid for the
use of money, including amounts payable at
periodic intervals or discounted at the time a loan is
made. In the case of municipal bonds, interest
payments accrue on a day-to-day basis, but are
paid every six months.
Interest Rate – The interest payable, expressed as
a percentage of the principal available, for use
during a specified period of time. It is always
expressed in annual terms.
Interim Year Valuation Adjustment – State law
requires that local assessed values reflect market
value every year. Every three years, BLA reviews
and certifies that an individual community's
assessed values meet the standard. In between
these triennial revaluations, a community must
complete an annual analysis to determine whether
an interim year value adjustment is warranted and
report the results to BLA. Depending on market
conditions and property value trends, adjustments
may increase, decrease or leave values
unchanged. (See IGR No. 05-401)
Internal Service Fund – A municipal accounting
fund used to accumulate the cost of central services
such as data processing, printing, postage, motor
pool. Costs or charges to an internal service fund
are then allocated to other departments or funds
within the government unit.
Investments – Securities and real estate held for
the production of income in the form of interest,
dividends, rentals, or lease payments. The term
does not include fixed assets used in governmental
operations.
IT – Information Technology
Joint Labor Management Committee (JLMC) –
The purpose of the JLMC is to mediate police
officer or fire fighter collective bargaining disputes
with municipalities when negotiations have reached
an impasse. The JLMC enters the collective
bargaining process only when petitioned to do so by
either party or by both parties acing jointly.
Judgment – An amount to be paid or collected by a
governmental unit as a result of a court decision,
including a condemnation award in payment for
private property taken for public use.
Land Court – Established in 1898, the Land Court
has the exclusive jurisdiction to foreclose rights of
redemption on a property in tax title.
Land of Low Value (MGL Ch. 60 §79)– After 90
days from the date of taking, the treasurer may
work with the assessors to pursue land of low value
foreclosure (MGL Ch. 60 §79) through DOR, an
alternative foreclosure procedure to seeking a
decree from Land Court. Annually, DLS publishes
the maximum valuation of parcels qualifying for the
land of low value foreclosure procedure.
Land Schedule – A table, typically developed by
assessors and revaluation consultants, which is
used to arrive at consistent assessed values for
land within defined neighborhoods. Based on an
Department of Revenue/Division of Local Services
Municipal Finance Glossary 16
analysis of market sales, neighborhood prime site
value, secondary site value, and so forth are
established within a computer program. As the
property characteristics of other land parcels are
entered, the computer program assigns a value
based on the land schedule.
Late Interest – When taxes and excise are
overdue, late interest accrues automatically. For
fees and charges, a community may establish an
ordinance/bylaw to charge interest on overdue
accounts to encourage timely payments (MGL Ch.
40 §21E). In the ordinance/bylaw, the community
must establish due dates and set an overdue
interest rate not to exceed the rate that applies to
overdue taxes (currently 14 percent annually).
Law Enforcement Trust Fund – A revolving fund
established to account for a portion of the proceeds
from the sale of property seized from illegal drug-
related activities. Funds may be expended to defray
certain qualified law enforcement costs as outlined
in MGL Ch. 94C §47. Funds from this account may
be expended by the police chief without further
appropriation.
Legal Level of Budgetary Control – The level at
which a government’s management may not
reallocate resources without approval from the
legislative body.
Legal Opinion (Debt Issuance) – An opinion by an
attorney or law firm that bonds have been legally
issued by a public body, and, usually, that the
bonds are exempt from federal income taxes and
some Massachusetts taxes under existing laws,
regulations, and rulings.
Legislative Bulletins – The Division of Local
Services publishes Bulletins (announcements and
useful information) for local officials and municipal
finance professionals.
Levy – The amount a community raises through the
property tax. The levy can be any amount up to the
levy limit, which is re-established every year in
accordance with Proposition 2½ provisions.
Levy Ceiling – A levy ceiling is one of two types of
levy (tax) restrictions imposed by MGL Ch. 59 §21C
(Proposition 2½). It states that, in any year, the real
and personal property taxes imposed may not
exceed 2½ percent of the total full and fair cash
value of all taxable property. Property taxes levied
may exceed this limit only if the community passes
a capital exclusion, a debt exclusion, or a special
exclusion. (See Levy Limit)
Levy Limit – A levy limit is one of two types of levy
(tax) restrictions imposed by MGL Ch. 59 §21C
(Proposition 2½). It states that the real and personal
property taxes imposed by a city or town may only
grow each year by 2½ percent of the prior year's
levy limit, plus new growth and any overrides or
exclusions. The levy limit can exceed the levy
ceiling only if the community passes a capital
expenditure exclusion, debt exclusion, or special
exclusion. (See Levy Ceiling)
LGAC – Local Government Advisory Committee
Lien – A legal claim against real or personal
property to protect the interest of a party (i.e., a city
or town) to whom a debt is owed (i.e., taxes). In the
case of real property, the lien in favor of a
municipality automatically arises each January 1,
but must be secured through other action. (See
Lien Date)
Lien Date – The date a lien arises on real property
to protect the municipality’s right to payment of
taxes. Property tax liens arise by law on the
January 1 assessment date. The lien is secured
when the collector makes a tax taking and places
the property in tax title. Unless the lien is secured, it
expires if five years elapse from the January 1
assessment date and the property is transferred in
the meantime. Securing a lien on a motor vehicle or
boat excise, personal property tax requires civil
court action.
Line-Item Budget – A budget that separates
spending into categories, or greater detail, such as
supplies, equipment, maintenance, or salaries, as
opposed to a program budget.
Department of Revenue/Division of Local Services
Municipal Finance Glossary 17
Line-Item Transfer – The reallocation of a budget
appropriation between two line-items within an
expenditure category (e.g., salaries, expenses).
