Understanding the differences between Free Cash, Stabilization Funds and Reserve Funds
There are multiple differences between Free Cash, Stabilization Funds and Reserve Funds. However, they can all be used as a funding source for various town expenses.
Free Cash is unrestricted available funds for appropriation by a majority vote, typically at Town Meeting. It should only be used for non-recurring expenses, not to balance the operating budget. It is certified 7/1 based on the prior year balance sheet and any remaining balance expires on 6/30.
Stabilization Fund is a special revenue fund where monies can be appropriated and reserved for later use. These Funds can be used for any lawful purpose. Any interest earned on the investment of the balance stays with the Fund. As is not the case with Free Cash, Stabilization Fund balances carry forward from one fiscal year to the next. However, the Town should consider transferring some Free Cash into Stabilization Funds at the end of the year. A town meeting vote is required to add funds to or remove funds from the Stabilization Fund.
Reserve Fund is an amount appropriated annually within the budget to provide a funding source for extraordinary or unforeseen expenditures. Other uses for this Fund must be voted at Town Meeting. The Reserve Fund amount cannot exceed 5% of the tax levy for the prior year. The Reserve Fund balance closes out at the end of the FY. A vote of the Finance Committee is needed for transfers from the Reserve Fund.