2007-04-04-ATM-AC-rpt1 - Laserfiche WebLink

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APPROPRIATION COMMITTEE 1st REPORT, APRIL 4, 2007, TO 2007 ATM 3. Recreation Personal Services $496 584 > $558 526 $563120 > Expenses $885,329 $899,978 $960,668 Debt Service $100 000 > $168 000 $103 917 > Total Recreation Enterprise Fund $1481913 $1626 504 $1627 705 The Town of Lexington has maintained Water, Wastewater (Sewer), and Recreation Enterprise Funds since shortly after legislation authorizing the creation of such funds, G.L. c. 44, § 53F1/2, was enacted by the State Legislature in 1986. The Water and Wastewater Enterprise Funds do not rely on tax-levy revenues, but cover their complete operating and capital needs with user charges and fees. The Recreation Enterprise Fund covers its complete operating costs with user charges and fees and also contributes to the debt service on certain recreation capital projects. What is an Enterprise Fund? As explained by the Massachusetts Department of Revenue (DOR), "an enterprise fund establishes a separate accounting and financial reporting mechanism for municipal services for which a fee is charged in exchange for good or services. Under enterprise accounting, the revenues and expenditures of the service are segregated into a separate fund with its own financial statements, rather than commingled with the revenues and expenses of all other governmental activities. Financial transactions are reported using standards similar to private sector accounting. Revenues are recognized when earned and expenses are recognized when incurred, under a full accrual basis of accounting [unlike the modified cash basis of accounting typically used for municipal accounting]. An enterprise fund provides management and taxpayers with information to: [m]easure performance, [a]nalyze the impact of financial decisions; [and] [d]etermine the cost of providing a service." [DOR Enterprise Funds Manual (June, 2002)] Establishing the Enterprise Fund Budd At the Annual Town Meeting each year, Town Meeting approves a budget for each of the enterprise funds for the following fiscal year. Later in the year (generally in the late summer or early fall in the case of the Water and Wastewater Enterprise funds), user charges are set that are designed, based on projections of usage for the fiscal year, to be sufficient to cover the appropriations made by Town Meeting. Depending on the accuracy of the usage projections, the actual revenue realized by the enterprise during the year may exceed or fall short of the appropriated amount. Any operating surplus must be retained in reserve in the enterprise fund, and the funds accumulated in that reserve (sometimes referred to as "retained earnings") maybe applied only to meet the capital needs of the enterprise or to reduce user charges. If an enterprise fund sustains an operating loss (after applying any accumulated reserves in the fund), such loss must be made up in the succeeding fiscal year's appropriation. Since FY2007, the Annual Town Meeting Warrant has contained a separate Article for the appropriation of the enterprise fund operating budgets. Previously, enterprise fund operating costs-both the direct expenses and indirect charges from other Town departments-were appropriated as part of the vote on the municipal operating budget. The various enterprise-fund appropriations were scattered among related line items in the operating-budget motion, making it difficult to understand and keep track of the complete costs and operations of each of the various enterprise funds. The new presentation makes it easier to understand the operating budgets of the enterprise funds. However, the indirect costs that are charged to these enterprise funds are still appropriated in Article 21 as part of the municipal operating budget. For the complete operating costs of the enterprise funds, including indirect costs, see the Brown Book, pages V-29 (Water), V-33 (Wastewater) and VIII-9 (Recreation). Appropriations for the capital needs of the enterprises continue to be addressed, as they have in the past, Page 14 of 39