Employed as a management tool, line-item transfer
authority allows department heads to move money
to where a need arises for a similar purpose and
without altering the bottom line. Whether or not line-
item transfers are permitted depends on how the
budget is presented (i.e., format) and what level of
budget detail town meeting approves.
Local Acceptance Statute – A requirement placed
within the language of a General Law that a
community affirmatively accept the statute by town
meeting or city council action or referenda before
availing itself of the provisions of the particular law.
Local Aid – Revenue allocated by the
Commonwealth to cities, towns, and regional school
districts. Estimates of local aid are transmitted to
cities, towns, and districts annually by the "Cherry
Sheets." Most Cherry Sheet aid programs are
considered general fund revenues and may be
spent for any purpose, subject to appropriation.
Local Appropriating Authority – In a town, the
town meeting has the power to appropriate funds,
including the authorization of debt. In a city, the city
council has the power upon the recommendation of
the mayor. (See Legal Level of Budgetary Control)
Local Receipts – Locally generated revenues,
other than real and personal property taxes.
Examples include motor vehicle excise, investment
income, hotel/motel tax, fees, rentals, and charges.
Annual estimates of local receipts are shown on the
tax rate recapitulation sheet. (See Estimated
Receipts)
Lock Box Service – A service typically offered by a
financial institution for a fee to receive, process, and
deposit payments made to municipalities for
property taxes, motor vehicle excise, boat excise,
and/or utility payments. At the end of each
processing day, the community receives payment
information on disk or other medium, which can be
automatically posted to the collectors' cash receipts
software. Printed reports are also provided.
Long-Term Debt – Community borrowing, or
outstanding balance at any given time, involving
loans with a maturity date of 12 months or more.
(See Permanent Debt)
Maintenance Budget – A no-growth budget that
continues appropriations for programs and services
at their current year levels. The actual appropriation
to maintain programs and services may still
increase due to inflation or other factors.
Market Value – (See Full and Fair Cash Value)
Mass Appraisal – Use of standardized procedures
for collecting data and appraising property to
ensure that all properties within a municipality are
valued uniformly and equitably.
Material Weakness – A term used in connection
with financial auditing. This is a significant
deficiency in a community’s internal financial
control. It is a reportable condition (internal control
weakness) of such magnitude that it could
potentially result in material misstatements of
financial condition.
Maturity Date – The date that the principal of a
bond becomes due and payable in full.
Massachusetts Association of Assessing
Officers (MAAO) – A professional organization for
individuals who are assessors in Massachusetts.
Massachusetts Certified Public Purchasing
Official (MCPPO) – A certification and designation
program for public officials responsible for municipal
procurements in Massachusetts. (See Uniform
Procurement Act)
Massachusetts Collectors and Treasurers
Association (MCTA) – A professional organization
for individuals who are municipal tax collectors or
treasurers in Massachusetts.
Massachusetts Government Finance Officers
Association (MGFOA) – A professional
organization promoting the advancement of the
profession of Public Finance in Massachusetts.
Department of Revenue/Division of Local Services
Municipal Finance Glossary 18
Massachusetts Municipal Association (MMA) –
A statewide organization for bringing together
municipal officials to develop and advocate uniform
policies and share information about providing
municipal services.
Massachusetts Municipal Auditors and
Accountants Association (MMAAA) – A
professional organization for individuals who are
municipal auditors or accountants and others with
an interest in these activities in Massachusetts.
Massachusetts Municipal Depository Trust
(MMDT) – An investment program, founded in 1977
under the supervision of the State Treasurer, in
which municipalities may pool excess cash for
investment.
Massachusetts School Building Authority
(MSBA) – Administers the state program that
reimburses cities, towns, and regional school
districts varying percentages of their school
construction costs depending on the wealth of the
community or district and the category of
reimbursement. Projects that received their first
reimbursement payment prior to July 26, 2004 will
continue to get annual state payments to offset the
related annual debt service. Thereafter, cities,
towns, and regional school districts will receive a
lump sum amount representing the state’s share of
the eligible project costs.. (See DOR IGR 06-101)
MDM/TAB – Municipal Data Bank/Technical
Assistance Bureau
MGL – Massachusetts General Laws
MHD – Massachusetts Highway Department
Minimum Required Local Contribution – The
minimum that a city or town must appropriate from
property taxes and other local revenues for the
support of schools (Education Reform Act of 1993).
Minimum Residential Factor (MRF) –
Massachusetts’ law allows for a shift of the tax
burden from the residential and open space classes
of property to the commercial, industrial and
personal property classes (CIP). The MRF,
established by the Commissioner of Revenue, is
used to make certain that the shift of the tax burden
complies with the law. If the MRF would be less
than .65, the community cannot make the maximum
shift and must use a CIP factor less than 1.50.
Chapter 200 of the Acts of 1988 allows certain
communities to use a CIP of up to 1.75 percent with
specified conditions.
Modified Accrual Basis of Accounting – A
method of accounting that recognizes revenues in
the accounting period in which they become
available and measurable.
Motor Vehicle Excise (MVE) – A locally imposed
annual tax assessed to owners of motor vehicles
registered to an address within the community, in
accordance with MGL Chapter 60A. The excise tax
rate is set by statute at $25.00 per $1000 of vehicle
value. Owner registration and billing information is
maintained by the State Registry of Motor Vehicles
and is made available to a city or town, or to the
Deputy Collector who represents it.
Municipal(s) – (As used in the bond trade)
"Municipal" refers to any state or subordinate
governmental unit. "Municipals" (i.e., municipal
bonds) include not only the bonds of all political
subdivisions, such as cities, towns, school districts,
special districts, but also bonds of the state and
agencies of the state.
