Town Manager's Blog
Edition FY2025-3
Topic: Free Cash - CARES Act - American Rescue Plan Funds (ARPA)
Free Cash
Free cash is a revenue source that results from the calculation, as of July 1, of a community's remaining, unrestricted funds from its operations of the previous fiscal year based on the balance sheet as of June 30. It typically includes actual receipts in excess of revenue estimates, unexpected revenues and unspent amounts in departmental budget line items for the year just ended, plus unexpended free cash from the previous year. Free cash is offset by property tax receivables and certain deficits, and as a result, can be a negative number.
Free cash is not available for use until after the accounts submits a prior-year balance sheet to the Division of Local Services (DLS) and the Director of Accounts certified free cash. The DLS certification protects communities from relying on free cash that might not materialize due to local estimates.
The Technical Assistance Bureau (TAB) recommends that communities understand the role free cash plays in sustaining a strong credit rating and encourages them to adopt policies on its use. Under sound financial policies, a community strives to generate free cash in an amount equal to three to five percent of its annual budget, minus debt. This goal helps deter free cash from being depleted in any particular years, which enables the following year's calculation to begin with a positive balance. The Town of Dracut has adopted this recommendation.
As a non-recurring revenue source, free cash should be restricted to paying one-time expenditures, funding capital projects, or replenishing other reserves. If a community incorporates free cash into revenue source projections for the next year operational expenses, it is prudent to place a percentage restriction on the total free cash to be used. Any free cash use requires an appropriation approved by Town Meeting but only after the DLS has certified the free cash total. The same rules apply to DLS's certification of retained earnings, which is the enterprise fund equivalent of free cash.
The Town has been fortunate to have been able to build up its free cash from the infusion of Cannabis Impact Fees that cannot be used for the budget and will dwindle in time. It has also seen a positive trend with close-outs of unexpended funds and an increase in some revenues. The Town has been very conservative with using free cash and has strategically budgeted it to address many outstanding capital projects and replacement of aging equipment.
Free Cash use since FY2017:
| Use | Amount | Use | Amount | Use | Amount |
|---|
| Building Improvements | $ 2,513,000 | Bylaw and Charter Re-write | $ 165,000 | Dept. of Public Works Equip. | $ 1,180,000 |
| Feasiblity Study | $ 1,000,000 | Fire Equipment | $ 1,793,000 | Master Plan | $ 25,000 |
| Fire Station Design | $ 300,000 | School Audit | $ 72,500 | Pedestrian Safety Proj. | $ 1,051,225 |
| Playground Installs | $ 340,000 | Police Equipment | $ 836,036 | Police Station Demo | $ 25,000 |
| Roads and Infrastructure | $ 785,000 | School Repairs | $ 879,813 | School Technology | $ 1,060,226 |
| Snow and Ice | $ 2,365,562 | Special Education Stab. | $ 200,000 | Stormwater Equipment | $ 550,000 |
| Town Technology | $ 370,193 | School Trans. Deficit | $ 135,000 | Vaping Detectors | $ 38,295 |
| 911 Software | $ 30,400 |
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Below is a table demonstrating the town's certified free cash:
| Fiscal Year | Certified Free Cash | Fiscal Year | Certified Free Cash | Fiscal Year | Certified Free Cash |
|---|
| 1994 | $ 90,692 | 2004 | $ 363,751 | 2014 | $ 2,444,613 |
| 1995 | $ 1,752,319 | 2005 | $ 623,627 | 2015 | $ 3,552,721 |
| 1996 | $ 2,998,954 | 2006 | $ 1,761,861 | 2016 | $ 5,839,395 |
| 1997 | $ 2,286,365 | 2007 | $ 1,998,316 | 2017 | $ 5,563,620 |
| 1998 | $ 2,358,849 | 2008 | $ 2,473,822 | 2018 | $ 6,477,970 |
| 1999 | $ 1,664,389 | 2009 | $ 1,499,903 | 2019 | $ 8,509,082 |
| 2000 | $ 1,215,879 | 2010 | $ 1,345,518 | 2020 | $ 9,898,201 |
| 2001 | $ 3,703,662 | 2011 | $ 1,390,469 | 2021 | $10,317,955 |
| 2002 | $ 2,292,936 | 2012 | $ 1,646,835 | 2022 | $ 8,418,655 |
| 2003 | $ 1,377,570 | 2013 | $ 821,001 | 2023 | $ 8,018,398 |
CARES Act (COVID) and American Rescue Plan (ARPA) Federal Grants
At the onset of COVID-19 the Federal Government provided funding for all cities, towns and the like that was targeted to relieve the strain that COVID had on budgets. The first wave of federal funding was known as the CARES Act and was used to pay for the costs associated with the unprecedented impact that COVID had on municipalities. Dracut received $2.8M in CARES funding. It was expended on the following:
| HVAC Upgrades/Replacements | Cleaning and Supplies/Sanitizer | Infrared Thermometers | Masks |
| Sewer Repairs | Excess Trash | Personal Protective Equipment (PPE) | Class C Uniforms - Police |
| Storage of School Equipment | Remote Technology | Technology Supplies/Memberships | Tents |
| Card Access Programming for Buildings | Temporary Staffing | Social Distancing Supplies | Education Platforms for Remote Learning |
