Q. What is a stabilization fund and how may it be used?
A. A stabilization fund is a mechanism for setting aside money either for unforeseen needs or for capital projects, according to the Division of Local Services. Such a fund is intended to equalize the effect of capital expenditures over time and to provide a "rainy day" fund. A community may appropriate up to ten percent of the previous year's tax levy into the fund, so long as the fund balance does not exceed ten percent of the community's equalized valuation. A majority vote by the community's legislative body (Town Meeting or city or town council) is required to appropriate funds into the stabilization fund. Two-thirds of the community's legislative body must vote to appropriate money out of the fund. Until fiscal 1992, stabilization funds could be used only to finance capital expenditures for which a community could borrow. Currently, the funds may be used for "any lawful municipal purpose," enabling communities to use the funds for general operating expenses if needed. (From the Massachusetts Municipal Association)

Q. What is free cash?
A. Free Cash (Also Budgetary Fund Balance) Funds remaining from the operations of the previous fiscal year which are certified by Department of Revenue's director of accounts as available for appropriation. Remaining funds include unexpended free cash from the previous year, receipts in excess of estimates shown on the tax recapitulation sheet and unspent amounts in budget line-items. Unpaid property taxes and certain deficits reduce the amount of remaining funds which can be certified as free cash. (From the Association of Town Finance Committees)

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