Bedford mulls fiscal year switch
BEDFORD — Changing from calendar to fiscal year accounting creates several advantages and challenges to town administrators and taxpayers, but town councilors say the time has come to give it serious consideration.
The town has been budgeting for a January to December calendar year with property tax bills payable on July 1 and Dec. 1. If the town moves to a July to June fiscal year it could mean several changes, including when tax payments are due, and possibly moving elections and the annual Budgetary Town Meeting to May.
“Essentially, we begin spending in January. We collect our first round of taxes in June and July to fund what we’ve already spent for the prior six months, and then continue spending through the end of the year and collect the final tax portion in December,” said Finance Director Crystal Dionne at the Aug. 14 Town Council meeting.
The town council previously discussed moving to fiscal year accounting in 2005 and 2009.
Dionne said the disadvantages of the current system include the town’s reliance on its fund balance to pay bills, delaying some projects until receipt of tax money, and closing one year and preparing a budget for the next year at the same time. Dionne said although the current system has worked, the town collects money in arrears and spends money for three months without budget approval.“
The very core of prudent fiscal management tells us we should have money in the bank before we start spending it,” she said.
Dionne presented the pros and cons of moving to fiscal year accounting and said the most important is bringing the town’s accounting in line with the state’s fiscal year to make budgeting for state revenues more predictable.
“This one, I think, is incredibly important for us because with some of the reduced revenues, additional costs we’re seeing passed down by the state has been going on for a lot of years and we’d be foolish to think it’s not going to continue. Many of these changes are coming down from the state after we’ve adopted our budget, then we are in reaction mode because we are in mid-budget year,” Dionne said. “Perhaps the state may say, ‘By the way town of Bedford, your $900,000 meals and rooms tax will be cut in half,’ and we have to react right then and there.”
The main disadvantage of moving to a fiscal year is initially budgeting for 18 months to transition from Jan. 1 in one year to July 1 the following year, if that option is chosen.
Councilor Bill Dermody, who is among those in favor of moving to a fiscal year, said this option is like, “giving birth to an elephant. Your checkbooks are going to have a hernia during this transition period.”
“We are getting bigger. Our budgets are getting bigger. It makes more sense to do business in a more up-to-date fashion,” Dermody said. “How do we do it with the least stress and pain on the taxpayers?”
According to Dionne, the town has four options: make the change in one year with a one-time spike in the town portion of the tax rate; reserve a portion of the six-month conversion budget over a defined number of years to mitigate the impact on the tax rate; issue a bond for the six-month conversion costs; or adopt quarterly tax billing to minimize or eliminate the increase in the tax rate.
With option 1, creating an 18-month conversion budget would have an impact on taxpayers because the town would initially send out tax bills covering an 18-month period, and subsequently continue its semi-annual billing in June and December. This one-time adjustment would not include county, school or state property taxes for that period.
“Just the town portion would be reflective of what we need to raise in taxes for 18 months rather than one year. It’s a one-time disadvantage,” Dionne said.
Option 2 would allow the town to establish a reserve fund in anticipation of transitioning to fiscal year accounting. With this option the town could set aside money a little at a time, but would have to budget this item every year.
Dionne said although she is not in favor of bonding operating costs, option 3 — issuing a bond for the six-month conversion costs — may be more acceptable to taxpayers.
“It’s easily explainable. It does mitigate the spike in the tax rate. It does spread the transition out over a number of years and allows us to make the transition immediately,” she said.
This, however, would increase overall costs of the transition, depending on the interest rate of the bond.
Option 4 would set up quarterly tax billing but, Dionne said, quarterly tax bills may confuse taxpayers and bank escrows, and increase operating costs for the town’s software updates and preparing, mailing and collecting bills four times a year. This option needs more analysis, she said.
Town Manager Jessie Levine said about 40 communities in the state have made the transition to fiscal year accounting and only four have chosen quarterly billing.
Councilors asked Dionne and Levine to provide calculations on what impact the move would have on taxpayers based on a $400,000 home, including costs for all four options. Dionne said the Town Council will further discuss the possibility of moving to fiscal year accounting at either its Sept. 11 or Sept. 25 meeting.