| Duties Stipends | Remote Teachers | Message and Electronic Boards | Sign Equipment |
| Phones and other Electronic Technology | Signage | Retrofit of Bubblers | Plexi Glass |
| Bathroom Fixture Upgrades | Sanitizing Equipment | Labor Expenses-Retrofits in Buildings | Rug Cleaning |
The second wave of funding is known as the American Rescue Plan (ARPA). According to the Federal Government, this funding was needed to relieve states and local government's to continue to support the public health response and laid the foundation for an economic recovery. The goal was to change the course of the pandemic and deliver immediate relief for American workers. The total amount received by Dracut is $9.5M. It was quickly determined that the funds would be used to address capital items that had been lingering for many years. We specifically refrained from using any of these funds for recurring or creating a recurring expense such as salaries, annual obligations, etc.. The Town contracted with an outside accounting firm to audit all uses to assure compliance with federal regulations.
When the Town was awarded this funding, we proactively created a team that still meets today to assure the Town and Federal Government that we are complying and using the funds on worthwhile projects. Although the funding provided was substantial, given the economic climate we had to estimate high to ensure the project was awarded and completed. All of these projects required outside consultants/engineers to provide engineering drawings and scope of services and the final bids for construction came in less than expected for a few. The funding must be encumbered and contracts must be in place prior to December 31, 2024 or the funds have to be sent back to the Federal Government.
A summary of projects targeted with ARPA Funding:
Upon notification of these funds, the town immediately went to work to secure contracts with engineers in many disciplines to assure that we had the resources we needed to complete projects that would require professional services. When the estimates of jobs was required the economy was in a tailspin and the costs nearly doubled and we were faced with supply chain challenges. Fast-forward to today, we have been experiencing lower costs for the jobs out to bid, resulting in a possible surplus in ARPA funds. The following is a summary of projects that these funds were committed to:
Tally Ho Road Reconstruction: Complete reconstruction, total cost was $982K, we originally estimated $1.1M.
Lakeview Ave. Culvert Replacement : This project is similar to the Sladen Street culvert replacement but it is larger and more complicated, and will cause an interruption in the traffic flow. We considered leaving the road partially open and work around the construction but that was going to be an additional $500K. The original estimate of this project was done at the same time as Sladen Street was being done and came with an estimate of $2.5M, taking into consideration the economic challenges. Once we went out to bid, several months later it came in at $1.360K.
Sawmill Drive Culvert Replacement: This is one of two culverts on this road that need attention. It would be a detriment to public safety if we did them both at the same time and therefore we are replacing the culvert that is in the most danger of failing. To date we are awaiting Department of Environmental Protection (DEP) approval; we plan to put out to bid prior to July 1st but that could change if we don not receive necessary approvals from the DEP. The cost has been estimated at $1.2M.
Helen Drive Wall Replacement: For clarification purposes, please understand that the Town has accepted this street and with that acceptance we are responsible for its upkeep and that includes the walls. There have been comments that we are spending money on private property, that is false. These walls are in danger of collapsing and need to be addressed before that time comes. Construction will begin on this job on or before July 1st. The original estimate ($850K) was again at the height of the economic challenges; it came in at $425K, a welcomed savings that can be used on other projects.
Library Boiler/HVAC: Replacement of HVAC to include air purifications.
Weatherization Audit and Condenser Police Station: Complete analysis and the installation of weatherization products
Kelly Road Reconstruction/Culvert Replacement: We committed to completing the conceptual design for this project, the estimated cost exceeds funding afvilable and therefore this project has been put on hold.
What will we use the balance of the funds for?
It is possible that we may have excess funds in the $1M range but that remains to be seen. If indeed we do have a surplus, we will dedicate the funds to similar projects and consider re-directing the proposed purchase of Fire equipment that has been slated to be paid for from free cash and instead use these funds, preserving our free cash for other uses.
Thank you for taking the time to review and please reach out if you have any questions. I can be reached at 978-452-1227 or by email at avandal@dracutma.gov.