Municipal Bond Insurance – An insurance policy
that guarantees the interest and principal on a bond
issue will be paid as scheduled. The municipal bond
insurer will pay the debt whether or not the default
was caused by an economic crisis or a natural
disaster.
Municipal Charges Lien – For delinquent water
(MGL Ch. 40 §§42A-F), sewer (MGL Ch. 83 §§16A-
F), and trash (MGL Ch. 44 §28C(f)) charges, a
community may lien these amounts on the property
tax provided the enabling legislation is accepted
and a certificate of acceptance is on file at the
Registry of Deeds. For other unpaid local charges
and fees, a community may adopt MGL Ch. 40 §58
separately for each purpose in order to lien each
Department of Revenue/Division of Local Services
Municipal Finance Glossary 19
upon the property tax. The lien is created by
recording a listing of a particular type of charge or
fee (by parcel of land and by name) at the Registry
of Deeds.
Municipal Data Bank – Located within the Division
of Local Services (DLS), the Municipal Data Bank
collects, organizes, stores and publishes historical
financial information on cities and towns, regional
districts and the Commonwealth. Public access to
the data is available through links at the DLS
website at www.mass.gov/dls.
Municipal Data Management and Technical
Assistance Bureau (MDM/TAB) – A bureau within
the State Division of Local Services charged with
three primary functions: coordinating financial
management consulting services, providing
financial and demographic information thru the
Municipal Data Bank, and managing the process of
preparing the Cherry Sheets and distributing local
aid through a number of state aid programs. (See
Cherry Sheet, Financial Management Review,
Municipal Data Bank)
Municipal Finance Oversight Board – Upon
abolishing the Emergency Finance Board (EFB),
this board (consisting of the attorney general, state
treasurer, state auditor, and director of accounts)
was created. The types of actions that previously
required EFB approval will now require either: (1)
no approval beyond the local votes the action
requires, (2) approval of certain municipal officials,
or (3) approval of this board. (See DOR IGR 04-
101)
Municipal Revenue Growth Factor (MRGF) – An
estimate of the percentage change in a
municipality's revenue growth for a fiscal year. It
represents the combined percentage increase in
the following revenue components: automatic 2½
percent increase in the levy limit, estimated new
growth, the change in selected unrestricted state
aid categories, and the change in selected
unrestricted local receipts (Education Reform Act of
1993).
Multiple Regression – A technique for valuing real
property that uses an equation generated through
sales analysis to estimate the value of unsold
properties.
Net Assets Unrestricted (formerly Retained
Earnings) – An equity account reflecting the
accumulated earnings of an enterprise fund that
may be used to fund capital improvements, to
reimburse the general fund for prior year subsidies,
to reduce user charges and to provide for enterprise
revenue deficits (operating loss).
Net School Spending (NSS) – School budget and
municipal budget amounts attributable to education,
excluding long-term debt service, student
transportation, school lunches and certain other
specified school expenditures. A community’s NSS
funding must equal or exceed the NSS
Requirement established annually by the
Department of Education (DOE). (See Education
Reform Act of 1993)
New Growth – The additional tax revenue
generated by new construction, renovations and
other increases in the property tax base during a
calendar year. It does not include value increases
caused by normal market forces or by revaluations.
New growth is calculated by multiplying the
assessed value associated with new construction,
renovations and other increases by the prior year
tax rate. The additional tax revenue is then
incorporated into the calculation of the next year's
levy limit. For example, new growth for FY07 is
based on new construction, etc. that occurred
between January and December 2005 (or July 2005
and June 2006 for accelerated new growth
communities). In the fall of 2006, when new growth
is being determined to set the FY07 levy limit, the
FY06 tax rate is used in the calculation.
Non-Recurring Revenue Source – A one-time
source of money available to a city or town. By its
nature, a non-recurring revenue source cannot be
relied upon in future years. Therefore, such funds
should not be used for operating or other expenses
that continue from year-to-year. (See Recurring
Revenue Source)
Department of Revenue/Division of Local Services
Municipal Finance Glossary 20
Non-Renewal Program – Upon request, the
Registry of Motor Vehicles marks the license and
registration of delinquent excise payers for non-
renewal. This program has proved particularly
effective.
Note – A short-term loan, typically with a maturity
date of a year or less.
Objects of Expenditures – A classification of
expenditures that is used for coding any department
disbursement, such as "personal services,”
“expenses,” or "capital outlay".
Official Statement – A document prepared for
potential investors that contains information about a
prospective bond or note issue and the issuer. The
official statement is typically published with the
notice of sale. It is sometimes called an offering
circular or prospectus.
Offset Receipts – A local option that allows
estimated receipts of a particular department to be
earmarked for use of the department and
appropriated to offset its annual operating budget. If
accepted, MGL Ch. 44 §53E limits the amount of
offset receipts appropriated to no more than the
actual receipts collected for the prior fiscal year.
The Director of Accounts must approve use of a
higher amount before appropriation. Actual
collections greater than the amount appropriated
close to the general fund at year-end. If actual
collections are less, the deficit must be raised in the
next year’s tax rate.
Omitted and Revised Values – Corrections,
submitted by assessors, after the annual
commitment is made to reverse unintentional or
inadvertent mistakes that cause some owners not
to be assessed or to be incorrectly assessed for the
fiscal year. These must be committed by June 20 or
90 days after bills are issued, whichever is later.
On-line Bill Payment Service – A third-party
service provider that gives taxpayers the ability to
pay taxes, excise and utility payments by electronic
check transfers or credit card payments 24 hours a
day.
