Fiscal Year 2025 is about a quarter of the way through, and Newton has $23.6 million in free cash left over from last fiscal year, Newton CFO Maureen Lemieux told the City Council Monday night while presenting her budget forecast.
“Significantly more cash than we typically have,” Lemieux noted.
Having free cash this flush is a recent phenomenon, stemming from a boost in 2022. The average amount of free cash in each of the nine years prior was 2.5% of the total budget, and that’s where Lemieux said the city should be.
“We always need to have some free cash, but as a practice, as one of our financial management strategies, we try to really identify what we are going to have for revenues and not under-forecast or under-budget our revenues so that we’re not holding back on providing services—either to the schools or to the citizens throughout the city.”
So what brought all the loot?
“Free cash” refers to money left over after each fiscal year that’s put into an account and certified by the state. A typical year brings between $10 million and $15 million in free cash.
“Most of it comes in the form of surplus revenues,” Lemieux said. “We try to be conservative when we budget our forecasts. We have few areas that generate unexpended appropriations. Our municipal departments are basically where our unexpended appropriations come from. They’re always much less than whatever our surplus revenue is.”
The city saw a giant spike in free cash in fiscal years 2022 and 2023.
FY2022 saw free cash at $15.8 million more than the city had ever recorded. That year, free cash was $28.8 million, made up of $12.4 million from an Eversource payment and an unexpected increase in meals tax revenues as the city’s restaurants saw a comeback from Covid faster than expected. Building permits saw a faster comeback than expected that year as well, adding to free cash.
FY2023 saw $27.9 million in free cash. That consisted of more than $5 million left over from the aforementioned FY2022 free cash as well as interest income, with high interest rates bringing in much more than expected.
“That’s the first year when interest income really ballooned for us,” Lemieux said. “We had $8.4 million of interest income in excess of what we had budgeted for. And again, our building permits stayed strong.” Interest rates rose significantly the past few years due to the Federal Reserve’s interest rate increases.
With FY2024, interest income was well beyond expectations again, by $11.6 million. The city had planned for $2.5 million and got $14.1 million.
The rooms and meals tax brought in more revenues than expected, too, and the city’s motor vehicle excise tax revenues were $2.7 million more than forecast.
“We actually had the highest amount of excise tax in Fiscal 2024 that the city has ever seen,” Lemieux said.
The FY2025 budget is $525 million. Lemieux said the “sweet spot” of how much free cash should be left over is about $14 million, which is 2.5 percent of the budget.