Free Cash & Why It's Important

Historically, the Town has used its Free Cash to help balance its operating budget. Over the last 5 years, the Town’s reliance on free cash has increased significantly – in 2018 the Town used $133,967 to support operating expenses and in FY24 the Town needed to use $574,343 to balance the budget. For FY25, the Town is relying on $474,343 to balance the budget, a reduction of $100,000 from FY24 and this is planned to continue in FY26 and FY27. Why? The Department of Revenue recommends Free Cash only be used for one-time expenses. Because each year’s free cash is not guaranteed, using it for reoccurring expenses can be unsustainable and demonstrates a structural budgetary problem.

So, what is Free Cash? Free Cash is the result of spending and collection activity within any given fiscal year. Free Cash is generated through two main sources: actual revenues being higher than estimated revenues and actual expenditures being less than budgeted expenditures.

Why is it important for the Town to have available Free Cash? Retaining Free Cash provides the Town with financial flexibility and reserves, reductions in Free Cash could negatively impact the Town’s bond rating, and using Free Cash to balance the budget could impact future spending plans if it is not regenerated each year.