OPEB (Other Postemployment Benefits) –
Employees of state and local governments may be
compensated in a variety of forms in exchange for
their services. In addition to a salary, many
employees earn benefits over their years of service
that will not be received until after their employment
with the government ends. The most common type
of these postemployment benefits is a pension.
Postemployment benefits other than pensions
generally take the form of health insurance and
dental, vision, prescription, or other healthcare
benefits provided to eligible retirees, including in
some cases their beneficiaries. They may also
include some type of life insurance. As a group,
these are referred to as OPEB. (See GASB 45)
Operating Budget – A plan of proposed
expenditures for personnel, supplies, and other
expenses for the coming fiscal year.
Other Amounts to be Raised (Tax Recapitulation
Sheet) – Amounts not appropriated but raised
through taxation. Generally, these are locally
generated expenditures (e.g., overlay, teacher pay
deferral, deficits) as well as state, county and other
special district charges. Because they must be
funded in the annual budget, special consideration
should be given to them when finalizing the budget
recommendations to the city council or town
meeting.
Outside Debt – Municipal borrowing for purposes
enumerated in MGL Ch. 44, §8. Debt incurred that
is not measured against the community's debt limit
per Ch. 10. Consequently, the borrowing is outside
the debt limit and referred to as outside debt. (See
Inside Debt)
Overlapping Debt – A community's proportionate
share of the debt incurred by an overlapping
government entity, such as a regional school
district, regional transit authority, etc.
Overlay (Overlay Reserve or Allowance for
Abatements and Exemptions) – An account
established annually to fund anticipated property
tax abatements, exemptions and uncollected taxes
in that year. The overlay reserve need not be
Department of Revenue/Division of Local Services
Municipal Finance Glossary 21
funded by the normal appropriation process, but
rather is raised on the tax rate recapitulation sheet.
Overlay Deficit – A deficit that occurs when the
amount of overlay raised in a given year is
insufficient to cover abatements, statutory
exemptions, and uncollected taxes for that year.
Overlay deficits must be provided for in the next
fiscal year.
Overlay Surplus – Any balance in the overlay
account of a given year in excess of the amount
remaining to be collected or abated can be
transferred into this account. Within ten days of a
written request by the chief executive officer of a
city or town, the assessors must provide a
certification of the excess amount of overlay
available to transfer, if any. Overlay surplus may be
appropriated for any lawful purpose. At the end of
each fiscal year, unused overlay surplus is "closed"
to surplus revenue; in other words, it becomes a
part of free cash.
Overnight Repurchase Agreement – A contract
between a financial institution and a community
authorizing the financial institution to operate a
sweep account on behalf of the municipality. (See
Sweep Account)
Override – A vote by a community at an election to
permanently increase the levy limit. An override
vote may increase the levy limit no higher than the
levy ceiling. The override question on the election
ballot must state a purpose for the override and the
dollar amount. (See Underride)
Override Capacity – The difference between a
community's levy ceiling and its levy limit. It is the
maximum amount by which a community may
override its levy limit.
Payments in Lieu of Taxes – An agreement
between a municipality and an entity not subject to
taxation, such as charitable or educational
organizations, in which the payer agrees to make a
voluntary payment to the municipality. By law, a city
or town must make such a payment to any other
community in which it owns land used for public
purposes.
Pension (and other employee benefit) Trust
Funds – A fiduciary fund type used to report
resources that are required to be held in trust for
the members and beneficiaries of defined benefit
pension plans, defined contribution plans, other
postemployment benefit (OPEB) plans, or other
employee benefit plans.
Pension Cost – A measure of the periodic cost of
an employer’s participation in a defined benefit
pension plan.
Pension Plan – An arrangement for the provision
of pension benefits to employees upon their
retirement. All assets accumulated are used to pay
benefits (including refunds of member contributions)
to plan members or beneficiaries, as defined by the
terms of the plan.
PERAC – The Public Employee Retirement
Administration oversees and directs the state
retirement system and administers benefits for
members.
Performance Audit – Such audits examine the
implicit assertion of management, that it is meeting
its responsibilities efficiently and effectively.
Performance audits typically focus on individual
departments, agencies, activities, or functions
within a government.
Performance Budget – A budget that stresses
output both in terms of economy and efficiency.
Permanent Debt – Borrowing by a community
typically involving a debt service amortization period
of greater than one year. (See Long-Term Debt)
Permanent Funds – A fiduciary fund type used to
report resources that are legally restricted to the
extent that only earnings, and not principal, may be
used for purposes that support the reporting
government’s programs, that is, for the benefit of
the government for its citizenry. An example is a
cemetery perpetual care fund.
Personal Property – Movable items not
permanently affixed to, or part of the real estate. It
is assessed separately from real estate to certain
Department of Revenue/Division of Local Services
Municipal Finance Glossary 22
businesses, public utilities, and owners of homes
that are not their primary residences.
Personnel Costs – The cost of salaries, wages
and related employment benefits.
Preliminary Tax – The tax bill for the first two
quarters of the fiscal year sent, no later than July 1,
by communities on a quarterly tax billing cycle. The
tax due on a preliminary tax bill can be no greater
than the amount due in the last two quarters of the
previous fiscal year.
Principal – The face amount of a bond, exclusive
of accrued interest.
Private-Purpose Trust Funds – A fiduciary trust
fund type used to report all trust arrangements,
other than those properly reported in pension trust
funds or investment trust funds, under which
principal and income benefits individuals, private
organizations, or other governments. An example
is a scholarship fund.
Procurement Officer – An individual defined under
MGL Ch. 30B, §2 and authorized to procure
supplies or services for a governmental body.
