What is Free Cash? Why do we need any?

Free Cash sounds relaxed but it is generally the result of sound financial practices and a lot of hard work. Essentially it is the town’s savings account or rainy day fund. In recent years the town’s Free Cash balance has grown to about 10% of annual revenues, a figure comparable to many Peer communities but certainly stronger than some of them, and a figure above Reading’s Finance Committee’s policy minimum of 7%. The minimum figure is needed for unexpected expenses or drops in revenue. In 2009 the state cut local aid in January, and some communities needed to layoff teachers midyear to make budgets balance. Reading was able to make some town cuts and then handle the sudden deficit with Free Cash. A couple of years ago the town spent about $1 million more on snow removal than it had anticipated, and used Free Cash to avoid other budget cuts.

Free Cash exists as a single lump sum - it is not a future stream of revenues. As such it is prudently spent on one-time costs, and not on recurring costs. When the town’s Free Cash balance is healthy, a typical pattern is for Town Meeting in November to approve additional capital spending (a one-time cost) to use some of the excess Free Cash.

Having a strong free cash position also contributes to the town’s AAA bond rating (above that of the state and federal government) which lowers interest costs on debt.