The Reserve Fund and Lexington Town Meeting
The Reserve Fund is appropriated by Town Meeting each year in an amount not to exceed 5% of the tax levy of the preceding year. Money in the Reserve Fund may be transferred by the Appropriation Committee to pay for "extraordinary or unforeseen expenditures" that arise during the year. Any amount left over at the end of the year becomes part of available funds, which may later be certified as "free cash".
Overlay is a sum of money that is added by the Assessors to the total amount appropriated by Town Meeting before the tax rate is set in order to provide the Town a cushion against possible tax abatements. (Tax abatements are granted where exempt real estate or personal property has been assessed or where taxable real estate or personal property has been overvalued or disproportionately valued. The assessors may abate real estate and personal property taxes on broad grounds, including inability to pay, with the approval of the State Commissioner of Revenue.) Any amount left in the Overlay account after the tax accounts of the fiscal year are settled is transferred to the Overlay Surplus Account. The overlay surplus may be appropriated by Town Meeting for specific purposes.
Under Massachusetts law, an amount known as free cash (or, in Lexington, the Unreserved Fund Balance) is certified as of the beginning of each fiscal year by the State Bureau of Accounts. Together with certain subsequent tax receipts, free cash is used as the basis for appropriations by Town Meeting from available funds, which are not required to be included in the annual tax levy. Subject to certain adjustments, free cash is surplus revenue less uncollected and overdue property taxes from prior years.
In emergency situations the Board of Selectmen may make expenditures from available funds, but these are limited to matters of public health and safety and are subject to the approval of the Commonwealth.