In preparation for the fiscal year 2026, Marblehead officials have proposed allocating $5 million from the town’s free cash reserves. The town has seen a significant increase in interest income, which could contribute to a larger free cash pool. However, leaders caution against relying too heavily on these one-time gains, given the growing structural budget deficits. Finance Director Aleesha Benjamin reported an unexpected $2.4 million in interest income but warned that anticipated rate cuts in 2025 may reduce future earnings. This allocation strategy aims to balance immediate financial needs while planning for long-term stability.

The town also faces a projected $1.8 million budget gap for FY 2026, excluding new wages for police and municipal workers currently in contract negotiations. Town officials are exploring various options, including a potential general override, to address this deficit. Transparency in the budget process remains a priority, as residents express concerns about potential tax increases and the impact on daily life. The Finance Committee will continue discussions leading up to the State of the Town presentation in January, followed by departmental reviews and the annual Town Meeting in May.

Navigating Financial Surpluses Responsibly

Marblehead's finance team is carefully managing surplus funds to ensure responsible use. The town earned an additional $2.4 million in interest income due to higher-than-expected rates, which could bolster the free cash available for the upcoming fiscal year. Despite this windfall, officials are advocating for cautious spending practices, recognizing that interest rates are expected to decrease in 2025. The town has historically used free cash to cover operational shortfalls and fund smaller capital projects, reserving debt-exclusion overrides for major initiatives. This approach aims to maintain fiscal discipline while addressing immediate needs.

Free cash represents the surplus funds remaining at the end of each fiscal year, either through underspending or exceeding revenue projections. For instance, in FY 2024, the town had $8.7 million in certified free cash, of which $5.5 million was allocated to balance the FY 2025 operating budget and another $1 million for capital needs. The remaining $2.2 million became the starting balance for FY 2024 free cash, to be certified in FY 2025 and available for use in FY 2026. By combining this amount with newly earned interest income and any other surpluses from FY 2025, the town can determine the total free cash available for the proposed $5 million FY 2026 budget allocation. This strategic management of free cash ensures flexibility in addressing both current and future financial challenges.

Building Reserves for Future Stability

Town leaders emphasize the importance of building a stronger stabilization fund to prepare for future financial uncertainties. Currently, Marblehead's stabilization fund stands at just 0.5% of the operating budget, far below the state-recommended 5%. Finance Committee Vice Chair Molly Teets highlighted the need to allocate portions of free cash to this dedicated savings account, which could provide a robust financial cushion. The stabilization fund offers greater transparency and flexibility compared to waiting for free cash certification, particularly for needs like contract negotiations. Rebuilding reserves is crucial to mitigate risks and ensure the town can respond effectively to unforeseen challenges.

Historical trends show varying uses of free cash over the years. For example, in Fiscal 2021, $10.2 million was certified, with $7.2 million utilized; in Fiscal 2022, $11.5 million was certified, and $8.8 million was used. The Select Board aims to gradually reduce reliance on free cash, proposing allocations of $5 million for FY 2026, $4.5 million for FY 2027, and $4 million for FY 2028. Despite the interest income boost, the town still faces a projected $1.8 million budget gap under the preliminary FY 2026 budget. Total revenues are estimated at $106.1 million (a 2.56% increase), while expenditures are projected at $108 million (a 4.56% increase). Addressing this deficit requires careful consideration of all available options, including a potential general override, while maintaining transparency in the budget-development process. Ultimately, it is up to residents at Town Meeting to decide how best to utilize free cash and build a sustainable financial future for Marblehead.