Massachusetts Collectors and Treasurers Association TREASURER’S MANUAL Revised 2017 Chapter 1 Overview and Legal Basis of Municipal Finance in Massachusetts Legal Foundation of Municipal Finance The development of the powers and duties of Massachusetts cities and towns has evolved since colonial times. The Massachusetts General Laws set out the legal foundation of municipal finance, but new statutes, court decisions, agency regulations, and guidelines are constantly changing. Knowledge of where to find the statutes and regulations, and keeping up with changes is of great importance for all treasurers. More detail can be found on the Division of Local Services publication “A Guide to Financial Management for Town Officials” www.mass.gov/dor/docs/dls/publ/misc/town.pdf. Sources of Legal Information The Division of Local Services (DLS) of the State Department of Revenue (DOR) has statutory responsibilities regarding the assessment and collection of property and other local taxes, municipal budgets and debt, and municipal accounting and other financial practices. The Bureau of Municipal Finance Law serves as the legal bureau of the DLS and is available to municipal treasurers for legal advice and assistance. (See Bulletin 2006- 02B titled Bureau of Municipal Finance Law online at www.mass.gov/dls.) Treasurers can call to speak to one of the assigned “attorneys of the day” at 617-626-2400 or email a question to [email protected]. In an email request, a treasurer needs to include name, community, position, telephone number, and best time to reach you in case follow up is needed. The DLS has a website (www.mass.gov/dls) which is invaluable to municipal treasurers looking for legal information pertinent to their jobs. There are quick links from the DLS home page to a local officials directory, bulletins on new laws, regulations, procedures, and seminars and workshops being offered by the DLS, Informational Guideline Releases (IGR’s) which explain new laws and related regulations, copies of the newsletter, “City and Town”, copies of the Cherry Sheet which gives information regarding the state budget, state aid and assessments to individual municipalities, and other important information. Treasurers should subscribe to the online service for these important publications as they are no longer mailed to local officials. This can be done online or by contacting the DLS at 617-626-2353. There is no charge for this online service. (See DLS Bulletin 2003-09B titled Dissemination of DLS Information by Email online.) Each year, one of the DLS bulletins contains a summary of the prior year’s changes in municipal finance law. These bulletins are available at the DLS website quick links, cited above. Copies of the General Laws and Session Laws are available at the State House Bookstore, located in Room 116 of the State House, or at www.malegislature.gov. Page 1-1 The DLS has also published a volume entitled “Laws Relating to Municipal Finance and Taxation”, which provides municipal officials with most of the statutes relative to city and town government. Multiple copies are mailed to each municipality when the volume is updated –usually every three years. Contact the DLS legal department if there is not a volume in your office. The DOR website (www.mass.gov/DOR) has a number of publications which may be helpful to treasurers. They may be downloaded or saved to one’s computer. Among the titles are the following: Bureau of Accounts State House Note Program Forms; Cherry Sheet Manual; Developing a Capital Improvement Program: A manual for Massachusetts communities; Guide to Financial Management for Town Officials; Technical Assistance—A brochure detailing the DLS financial management assistance/consulting available to Massachusetts local governments. State law may also be researched by using the website, www.malegislature.gov. Current legislation and adopted statutes are available at this site. Massachusetts Collectors and Treasurers Association (MCTA) Website The website of the MCTA, www.masscta.com, has links to many other important websites including the following: • Department of Revenue • Division of Local Services • Ethics Commission • Legislation, including pending laws, hearings, description of gov’t • State and Local Employers • State Treasurer • Social Security • Mass Division of Employment and Training • Public Records Division • Registry of Deeds (Secretary of State) MCTA’s website also has the address, telephone number, and email address of the Association, which is available to all members for aid and assistance. In 2017, they were as follows: address: 510 King Street, Littleton, MA 01460; telephone: (978) 952-6644; fax: (978) 952-6655; email: [email protected] Proposition 2½ An example of a far reaching statute affecting the municipalities of the Commonwealth was an initiative petition resulting in a statewide referendum termed Proposition 2½ (Ch. 59 §21C) which