Financial Management

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

Testimony to the Senate Finance Committee 
Regarding Flood-Related Municipal Financing (H.397)
Samantha Sheehan, Municipal Policy and Advocacy Specialist, VLCT
May 21, 2025
 

Testimony to the House Judiciary Committee  
Regarding H.86 and H.138
Josh Hanford, Director of Intergovernmental Affairs, VLCT​
Samantha Sheehan, Municipal Policy and Advocacy Specialist, VLCT
April 9, 2025
 

H.86 Chloride Contamination Reduction Program

Municipalities are aligned with efforts to reduce environmental impacts and expense from spreading salt

• Any program must be voluntary, municipal resources vary.
   
• Support for implementation and funding for compliance and oversight would increase participation.
   
• New Hampshire differentiates between Municipal and Commercial applicators for their Green Snow Program, Municipal requirements are modified, and the Program provides template salt reduction plans.
  

H.86 Proposed Civil Liability Protections are Inadequate

VLCT is reluctant to discuss plans to cut down on chloride without commensurate action to limit monetary liability for taxpayers.

• Adequate protection from monetary liability would likely result in reduced salt application regardless of other features of this program, municipalities are balancing water impairment against public safety and liability risk.
   
• The presumption of compliance is rebuttable.
   
• Pursuant to Title 24, municipalities have a duty to indemnify and defend employees.
   
• Municipality would have to prove the event was caused "soley by snow and ice", that the application was according to best practice, that the employee or contractor did not commit gross negligence or reckless disregard, and meet other requirements such as record keeping and attending training.
   

Municipalities Lack Underlying Liability Protection  

VLCT is reluctant to discuss plans to cut down on chloride without commensurate action to limit monetary liability for taxpayers.

• VLCT supports H.138 to provide municipalities a monetary cap for liability in parity with the State of Vermont.
   
• Since 2011: The maximum liability of the State under Sec. 1. 12 V.S.A. chapter 189 is $500,000 to any one person and a maximum aggregate liability of $2 million to all persons for each occurrence.
   
• This liability protection from tort claims would apply to school districts as well and would not affect suits related to criminal conduct or violations of civil liberty.
   
• With a monetary cap, plaintiffs can still bring a claim and could receive a settlement.

Testimony to the Senate Government Operations Committee 
and the Senate Finance Committee  
Regarding Flood-Related Municipal Financing (H.397)
Josh Hanford, Director of Intergovernmental Affairs, VLCT​
Samantha Sheehan, Municipal Policy and Advocacy Specialist, VLCT
April 11, 2025

Good Government: VLCT/VBB Suggested Amendments Related to Municipal Finance ​

• Given the various unique charter authorities in some communities, these provisions are most likely to help rural towns​.

• These proposals have been broadly socialized across the legislature this session and are well received. Other committees where we have testified include Senate Appropriations, Senate Government Operations, and House and Senate Transportation. ​

• They are supported by VLCT, Vermont Bond Bank, Clerks and Treasurers, School Business Officials, and Governmental Finance Officials, and UAFB is recommended by numerous auditors​.

• All together, these provisions will improve emergency responsiveness for municipalities, create new, stabilizing factors for local property taxes, and will improve grant readiness for towns and cities as we approach a potentially volatile period for federal funding. ​
   

July 10, 2024 Municipal Flood Damages​

• Examples of outstanding emergency debt pending FEMA reimbursement:​

  • Lyndon: $15M (x2 the town budget)​

  • Moretown: $8.25M​

  • Middlesex: $7M (x3 the town budget)​

  • Cavendish $1.6M​

  • Barnet: $1.5M​

  • Bridgewater: $3M (2x the town budget)​

• Of the municipal entities impacted by the 2024 floods, ​one third (1/3) make up 91% of the total estimated damages. ​

• Two thirds (2/3) of the municipalities impacted were also ​impacted in July 2023, and 64% of those are towns with a population less than 2000.​
   

Approaches to Funding Flood Resiliency

Financing strategies must be paired with appropriate technical assistance for grants management and municipal finance, and with expanded municipal authorities to exercise best practices for government finance.

• Grants are competitive and require local matches
   
• FEMA reimbursement is complex and time consuming
   
• Through MTAP, VLCT continues to assist 2023 and 2024 flood affected towns to manage their flood debts, grants, and reimbursements. VLCT provides this assistance through direct, one-on-one assistance to municipal officials (free to the towns) as well as through workshops and online resources. Over 200 registrants have joined these online flood related trainings.
  

