Acronyms & Terms Commonly Used in Municipal Finance
Abatement: A complete or partial cancellation of a levy imposed by a governmental unit; applicable to tax
levies and special assessments.
Accrual Basis: In the context of accounting, practice in which expenses and income are accounted for as they are earned or incurred, whether or not they have been received or paid.
ADA: Americans with Disabilities Act of 1990, which prohibits discrimination on the basis on disability and requires accommodations of all public places built after passage and to previous facilities when compliance is “readily achievable” which means “easily accomplished without much difficulty or expense.”
Appropriation: An authorization granted by a legislative body to make expenditures and to incur obligations for specific purposes. An appropriation is usually limited in amount and the time when it may be expended. Only a vote of the Board of Aldermen can authorize money appropriated for one purpose to be used foranother. Any amount which is appropriated may be encumbered. Any part of the general appropriation notspent or encumbered by June 30 automatically reverts to surplus. A specific or particular appropriation iscarried forward from year to year until spent for the designated purpose or transferred by Aldermanic voteto another account.
Assessed Valuation: The value placed upon a particular property by the local Board of Assessors for thepurpose of apportioning the City’s tax levy among individual property owners equitably and in accordancewith the legal requirement that property be assessed at “full and fair cash value,” certified periodically bythe Commonwealth’s Commissioner of Revenue (no less frequently than once every three years).
ARPA: American Rescue Plan Act, federal stimulus bill passed on March 11, 2021 to mitigate economic ramifications of the pandemic; funding which must be obligated by the end of 2024 and spent before 2027.
Audit: Work done by accountants in examining financial reports, reviewing compliance with applicable lawsand regulations, reviewing eff iciency and economy of operations, and reviewing eff ectiveness in achievingprogram results. A basic audit examines only the financial reports and legal compliance. An outside CertifiedPublic Accountant (CPA) audit is directed primarily toward the expression of an opinion as to the fairness ofthe financial statements and submission of a management letter. An auditor must be independent of theexecutive branch of government. A state auditor, private CPA, or public accountant, or elected auditor meetsthis test.
Balance Sheet: A statement which discloses the assets, liabilities, reserves, and equities of a fund orgovernment unit at a specified date.
Balanced Budget: A plan of financial operation in which the estimate of proposed expenditures for a givenperiod is less than or equal to the proposed means of financing these expenditures (from various sources offunds or revenues).
Budget: A plan of financial operation embodying an estimate of proposed expenditures for a given period(usually a 12-month period referred to as the Fiscal Year, or FY) and the proposed means of financing them.A budget may be preliminary (the financial plan presented to the City Council) or final (the plan approved bythat body).
Capital Improvement Plan (CIP, or Capital Budget): A plan of proposed capital outlays, and the means offinancing them for the current fiscal period. It is usually a part of the current budget but may also be a multiyear plan.
Capital Improvement: A major, non-recurring expenditure involving one of the following:
a. Real Property - Includes the purchase or lease of land, existing buildings and structures, and fixturesattached to land and buildings.
b. Equipment - Includes the replacement or addition of major items of equipment with a life expectancy of at least two years and a cost of at least $10,000. Similar items can be bundled together.
c. Projects - Include activities such as the following:
- Construction of new buildings or facilities (including architectural, engineering, and related fees).
- Improvements or major repairs (costing $50,000 or more) of existing buildings or facilities, aside fromroutine maintenance.
- Studies or other activities (costing $50,000 or more) that either relate to future “brick and mortar”projects, or are a part of a multi-year program of infrastructure improvements.
- An annual sum available for routine building improvements, renovations, or repairs
Cherry Sheet: An annual statement received from the Massachusetts Department of Revenue (DOR) detailing estimated receipts for the next fiscal year from the various state aid accounts, and estimated stateand county government charges payable by the City, and included by the local Assessors in setting the taxrate. The actual receipts and charges may vary from the estimates.
Classification: The division of property valuations by type of property. There are five classes: Residential,Open Space, Commercial, Industrial, and Personal. The Council may set as many as three diff erent tax rates(within limits set forth in state law): for residences, for business and personal, and for open space.
Debt Service: Payment of interest and principal related to long-term debt.
Depreciation: A non-cash expense (also known as non-cash charge) that provides a source of availablefunds. Amount allocated during the period to amortize the cost of acquiring long-term assets over the usefullife of the assets. This is an accounting expense not a real expense that demands cash.
DPW: Department of Public Works
Encumbrance: Obligations such as purchase orders, contracts, or salary commitments that are chargeableto an appropriation, and for which a part of the appropriation is reserved.
Enterprise Fund: A fiscal entity with a self-balancing set of accounts that is utilized to account for agovernmental service when it is the intent to recover the total cost of service, including depreciation,primarily through user charges imposed on the consumers of the service. Examples include: Water andSewer services provided by the Department of Public Works.