was passed by the voters in 1980. It limits the amount of money a community can levy, i.e., raise through real and personal property taxes. At the DOR Pa ge 1-2 website (www.mass.gov/DOR), there is a list of publications, including two very helpful bulletins on Proposition 2 ½ , titled Levy Limits: A Primer on Proposition 2 ½ and Proposition 2 ½ Ballot Questions, Requirements, and Procedures. Proposition 2 ½ provided for two, distinct limitations. First, a community cannot levy more than 2.5 percent of the total full and fair cash value of all taxable real and personal property in the community. This constraint is generally called the community's "levy ceiling." Second, a community’s levy can only increase by a prescribed amount, discussed below, from year to year. This second constraint is generally called the community's "levy limit." Proposition 2½ directs the Department of Revenue to annually adjust each community’s levy limit by applying two statutory increases: (1) an automatic increase of 2.5 percent over the prior fiscal year's levy, and (2) a "new growth" increase, based on the value of new construction in the community, including additions to and alterations of real property, that did not result from property revaluation. Proposition 2½ also provides communities with local procedures whereby they can increase their tax levies above their levy limits. These procedures require voter approval at a referendum election. They include overrides, on the one hand, and debt exclusions and capital outlay exclusions, on the other. An override increases a community’s levy limit for the current fiscal year and becomes part of the base for calculating future years’ levy limits. Exclusions provide communities with a means to raise additional taxes to fund capital projects. Unlike overrides, though, exclusions do not become part of the tax base; therefore, they do not result in permanent increases in the tax levy. Furthermore, specific statutory provisions allow special exclusions, permitting communities, for certain limited capital purposes, to assess taxes above the levy limit or ceiling. The amount of a special exclusion is only added to the levy limit or ceiling for a temporary period of time, and does not become part of the base upon which the levy limit is calculated for future years. One such special debt exclusion permits a community to add water and sewer project debt service costs to its levy limit or levy ceiling for the life of the debt, as long as it reduces water and sewer rates by the same amount. Another special exclusion permits a community to assist homeowners to repair or replace faulty septic systems, remove underground fuel storage tanks or remove dangerous levels of lead paint in order to meet public health and safety code requirements. Proposition 2½ also permits communities, by referendum vote, to reduce their levy limits by passing an underride. An underride reduces the base upon which levy limits are calculated for future years, thereby resulting in a permanent decrease in the levy limit of a community. Municipal Powers and Duties With its enactment in 1966 of the Home Rule Amendment to the Massachusetts Constitution (Article 89 as reported in Article 2 of the Articles of Amendment), the Page 1-3 Legislature granted broad home rule powers to both cities and towns. Pursuant to the Home Rule Amendment, municipalities may now exercise any power or function that the Legislature has the power to confer, through the adoption, amendment, or repeal of local ordinances or bylaws. The Home Rule Amendment contains important exceptions and qualifiers, which limit the legislative power of cities and towns. These are set out in Article II §7, which states: Nothing in this article shall be deemed to grant to any city or town the power to (1) regulate elections other than those prescribed by sections three and four; (2) to levy, assess and collect taxes; (3) to borrow money or pledge the credit of the city or town; (4) to dispose of park land; (5) to enact private or civil law governing civil relationships except as an incident to an exercise of an independent municipal power; or (6) to define and provide for the punishment of a felony or to impose imprisonment as a punishment for any violation of law. Furthermore, the Home-Rule Amendment prohibits a municipality from exercising any power that is (a) denied to it by its own charter, or (b) reserved to the state under the Constitution. Also, the exercise of a municipality's powers must be consistent both with the Constitution and with all general and special laws enacted by the Legislature. The Legislature has conferred upon cities and towns the power or duty to: 1. Acquire any land, easement, or right on the territory within its boundaries for any public purpose. (40:14) The acquisition may be made by the means of an outright purchase, by an eminent domain taking, by gift, or by tax title. (60:64-69) 2.