Proforma Recap Sheet – The Tax Recapitulation
Sheet submitted to DOR by communities on a semi-
annual tax billing cycle which seek to send a
preliminary tax notice for the first half of the fiscal
year because they are in a recertification year or
have a valuation related delay.
Program – A combination of activities to
accomplish an end.
Program Budget – A budget that relates
expenditures to the programs they fund. The
emphasis of a program budget is on output.
Property Tax Bureau – (See Bureau of Municipal
Finance Law)
Proposition 2½ – A state law enacted in 1980,
Proposition 2½ regulates local property tax
administration and limits the amount of revenue a
city or town may raise from local property taxes
each year to fund municipal operations.
Proprietary Funds – Funds that account for
government’s business-type activities (e.g.,
activities that receive a significant portion of their
funding through user charges). The fund types
included in proprietary funds are the enterprise fund
and the internal service fund.
Purchase Order – An official document or form
authorizing the purchase of products and services.
Purchased Services – The cost of services that
are provided by a vendor.
Purchasing Agent – Through local acceptance of
MGL Ch. 41, §103, a city or town may establish a
purchasing department and appoint a purchasing
agent who shall purchase all supplies for the city or
town. (See Procurement Officer)
Qualified Bond – A program, unique to
Massachusetts, for municipalities that have
marginal credit ratings in which the State Treasurer
pays the debt service directly from a community’s
local aid, reinforcing the security of the bond and
improving its marketability. Issuers of qualified
bonds have been able to obtain bond insurance and
these credit enhancements have reduced the cost
of borrowing in recent years. The Municipal Finance
Oversight Board authorizes issuance of these
bonds under Ch. 44A.
Raise and Appropriate – A phrase used to identify
a funding source for an expenditure or
expenditures, which refers to money generated by
the tax levy or other local receipt.
Real Property – Land, buildings and the rights and
benefits inherent in owning them.
Recap Sheet – (See Tax Rate Recapitulation
Sheet)
Receipts – Money collected by and within the
control of a community from any source and for any
purpose.
Receipts Reserved for Appropriation – Proceeds
that are earmarked by law and placed in separate
accounts for appropriation for particular purposes.
For example, parking meter proceeds may be
Department of Revenue/Division of Local Services
Municipal Finance Glossary 23
appropriated to offset certain expenses for parking
meters and the regulation of parking and other
traffic activities.
Receivables – An expectation of payment of an
amount certain accruing to the benefit of a city or
town.
Reconciliation of Cash – Periodic process where
the accountant and treasurer compare records to
confirm available cash in community accounts.
DOR requires an annual reconciliation of cash
without variances to be submitted with as balance
sheet as a prerequisite to certifying a community's
free cash.
Reconciliation of Receivables – Periodic process
where the accountant and collector compare
records to confirm amount of taxes outstanding.
DOR requires an annual reconciliation of
receivables without variances to be submitted with
a balance sheet as a prerequisite to certifying a
community's free cash.
Records Disposition Schedule – Guidelines
published by the Records Management Division of
the Secretary of State's Office and pursuant to MGL
Ch. 66, informing local officials as to how long, and
in what form, municipal records must be
maintained, and identifying what records may be
lawfully disposed.
Recurring Revenue Source – A source of money
used to support municipal expenditures, which by
its nature can be relied upon, at some level, in
future years. (See Non-recurring Revenue Source)
Refunding of Debt – Transaction where one bond
issue is redeemed and replaced by a new bond
issue under conditions generally more favorable to
the issuer. (See Current and Advance Refunding of
Debt)
Repurchase Agreement (Repo) – An agreement
whereby a local government transfers cash to a
financial institution, and the financial institution
transfers securities to the local government and
promises to repay the cash plus interest in
exchange for the same securities within a given
number of days.
Requisition – Form used by the requesting
department when ordering products and services
from external vendors. This document generates a
Purchase Order.
Reserve for Abatements and Exemptions – (See
Overlay)
Reserve Fund – An amount set aside annually
within the budget of a city (not to exceed 3 percent
of the tax levy for the preceding year) or town (not
to exceed 5 percent of the tax levy for the preceding
year) to provide a funding source for extraordinary
or unforeseen expenditures. In a town, the finance
committee can authorize transfers from this fund for
"extraordinary or unforeseen" expenditures. Other
uses of the fund require budgetary transfers by
town meeting. In a city, transfers from this fund may
be voted by the city council upon recommendation
of the mayor.
Residential Exemption – A municipality can grant
a residential exemption of a dollar amount that
cannot exceed 20 percent of the average assessed
value of all residential class properties. The
exemption reduces, by the adopted percentage, the
taxable valuation of each residential parcel that is a
taxpayer's principal residence. Granting the
exemption raises the residential tax rate and shifts
the residential tax burden from moderately valued
homes to apartments, summer homes and higher
valued homes.
Residential Factor – Adopted by a community
annually, this governs the percentage of the tax
levy to be paid by property owners. A residential
factor of “1” will result in the taxation of all property
at the same rate (single tax rate). Choosing a factor
of less than one results in increasing the share of
the levy raised by commercial, industrial and
personal property. Residential property owners will
therefore pay a proportionately lower share of the
total levy. (See Minimum Residential Factor)
Retained Earnings – (See Net Assets
Unrestricted)
Department of Revenue/Division of Local Services
Municipal Finance Glossary 24
Revaluation – The assessors of each community
are responsible for developing a reasonable and
realistic program to achieve the fair cash valuation
of property in accordance with constitutional and
statutory requirements. The nature and extent of
that program will depend on the assessors’ analysis
and consideration of many factors, including, but
not limited to, the status of the existing valuation
system, the results of an in-depth sales ratio study,
and the accuracy of existing property record
information. Every three years, assessors must
submit property values to the DOR for certification.