ESG: Emergency Shelter Grants: Federally funded program to address the needs of homeless individuals and families
Equalized Valuation (EQV): The value of all property as determined by the Commissioner of Revenue biennially, using a standard of “full and fair value”; also referred to as EQV.
Expenditure: The spending of money by the City for the programs or projects within the approved budget.
Fiscal Year (FY): A 12-month period, commencing July 1 and ending June 30, to which the annual budgetapplies, and at the end of which a governmental unit determines its financial position and the results of itsoperations. The number of the fiscal year is that of the calendar year in which it ends; FY2016 is the fiscal year which begins July 1, 2015 and ends June 30, 2016.
Free Cash: Free cash refers to the amount of Fund Balance that is available for appropriation. It is certifiedeach July 1 by the state. Because of the stringent way that the state makes these calculations, Free Cashmore closely represents Cash (actual dollars held) than does Fund Balance, which includes a variety ofreceivables (i.e., cash due).
Fund: An accounting entity with a self-balancing set of accounts that are segregated for the purposeof carrying on specific activities or attaining certain objectives in accordance with specific regulations, restrictions, or limitations.
Fund Balance: The amount by which cash, accounts receivable, and other assets exceed liabilities andrestricted reserves. It is akin to the 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).
General Fund: The fund into which the general (non-earmarked) revenues of the City are deposited, andfrom which money is appropriated to pay expenses.
General Obligation Bonds: Bonds issued by the City that are backed by the full faith and credit of its taxingauthority.
GLX: Green Line Extension program by MBTA to bring 5 new stops into Somerville
Governmental Funds: Funds used to organize and separate the finances of various City activities andobjectives. Governmental Fund categories include: the General Fund; Enterprise Funds; Special RevenueFunds; and Stabilization Funds.
HUD: Housing & Urban Development, department of federal government
IAM: Infrastructure & Asset Management, Department of
ISD: Inspectional Services Department, under CCE
MBE: Minority Business Enterprise, certification granted at the state level by the Supplier Diversity Office to enhance competitiveness and equity in public and private market bidding processes
OFS: Other Funding Sources
Ordinary Maintenance (OM): The cost of all items not defined as capital or related to staffed positions.
OSE: Office of Sustainability & Environment
OSPCD: Office of Strategic Planning & Community Development
Overlay: The amount raised from the property tax levy in excess of appropriations and other charges. It cannot exceed 5 percent of the levy, and is used to cover abatements and exemptions granted locally or onappeal.
Overlay Surplus: The unused portions of overlay accounts from previous years; at the end of each fiscal year, this amount is computed from information provided by the Board of Assessors. Any sum so designated is transferred to, and becomes part of the General Fund undesignated fund balance.
Override: A vote to increase the amount of property tax revenue that may be raised over the levy limit set by Proposition 2½.
Personal Services (PS): The cost of salaries, wages, and related employment benefits.
Property Tax Levy: The amount produced by multiplying the assessed valuation of property by the tax rate.The tax rate is expressed per thousand dollars of assessed valuation. For example:
House Value: $500,000
Tax Rate: $12.71 (which means $9.83 per thousand dollars of valuation)
Levy Calculation: $12.71 multiplied by $500,000 divided by $1,000.
Result, Property Tax Levy: $6,355
Proposition 2½ (see below): A tax limitation measure passed by Massachusetts voters in 1980 that limits the growth of the total property tax levy to 2.5% per year. New construction values are added to this limit.Two provisions of Prop 2½ allow the City to raise taxes above this tax levy limit, upon approval by a 2/3 Aldermanic vote: an operating override or a debt exclusion.
PSUF: Public Space & Urban Forestry, Subdepartment of OSPCD
Purchased Services: The cost of services that are provided by a vendor.
Revolving Fund: Those funds that may be used without appropriation and that are established for special uses. Fees (such as for recreation) may be paid into a revolving fund. Revolving funds are established directly by state law or by City bylaw consistent with state law.
RSJ: Racial & Social Justice, Department of
SAIL: Somerville Academy of Innovative Learning
SOIA: Somerviva Office of Immigrant Affairs, Subdepartment of CCE
SPEA: Somerville Police Employee's Association
Tax Levy: Total amount of dollars assessed in property taxes by the City each fiscal year.
WBE: Woman Business Enterprise, certification granted at the state level by the Supplier Diversity Office to enhance competitiveness and equity in public and private market bidding processes
Terms Associated with Proposition 2½
Excess Levy Capacity: The difference between the City’s maximum annual tax levy limit as established byProposition 2½ and its actual tax levy for the current year. It is additional tax levy that a City could raise without asking voters for an override or debt exclusion.
Growth Revenue: The amount of property tax revenue that the City can add to its allowable tax levy as aresult of new construction, alterations, subdivision, or change of use of a parcel.
Primary Levy Limit, or Absolute Limit: 2.5 percent of certified full and fair cash value of taxable property.
Secondary Levy Limit, or Annual Levy Limit: Prior levy limit plus 2.5 percent (base) plus growth revenue.