Finance

VLCT has updated its FEMA Public Assistance FAQ webpage to address two issues related to FEMA’s Small Project procedure: changes to project scope and what happens when a Small Project costs less than expected.

Changing How a FEMA PA Project Is Completed

Several municipalities have asked whether they can adjust how a FEMA‑funded project is carried out. The answer is simple: contact the State before making any changes.

FEMA must approve any modification to the scope of work written in the project worksheet. This includes changes to materials, methods, or hazard mitigation components. Completing work differently than approved - even if the project still functions as intended - can put funding at risk.

During final inspection, if the completed work does not match FEMA’s approved scope, the State may:

• Request a FEMA scope change, which could result in partial repayment
• Determine the project is ineligible, requiring full repayment
• Investigate potential misuse of federal funds

Misconduct is treated seriously under federal law. Improper use of FEMA funds can lead to repayment, State or Federal debarment, civil penalties, or criminal charges. Early communication with the State is the best way to avoid these outcomes. Best practice is to put your scope change question in writing and get any scope change approval response in writing too.

What If a Small Project Costs Less Than the FEMA Payment?

Under FEMA’s Small Project rules, municipalities may keep excess funds only if:

• The project is completed exactly as described in the FEMA project worksheet,
• All costs are properly documented, and
• The State verifies completion during closeout.

For highway projects, VTrans will confirm the work matches the approved scope. Once the State closes the project, any remaining funds may stay with the municipality, but they may still be subject to adjustment later.

To avoid complications, municipalities are encouraged to wait until they receive the final closeout letter for the entire disaster grant before treating any funds as surplus.

These updates are designed to help communities avoid common pitfalls and stay compliant with FEMA requirements. Municipalities are encouraged to review the full FAQ page and reach out to their State Public Assistance Coordinator with questions as projects move forward.

Testimony to the Senate Committee on Government Operations
Regarding Municipal Unassigned Fund Balance Authority
Josh Hanford, Director of Intergovernmental Relations, VLCT
Samantha Sheehan, Municipal Policy and Advocacy Specialist, VLCT
January 8, 2026
 

Act 57 of 2025 “The Flood Bill”

The Flood Bill included several actions targeting support to municipalities to enable the preparation, emergency response, and recovery from flood disasters and other all hazard events and changed the LOT withholding formula from 70/30 to 75/25.

• Act 57 also enacted three new municipal finance authorities which were jointly developed and recommended by VLCT and the Vermont Bond Bank.
• Section 6: Unassigned Fund Balance
• Section 7: Emergency Borrowing; all-hazard event or state emergency
• Section 8: Denominations; Payments; Interest (level debt service)
   

Types of “Fund Balances” Used in Governmental Finance

Think of these more like an adjective…..less like a budget line or bank account.

• Restricted: resources that can only be used for specific purposes dictated by external parties (like grants or laws). In the municipal context, this can include charters. TIF revenue is an example of restricted funds.
• Committed: resources set aside for specific purposes by the municipal legislative body requiring the same level of formal action (typically ordinance) to change or remove the commitment. Housing Trust Funds are a common example of committed funds.
• Assigned: resources intended for a specific purpose, but not legally constrained. For example, recreational program revenues retained for same future purpose (this year’s parade registrations pay for next year’s parade).
• Unassigned: the leftover, spendable amount in the General Fund after accounting for restricted, committed, and assigned funds.
   

Definition of a “Fund Balance”

Fund balance is a key component of municipal financial management, providing resources that help manage risk, stabilize tax rates, and maintain services.

• Fund balance is the mathematical difference between assets and liabilities in a governmental fund, resulting in a surplus or deficit.
• It is not a cash account and should not be equated with a municipality’s bank balance.
• Fund balance reflects the financial position of a municipality and helps indicate overall financial health.
• Fund balance is reported in accordance with Generally Accepted Accounting Principles (GAAP) and GASB Statement No. 54, which classifies fund balance based on legal and policy constraints.
   

Definition of an “Unassigned Fund Balance”

An Unassigned Fund Balance is not excess money accumulated unnecessarily to reduce or “buy down” taxes.

• Is the residual category of the General Fund.
• Represents resources available for general governmental purposes.
• Is not restricted, committed, assigned, or non-spendable.

Adequate fund balance allows the municipality to continue public services during periods of constrained cash flow (before propertytax payments) without relying on short term debts such as a Tax Anticipation Note (TAN).

Image from New Hampshire Municipal Alliance

How Does It Work?

Act 57 grants the municipal legislative body control over these funds without additional voter approval.

Selectboards are encouraged to adopt a formal fund balance policy that:

• Defines target fund balance levels (such as a percentage of the GF; VLCT recommends 15-17%)
• Establishes conditions for use and replenishment
• Identifies corrective actions if fund balance falls below targets.
• Addresses treatment of excess fund balance (e.g., one-time uses, capital needs, tax stabilization).