Assessors must also maintain fair cash values in
the years between certifications so that each
taxpayer in the community pays his or her share of
the cost of local government in proportion to the
value of his property. (See Triennial Certification)
Revenue Anticipation Borrowing – Cities, towns
and districts may issue temporary notes in
anticipation of taxes (TANS) or other revenue
(RANS). The amount of this type of borrowing is
limited to the total of the prior year's tax levy, the
net amount collected in motor vehicle and trailer
excise in the prior year and payments made by the
Commonwealth in lieu of taxes in the prior year.
According to MGL Ch. 44 §4, cities, towns and
districts may borrow for up to one year in
anticipation of such revenue.
Revenue Anticipation Note (RAN) – A short-term
loan issued to be paid off by revenues, such as tax
collections and state aid. RANS are full faith and
credit obligations. (See Tax Anticipation Notes,
Bond Anticipation Notes)
Revenue Bond – A bond payable from and
secured solely by specific revenues and thereby not
a full faith and credit obligation.
Revenue Deficit – The amount by which actual
revenues at year-end fall short of projected
revenues and are insufficient to fund the amount
appropriated. In such a case and unless otherwise
funded, the revenue deficit must be raised in the
following year's tax rate.
Revenues – All monies received by a governmental
unit from any source.
Revolving Fund – Allows a community to raise
revenues from a specific service and use those
revenues without appropriation to support the
service. For departmental revolving funds, MGL Ch.
44 §53E½ stipulates that each fund must be re-
authorized each year at annual town meeting or by
city council action, and that a limit on the total
amount that may be spent from each fund must be
established at that time. The aggregate of all
revolving funds may not exceed ten percent of the
amount raised by taxation by the city or town in the
most recent fiscal year, and no more than one
percent of the amount raised by taxation may be
administered by a single fund. Wages or salaries for
full-time employees may be paid from the revolving
fund only if the fund is also charged for all
associated fringe benefits.
Roll-back Taxes – Back taxes that become due
when land which is valued, assessed and taxed
under MGL Ch. 61, 61A or 61B, no longer qualifies
as actively devoted to purposes specified in each
chapter.
Sale of Cemetery Lots Fund – A fund established
to account for proceeds of the sale of cemetery lots.
The proceeds may only be appropriated to pay for
the cost of the land, its care and improvement or
the enlargement of the cemetery under provisions
of MGL Ch. 114 §15.
Sale of Real Estate Fund – A fund established to
account for the proceeds of the sale of municipal
real estate other than proceeds acquired through
tax title foreclosure. MGL Ch. 44 §63 states that
such proceeds shall be applied first to the
retirement of debt on the property sold. In the
absence of such debt, funds may generally be used
for purposes for which the city or town is authorized
to borrow for a period of five years or more.
Sales Comparison Approach – A method of
estimating the value of property by comparing
verified data about similar properties that have
recently sold or are offered for sale on the open
Department of Revenue/Division of Local Services
Municipal Finance Glossary 25
market and adjusting for differences from the
subject, or unsold, property.
Schedule A – A statement of revenues,
expenditures and other financing sources, uses,
changes in fund balance and certain balance sheet
account information prepared annually by the
accountant or auditor at the end of the fiscal year.
This report is based on the fund account numbers
and classifications contained in the UMAS manual.
Security – For Massachusetts’ municipalities,
bonds or notes evidencing a legal debt on the part
of the issuer.
Short-Term Debt – Outstanding balance, at any
given time, on amounts borrowed with a maturity
date of 12 months or less. (See Note)
Sick Leave Buyback – A community's obligation,
under collective bargaining agreements or
personnel board policies, to compensate retiring
employees for the value of all, or a percentage of,
sick time earned, but not used.
Single Audit Act – For any community that
expends $500,000 or more per year in federal grant
awards, the Single Audit Act establishes audit
guidelines that reduce to only one the number of
annual audits to be completed to satisfy the
requirements of the various federal agencies from
which grants have been received.
Small Commercial Exemption – A property tax
classification option where a community may
exempt up to 10 percent of the value of a Class
Three, Commercial parcel. The parcel must be
occupied by small businesses and have an
assessed valuation of less than $1 million. In effect,
the option shifts the tax burden from parcels
occupied by small businesses to those occupied by
other commercial and industrial taxpayers. Eligible
small businesses have an average annual
employment of no more than ten persons. (See IGR
00-403)
SOL – State Owned Land
Special Assessment – (See Betterments)
Special Assessment Exemption – Full discharge
from the payment of betterments and special
exemptions granted only to government properties
occupied for public purposes.
Special Exclusion – For a few limited capital
purposes, a community may exceed its levy limit or
levy ceiling without voter approval. Presently, there
are two special expenditure exclusions: 1) water
and sewer project debt service costs which reduce
the water and sewer rates by the same amount;
and 2) a program to assist homeowners to repair or
replace faulty septic systems, remove underground
fuel storage tanks, or remove dangerous levels of
lead paint to meet public health and safety code
requirements. In the second special exclusion,
homeowners repay the municipality for the cost plus
interest apportioned over a period of time, not to
exceed 20 years (similar to betterments).
Special Revenue Fund – Funds, established by
statute only, containing revenues that are
earmarked for and restricted to expenditures for
specific purposes. Special revenue funds include
receipts reserved for appropriation, revolving funds,
grants from governmental entities, and gifts from
private individuals or organizations.
