Stabilization Funds in Northampton

by Karen Kauschen

Parent, Ward 6

When someone says – Northampton needs stabilization funds. Didn’t you see the flooding?

Here’s my short response:

Stabilization funds are only part of any financial solution.

Stabilization funds also provide a way to:

restrict financial decision making to the upper levels of city government,
underfund city services by diverting funds,
accumulate wealth,
inflate bond ratings.

Here’s a longer response:

City stabilization funds are often compared to a family’s rainy day fund, meant for unexpected expenses. An actual savings account has more flexibility. If someone is saving for a car, and a large medical expense comes up, they can still access their savings. City stabilization funds have restrictions on what that money can be spent on, and any spending must be confirmed with a vote.

The reality is, for a family or the city, most unforeseen expenses exceed the amount in these funds. Stabilization funds are about more than saving for a future need.

Northampton uses stabilization funds as a wealth accumulation tool that improves municipal bond/credit ratings. Money is diverted from the city’s operating budgets and vital services like education. Al Simon’s presentation during a special City Council meeting on June 17 details this and how Northampton is an outlier.

Special Presentation to Northampton City Council 6/17/24

While building reserves is part of financial planning, chronically underfunded schools shouldn’t bear the brunt of this strategy.

The recent implementation of the Special Education Stabilization Fund let us watch this process of prioritizing the building of reserves over addressing needs in real time.

Instead of directly allocating $800,000 to the school budget, it was diverted to this new fund.
Using potential Medicaid reimbursements to replenish the fund takes recurring revenue away from the school budget.
The immediate transfer of $200,528 to the FY25 NPS budget, leaves over $500,000 tied up in the fund.

This creates a situation where the City Council now has control over spending decisions previously managed by the School Committee.

What are stabilization funds? What stabilization funds does Northampton have?

Stabilization funds help maintain stability when budgets are stressed by unexpected events or accelerating cost increases.

According to the state’s Division of Local Services Financial Management Resource Bureau [FMRB], “reserves should be used to fund unanticipated or one-time costs rather than to regularly fund operating expenses unless provisions are made to replenish the reserves.”

There are two kinds of stabilization funds: general and special purpose. Northampton has one General Stabilization Fund and eight special purpose stabilization funds.

As described by the FMRB, a general stabilization fund provides “emergency funds for use in a major or significant event, such as natural disaster [or] damage to a capital asset.”

The eight special purpose stabilization funds have relatively narrower purposes:

Fiscal Stability

The Fiscal Stability Stabilization Fund helps cover anticipated—but sometimes faster-rising than expected—cost increases such as employee health benefits. This fund was created as a part of Northampton’s “Fiscal Stability Plan,” initially funded with revenue from the voter-approved 2013 property tax override and renewed by the 2020 override.

Because of the annual 2.5% limit on property tax revenue increases, imposed on Massachusetts cities by Proposition 2 1/2, municipal costs generally rise faster than revenues. The only way to go above the limit is through voter-approved overrides.

Under the Fiscal Stability Plan, when the Fiscal Stability Stabilization Fund declines to a certain level, that’s when we ask voters if they want to renew the Fiscal Stability Plan and replenish the fund with a new override.

Capital

The Capital Stabilization Fund supports capital projects to replace aging infrastructure and equipment so they don’t fall into disrepair because of financial neglect. Due to decades of deferred maintenance and insufficient planning for capital expenses, there are many critical building and infrastructure projects on the fiscal horizon. The five-year capital improvement plan was recently approved by the City Council for an estimated total of $108.8 million over five years. The plan, which renews every year and all projects get reevaluated, anticipates spending at least $15.7 million on projects for the Northampton Public Schools. That amount is likely low as major school building projects have been put on hold while NPS goes through their strategic planning process.

Climate

The Climate Change Mitigation Stabilization Fund, established in Fiscal Year 2023, was created to prioritize the community’s carbon-neutrality goals and to plan for costs to implement our climate resilience and regeneration plans. Possible needs include planning, and to be able to move quickly to be able to utilize state and/or federal grants which often require some

investment or design work from the municipality. This fund will give us flexibility to be able to take advantage of opportunities and leverage more funds.

Opioid

The Opioid Settlement Stabilization Fund was created in Fiscal Year 2023 to handle money from the National Opioids Settlement and its uses are restricted to prevention, harm reduction, treatment, and recovery services. (Following an expected June vote by the City Council, this stabilization fund will be phased out and replaced with what’s known as a special revenue fund.)

Enterprise (4 Funds)

Four separate stabilization funds support our four enterprise funds—Water, Sewer, Solid Waste, and Stormwater and Flood Control. They help address critical maintenance needs. These are funded through service fees and the money cannot be repurposed.

How are stabilization funds funded?

The four Enterprise stabilization funds are funded indirectly through the service fees on your utility bill. When revenues are higher or expenditures are lower than expected, the unspent fees become part of “retained earnings” which then get appropriated into the stabilization funds.

The Opioid Stabilization Fund is solely from money from the National Opioids Settlement.

The Climate Change Mitigation Stabilization Fund was initially seeded with $3 million from the federal American Rescue Plan Act’s “loss revenue” program, which compensated municipalities for lost revenue from the pandemic.

The Fiscal Stability Stabilization Fund, as noted above, was created and sustained in part with money from periodic property tax overrides.

The Capital Stabilization Fund is partly funded by the general fund budget. In FY23 and FY24, it was funded with $450,000 each year.

Also, the General Stabilization Fund, the Fiscal Stability Stabilization Fund, the Capital Stabilization Fund, and the Climate Change Mitigation Stabilization Fund receive money from bank interest and capital gains from investments, and can be negatively impacted by capital losses. And each receives money from undesignated fund balances.

How will the Special Education Stabilization Fund receive funding?

Northampton Public Schools receive Medicaid reimbursement.

The School-Based Medicaid Program (SBMP) offers Local Education Agencies (LEAs) an opportunity to receive federal dollars to offset costs for providing certain Medicaid-covered direct services in a school setting. This is referred to as the Direct Services Claiming (DSC) portion of the program. Additionally, the school setting provides a unique opportunity for local communities to partner with MassHealth (the Massachusetts Medicaid and Children’s Health Insurance Programs) to enroll eligible children in MassHealth, and to assist children who are already enrolled to access the benefits available to them. This is referred to as the Administrative Activity Claiming (AAC) portion of the program.

Covered types of direct care services in the SBMP include: Applied Behavior Analysis for members with Autism Spectrum Disorder (ASD), audiology, dental assessments/screenings, medical nutritional services, mental/behavioral health services, skilled nursing care, occupational therapy, physical therapy, physical and behavioral health screenings, and speech therapy.

In order to seek reimbursement in the SBMP, LEAs must contract with MassHealth. LEAs considering participating in the program may wish to review information in the Resource Center to learn more about the program or contact the School-Based Claiming Team. Ultimately, LEAs must reach out to the MassHealth Provider Enrollment Center to initiate the contracting process. For contact information see Need Help with the SBMP?

The SBMP is separate from school-based health centers, which are offsite locations of hospitals and community health centers. Only LEA-incurred costs are reimbursable under the SBMP. The School Based Health Center Program is administered by the Department of Public Health.

For more information on school-based Medicaid reimbursement:

https://www.mass.gov/info-details/what-is-the-school-based-medicaid-program-sbmp

https://www.mass.gov/school-based-health-centers-here-for-the-kids.