Fund balance levels should be reviewed regularly and adjusted based on:

• Economic conditions.
• Revenue and expenditure patterns.
• Debt obligations.
• Identified financial and operational risks.
   

Benefits of Maintaining a Healthy Unassigned Fund Balance

Municipal cash flow is uneven, with expenses incurred year-round and revenues collected at specific times. In Vermont, municipal revenue authorities are very limited, and most municipalities rely primarily on municipal property taxes.

• Supports stable and predictable tax rates over time.
• Provides flexibility to respond to emergencies, economic downturns, and unforeseen events.
• Ensures sufficient cash flow during periods when revenues are not yet collected.
• Reduces or eliminates the need for short-term, emergency borrowing and associated interest costs.
• Strengthens credit ratings and lowers interest rates for borrowing. From Moody’s Investors Service, “a fund balance between 15% and 30% of revenues is needed to receive a scorecard value of “Aa.”
   

What Else Should Vermonters Know About Unassigned Fund Balances?

• The State of Vermont, like all 50 states, maintains a very healthy fund balance which contributes to our excellent state credit rating.
• Maintaining a UAF is a prudent fiscal practice recommended by governmental finance organizations and auditors. The
  Governmental Finance Offers Association (GFOA) says “It is essential that governments maintain adequate levels of fund balance to mitigate current and future risks.”
• Actions by the legislative body to maintain or expend funds are subject to all normal requirements of the law (such as public records law, open meeting law, ethics law), policies of the town, and rules adopted by the body.
• Act 57 created this new authority and does not require towns to use it ... but they should!

What’s Next?

The Unassigned Fund Balance authority created by Act 57 became effective July 1, 2025.

• Town Meeting Day 2026 will be the first opportunity for many municipalities to utilize this new authority for their fiscal year 2027 budget.
• VLCT will soon issue a new model Fund Balance Policy with guidance, available to all Vermont municipalities.
• All members may consult with VLCT’s Municipal Operations Support team for questions, concerns, and assistance in establishing an unassigned fund balance and/or adopting a governing policy.

Links and Resources

“Fund Balance Guidelines for the General Fund” Government Finance Officers by GFOA

Taking the Mystery Out of Fund Balance, New Hampshire Municipal Association

Moody’s Rating Methodology, US Local Government General Obligation Debt

Act 57 of 2025 as enacted

Example fund balance policy, City of Burlington

Effective October 1, 2025, the dollar limits that govern how federal funds can be spent were updated. These limits – called thresholds – determine which purchasing rules a municipality must follow based on the size of the purchase. With the new updates, local governments can now use higher dollar amounts before more formal purchasing steps are required.

This matters because any purchase made with federal dollars (such as FEMA Public Assistance, many transportation grants, or Community Development Block Grants) must follow these federal spending rules. Using outdated limits can lead to compliance issues and may put federal funding at risk.

What Has Changed?

The federal spending limits have increased to keep pace with inflation. As a result, some purchases that previously required a more complex process may now qualify for simpler procedures. Municipalities are allowed to adopt stricter (lower) limits in their own policies if they choose, but they cannot set limits higher than the federal rules.

What Actions Can or Should Municipalities Take?

Local governments can update their procurement or purchasing policies to reflect the new thresholds if they want to use the higher federal thresholds. Updating policies to the new thresholds is not required. 

The update process should include:

• Revising written policies and manuals related to purchasing.
• Communicating changes to elected and appointed officials, volunteers, and staff that regularly use federal funds.
• Training staff and volunteers on the updated limits so they can apply the correct rules when handling federal funds.

The new thresholds are already in effect. By updating local procurement (purchasing) policies now, municipalities can continue to make the most of federal funding opportunities.

Is There a Model Policy We Can Use to Help Ensure Compliance with Federal Requirements?

Yes! VLCT has published a Model Procurement Policy with guidance on its website. Both this policy and its accompanying guidance have been updated to reflect these federal changes.

Municipalities should keep in mind that adopting a procurement policy is the first step in meeting federal requirements. Federal rules include taking other actions during purchasing. Click through any links in the model policy to learn more about other federal requirements.

In late October, Vermont's request for a federal disaster declaration for rainfall and severe flooding on July 10, 2025, was denied. What should impacted municipalities do next?

Municipalities should contact their VTrans District Office, if District staff haven't contacted them since the federal denial was received. 

District staff can:

• help you file for Federal Highways Administration Emergency Relief assistance if a federal aid highway was damaged in your community.
• keep you updated on whether the State will be appealing FEMA's decision.
• discuss potential coverage through Vermont's Town Highway Emergency Fund. This State funding assistance is available for repair, reconstruction or replacement of highways and bridges on Class 1, 2, or 3 town highways outside federally declared disaster events.

The Town Highway Emergency Fund may not have sufficient funds to cover all eligible costs for affected towns. If cash flow is a challenge, the Vermont Bond Bank may be able to assist with a loan. Contact Ken Linge at ken@vtbondagency.org.