Stabilization Fund – A fund designed to
accumulate amounts for capital and other future
spending purposes, although it may be
appropriated for any lawful purpose (MGL Ch. 40
§5B). Communities may establish one or more
stabilization funds for different purposes and may
appropriate into them in any year an amount not to
exceed ten percent of the prior year’s tax levy. The
total of all stabilization fund balances shall not
exceed ten percent of the community’s equalized
value, and any interest shall be added to and
become a part of the funds. A two-thirds vote of
town meeting or city council is required to establish,
amend the purpose of, or appropriate money into or
from the stabilization fund. (See DOR IGR 04-201)
State Aid Anticipation Note (SAAN) – A short-
term loan issued in anticipation of a state grant or
aid (MGL Ch. 44 §6A).
Department of Revenue/Division of Local Services
Municipal Finance Glossary 26
State Ethics Commission – This state agency was
established to foster integrity in government and
promote public trust. The Commission enforces a
Code of Ethics and the Financial Disclosure Law.
State House Notes – Debt instruments for cities,
towns, counties and districts certified by the
Director of Accounts. State House Notes, payable
annually, are usually limited to maturities of five
years and principal amounts of $2,250,000. The
notes are attractive, more often to smaller
communities, because certification fees are low,
neither an official statement nor full disclosure is
required, and they are issued in a short period of
time.
State Receivership – (See Finance Control Board)
STF – State Tax Form
Supplemental Tax Assessments on New
Construction (MGL Ch. 59 §2D) – A community
may make pro rata assessments on the value of
improvements that are greater than 50 percent of
the billed value when an occupancy permit is issued
after January 1 (MGL Ch. 59 §2D). This provision
allows a community to issue a bill (back to the date
of occupancy between January 1-June 30) for the
current fiscal year on qualifying property
improvements, resulting in additional general
revenue. These improvements would be included
in the subsequent year’s new growth calculation.
Surcharge – An additional sum added to a
particular, already existing charge such as a tax, a
fee, a fine or penalty.
Surety Bond – A performance bond that protects
the municipality against any financial loss arising
from a breach of public trust by an employee who
collects money on behalf of the community.
Surplus Revenue – The amount by which cash,
accounts receivable, and other assets exceed
liabilities and reserves.
Sweep Account – A municipal bank account from
which the host financial institution electronically
transfers all or part of the balance over a specified
threshold to a temporary investment elsewhere for
the benefit of a higher, overnight investment return.
At the end of the overnight investment period, the
funds are returned to the municipal account and are
available for use. (See Overnight Repurchase
Agreements)
TA – Technical Assistance Section (See Municipal
Data Management and Technical Assistance
Bureau
Tailings – Unclaimed municipal funds, or a
repository, referred to as a "tailings account," for the
retention, until eventual disposition, of unclaimed
funds in the custody of a municipality. Tailings
might include unclaimed tax refunds, vendor
payments yet to clear, overages on the community's
commitment, etc. (MGL Ch. 200A) (See Unclaimed
Checks)
Tax Anticipation Notes (TAN) – A short-term note
issued to provide cash to cover operating expenses
in anticipation of tax proceeds.
Tax Increment Financing Exemption (TIF) – In
accordance with MGL Chapter 59 §5(51), a
property tax exemption negotiated between a
community and a private developer, typically
implemented over a period up to 20 years, and
intended to encourage industrial/commercial
development. (See DOR IGR 94-201)
Tax Maps – Used to determine the location of the
property, indicate the size and shape of each
parcel, and show its relation to features that affect
value. Maps also provide a complete inventory of all
land parcels, helping to minimize the problems of
omitted parcels and duplication of listing. Also
referred to as assessors' maps.
Tax Possession – Once a tax title has been
foreclosed in Land Court, the municipal treasurer
records the decree at the Registry of Deeds as a
municipally owned property, hence becoming a tax
possession. For a property issued a Land of Low
Value affidavit, the municipality must hold an
auction prior to it becoming a tax possession.
Department of Revenue/Division of Local Services
Municipal Finance Glossary 27
Tax Rate – The amount of property tax stated in
terms of a unit of the municipal tax base; for
example, $14.80 per $1,000 of assessed valuation
of taxable real and personal property.
Tax Rate Recapitulation Sheet (Recap Sheet) – A
document submitted by a city or town to the DOR in
order to set a property tax rate. The recap sheet
shows all estimated revenues and actual
appropriations that affect the property tax rate. The
recap sheet should be submitted to the DOR by
September 1 (in order to issue the first-half
semiannual property tax bills before October 1) or
by December 1 (in order to issue the third quarterly
property tax bills before January 1).
Tax Title (or Tax Taking) – A collection procedure
that secures a city or town's lien on real property
and protects the municipality's right to payment of
overdue property taxes. Otherwise, the lien expires
if five years elapse from the January 1 assessment
date and the property has been transferred to
another owner. If amounts remain outstanding on
the property after issuing a demand for overdue
property taxes and after publishing a notice of tax
taking, the collector may take the property for the
city or town. After properly recording the instrument
of taking, the collector transfers responsibility for
collecting the overdue amounts to the treasurer.
After six months, the treasurer may initiate
foreclosure proceedings.
Tax Title Foreclosure – The procedure initiated by
a city or town treasurer in Land Court or through
land of low value to obtain legal title to real property
already in tax title and on which property taxes are
over due. The treasurer must wait at least six
months from the date of a tax taking to initiate Land
Court foreclosure proceedings (MGL Ch. 60 §65).
Tax Title Redemption – The act of a property
owner to pay overdue taxes, plus any fees,
charges, other costs and interest, on real property
that the community had placed in tax title to secure
its lien. The taxpayer's right to redeem terminates
when the treasurer receives a Land Court Decree
or Land of Low Value affidavit, records and holds
an auction.
Teachers' Pay Deferral – Option available under
the 1993 Education Reform Law allowing
communities to defer further contributions to
teachers retirement funds until 1997, after which the
full obligation must be satisfied in no more than 15
years.
