Negative Free Cash for FY08 - What Does It Mean?

There have been some articles in the Daily News lately that have raised some alarms in the community. The Commonwealth's Department of Revenue recently certified Amesbury's 2008 financial records. This included a certification that Amesbury had "negative Free Cash" at the end of the year. Now, we usually have positive Free Cash and have used it to put $$$ in the Stabilization Fund, pay for over-budget snow and ice removal costs and other mid-year expenses.

What does this mean, "negative Free Cash"? Sounds like we ran a deficit. The bad news is that we won't have any unrestricted ("Free") money available through the rest of the year rolled from 2008, which only makes our outlook through the remaining 8 months of the fiscal year all the more challenging (see post below about budget cuts). The 'good' news is that this does NOT mean that Amesbury ran a deficit last year. In fact, we ended the year with positive revenue over expenditures, after adjustments.

The "Free Cash" calculation is complicated. The Mayor gave a presentation to the Finance Committee on 10/28/08 to clarify where we stand. You can CLICK HERE to view the PowerPoint presentation that Mr. Kezer gave us. Even though we ended the fiscal year with a positive balance, we have to deduct several MAJOR costs from that balance. First, there is property tax revenue that we have figured in the FY08 budget that has not yet been paid. This means that we have to account for it as if we will NOT ever collect it, so we deduct it from our positive balance. As of June 30, 2008, this was $763,100. Next, we have to set aside even more $$$ to cover possible loss of revenue from property tax abatement requests, called the "Tax Overlay". This is about $500,000. Then we have to set aside $600,000 for taxes due on the abandoned Microfab site; we may never get to collect those taxes, either.

So, even a $977,000 surplus gets captured and seized up by these different liabilities. As we collect the rest of that $763,000 in property taxes due, we will get to credit that towards this year's Free Cash estimate at the end of FY09. And if we may not have to cover $500,000 in tax abatements, so that $$$ would free up, as well. The whopping $600,000 that we have to basically escrow to cover Microfab taxes due will continue to be a big drag on our bottom line, until that property and its environmental damage gets cleared up and sold. In accounting terms, these are "liabilities" that we either will have to pay later or are revenue we may not collect, so we have to budget funds to cover them.

Clear as mud?

Looking forward to the FY10 budget, one thing we can improve is eliminating our reliance on Free Cash to inject money into the Stabilization Fund and cover Snow and Ice Removal when it goes over. We routinely under-budget that amount and should not assume that we'll always have a positive balance. Also, I wonder if the $763,100 delay in over-due property tax payment is either a sign of increasing inability to pay AND/OR a function of foreclosed properties (where taxes don't get paid until the property finally resells). If so, this means we will have this problem again at the end of FY09, carrying more past-due taxes.