Section 10: Unassigned Fund Balance​

We recommend action to allow municipalities to employ the prudent fiscal practice of providing for unassigned fund balance within the municipal general fund budget. ​

Establishing an Unassigned Fund Balance would:

• assist in cash flow management

• stabilize the tax rate

• improve emergency response

• significantly strengthen municipalities' financial resiliency in the case of unexpected negative economic trends ​

• improve grant readiness by making flexible monies available 

• improve the municipality's borrowing position, saving taxpayers money on the cost of municipal debt.​
   

Section 11: Emergency Borrowing ​

VLCT and the Vermont Bond Bank request a new authority to borrow for up to a five-year repayment period in the case of an all-hazards event.  ​

• Vermont municipalities have become increasingly familiar with complex and extensive processes required to access emergency funding and FEMA Public Assistance. ​

• In the wake of flooding and major weather events, municipalities cannot wait to rebuild vital town infrastructure or to restore municipal services.​

• State law substantially limits the authority of local legislative bodies to acquire funding for emergency response as they can only take on debt for up to one year without a town vote.​
   

Proposal: Level Debt Service ​

To improve predictability for municipalities and for taxpayers, VLCT and the Vermont Bond Bank request a change to allow for flexibility in bond repayments to include level debt option. Members of the Vermont School Board Association and Superintendents Associations have also expressed support for this change.​

• Current statute requires municipal loans to be level principal.​

• Debt payments for level principle borrowings start high and decrease yearly as the cost of interest goes down. ​

• Municipalities should have the option to structure level debt or level principle. ​

• This is more within the norms of government borrowing nationally.​
   

 

 

Level Debt Service and TIF

Of the 11 TIF Districts, only 9 are active. Only Hartford and Barre could leverage level debt service within the TIF through 2026 and only Killington beyond 2026. Killington is projected a 2277.63% increase in taxable value, providing ample capacity within the new district to responsibly manage debt. 

• The debt capacity of the TIF is regulated by VEPC.
   
• The municipal debt authority requires voter approval, including "Estimated amount and types of financing that will be serviced or paid using District increment, including principal, and estimated interest, and fees, and terms of the debt."
   
• Revenues from the original taxable value is retained by the Education Fund and Municipality respectively, plus a portion of tax increment revenue to the Education Fund.

 

 

Section 13a: Local Option Taxes: 
VLCT Supports an Amended Withholding Ratio of 80/20

• Through FY25, 34 municipalities have acted to adopt LOT and at least 4 municipalities approved one or more LOT at their 2025 Town Meeting
   
• With the proliferation of short-term rentals and online commerce, an increasing number of municipalities may benefit from LOT.
   
• Presently, all 34 LOT communities established this taxing authority through a charter process and most have obligated these revenues to support a range of local initiatives.
   
• There is a long history of legislative actions to revise the LOT program. Act 60 of 1997 authorized LOT for a limited time at 60/40. Various Acts extended the sunset and modified criteria for municipalities. Act 215 of 2005 established the current 70/30 split of LOT revenues between municipalities and the PILOT Special Fund and removed the sunset. In the 2024 Miscellaneous Tax bill, non-chartered municipalities were granted the authority to adopt LOT.
  

Section 5: Flood Buy-Out Program

• VLCT's 2025-2026 Municipal Policy includes: Ensure ongoing funding for the state flood impacted property buy-out program including relocation and rebuilding of municipal properties in flood danger.
   
• 51 municipalities have at least one buy-out property
   
• Nine out of the 34 LOT municipalities have at least one buy-out property and several are PILOT eligible including Barre, Montpelier, Berlin, and Waterbury
   
• A $1M appropriation should be adequate to compensate the municipal portion of lost property taxes due to buyouts for all 51 municipalities for a period of five (5) years.
  

Proposal: PILOT Special Fund Surplus $10.3M and Growing

The PILOT Special Fund revenues are local revenues, created by a process of local control. In consultation with the current 34 LOT towns, VLCT advocates that the majority of current surplus monies should be returned to those communities which generated the revenues.

• The surplus is driven by a growing list of municipalities choosing to add LOT and quickly growing consumption tax receipts, which are up about 44% since the pandemic.
  
• At the end of FY24 the fund carried a $10.3M surplus and is likely to generate a nearly $4M surplus in current FY25.
   
• On Town Meeting Day 2025: Ludlow, Marlboro, Montgomery, and Montpelier all approved new LOTS which projected to add about $530,000 to the fund in FY26.
  
• In order to prorate PILOT payments at 100%, a moderate surplus should be maintained in the special fund.
  
• If no appropriations were made other than PILOT, and the LOT ratio stayed at 70/30, the FY26 end of year surplus would be about $14,830,000
   

Example Surplus Appropriation

Assuming FY26 PILOT Appropriations ballpark $12,130,000 ($500K over FY24)

Option A: Reserve 15% Surplus		Option B: Return FY24 Surplus only
Projected FY26 PILOT Surplus	$14,380,000	Projected FY26 PILOT Surplus	$14,380,000
Minus Reserve for Flood Buyout Municipal Tax Reimbursement	$1,000,000	Minus Reserve for Flood Buyout Municipal Tax Reimbursement	$1,000,000
Return Surplus balance to 34 LOT Municipalities	$12,010,000	Return FY24 Surplus to 34 LOT Municipalities	$10,300,000
15% PILOT FY26 Surplus retained	$1,820,000	25% PILOT FY26 Surplus retained	$3,080,000