Technical Assistance Section – Part of
MDM/TAB, the Technical Assistance Section
completes financial management reviews for cities
and towns, and is otherwise available to advise
finance officers and administrators on sound
financial management practices.
Temporary Debt – Borrowing by a community in
the form of notes and for a term of one year or less.
(See Short-Term Debt)
Triennial Certification – The Commissioner of
Revenue, through the Bureau of Local Assessment,
is required to review local assessed values every
three years and to certify that they represent full
and fair cash value (FFCV). Refer to MGL Ch. 40
§56 and Ch. 59 §2A(c).
Trust Fund – In general, a fund for money donated
or transferred to a municipality with specific
instructions on its use. As custodian of trust funds,
the treasurer invests and expends such funds as
stipulated by trust agreements, as directed by the
commissioners of trust funds or by town meeting.
Both principal and interest may be used if the trust
is established as an expendable trust. For non-
expendable trust funds, only interest (not principal)
may be expended as directed.
Turnover Sheet – A form, completed by municipal
departments, that accompanies the physical
transfer of departmental revenues, or bank deposit
slips reflecting revenues, to the treasurer.
Unclaimed Checks – (See Tailings)
Uncollected Funds – Recently deposited checks,
included in an account's balance, but drawn on
other banks and not yet credited by the Federal
Reserve Bank or local clearinghouse to the bank
cashing the checks. These funds may not be
Department of Revenue/Division of Local Services
Municipal Finance Glossary 28
loaned or used as part of the bank's reserves, and
they are not available for disbursement.
Underride – A vote by a community to permanently
decrease the tax levy limit. As such, it is the exact
opposite of an override. (See Override)
Undesignated Fund Balance – Monies in the
various government funds as of June 30 that are
neither encumbered nor reserved, and are therefore
available for expenditure once certified as part of
free cash. (See Designated Fund Balance)
Unfunded Mandate – A requirement imposed by
law, regulation or order without underlying financial
support, thereby resulting in direct or indirect costs
to the body made responsible for its
implementation.
Unfunded OPEB Liability – This is the difference
between the value assigned to the benefits (other
than retirement) already earned by a municipality’s
employees and the assets the local government will
have on hand to meet these obligations. While
there is no requirement in Massachusetts to fund
this liability, GASB 45 requires that the dollar value
of the unfunded OBEB liability is determined every
two years. (See GASB 45; OPEB)
Unfunded Pension Liability – Unfunded pension
liability is the difference between the value assigned
to the retirement benefits already earned by a
municipality’s employees and the assets the local
retirement system will have on hand to meet these
obligations. The dollar value of the unfunded
pension liability is redetermined every three years
and is driven by assumptions about interest rates at
which a retirement system's assets will grow and
the rate of future costs of living increases to
pensioners. (See Pension Plan)
Uniform Municipal Accounting System (UMAS) –
UMAS succeeds the so-called Statutory System
(STAT) and is regarded as the professional
standard for municipal accounting in
Massachusetts. As a uniform system for local
governments, it conforms to Generally Accepted
Accounting Principles (GAAP), offers increased
consistency in reporting and record keeping, as well
as enhanced comparability of data among cities
and towns.
Uniform Procurement Act – Enacted in 1990,
MGL Ch. 30B establishes uniform procedures for
local government to use when contracting for
supplies, equipment, services and real estate. The
act is implemented through the Office of the
Inspector General. (See Massachusetts Certified
Public Purchasing Official).
Unreserved Fund Balance (Surplus Revenue
Account) – The amount by which cash, accounts
receivable, and other assets exceed liabilities and
restricted reserves. It is akin to a "stockholders’
equity" account on a corporate balance sheet. It is
not, however, available for appropriation in full
because a portion of the assets listed as "accounts
receivable" may be taxes receivable and
uncollected. (See Free Cash)
User Charges/Fees – A municipal funding source
where payment is collected from the user of a
service to help defray the cost of providing the
service. Note that any increases in the fees must
satisfy the three tests set forth in the so called
Emerson case. (See Emerson College v. Boston,
391 Mass. 415 (1984))
Valuation (100 percent) – The legal requirement
that a community’s assessed value on property
must reflect its market, or full and fair cash value.
Voucher – A document or form authorizing the
holder to redeem it for cash or credit in an amount
certain.
Warrant – An authorization for an action. For
example, a town meeting warrant establishes the
matters that may be acted on by that town meeting.
A treasury warrant authorizes the treasurer to pay
specific bills. The assessors’ warrant authorizes the
tax collector to collect taxes in the amount and from
the persons listed, respectively.
Water Surplus – For water departments operating
under MGL Ch. 41 §69B, any unspent water
appropriations or revenues in excess of estimated
water receipts close-out to a water surplus account.
Department of Revenue/Division of Local Services
Municipal Finance Glossary 29
Water surplus may be appropriated to fund water-
related general and capital expenses or to reduce
water rates.
Waterways Improvement Fund – An account into
which fifty percent of boat excise tax and mooring
fees imposed under MGL Chapter 91 §10A receipts
are deposited. Use of these proceeds is limited to
certain waterway expenses as outlined in MGL Ch.
40 §5G.
Wire Transfer – The electronic authorization
crediting money from one bank or financial
institution account to another.
Zero Based Budget – A budget building technique
where each department begins at zero and adds
the cost of essential programs up to an established
funding limit. Each year the process begins again at
zero prompting close scrutiny and prioritization of
costs annually.
A publication that was used in developing this glossary was Governmental Accounting, Auditing, and
Financial Reporting, by Stephen J Gauthier. Chicago: Government Finance Officers Association, 2001