From the Town of Franklin Fiscal Year 2026 (FY26)
Capital Improvement Plan
Executive Summary
The Town of Franklin had the FY26 Free Cash and Retained Earnings certified by the Massachusetts Department of Revenue - Division of Local Services on October 24, 2025.
Pursuant to Town Charter provision 6-7, the Town Administrator establishes a five-year Capital Improvement Plan (CIP), including for the current fiscal year. We have linked the five to ten year capital plans to the website so the document is more efficient.
Departments request general funding for one-time purchases with the use of Free Cash. Enterprise Fund departments request funding for one-time purchases with the use of Retained Earnings. Enterprise funds can legally only be used for the purposes of those revenues and it is illegal to transfer those funds to other causes.
In mid-October, the Finance Department began this process by distributing all departments a CIP Workbook, where departments fill out their requested purchases.
Historically, the Town Administrator and the Finance Department would compile all requests into a final CIP list, and submit that to the Finance Committee for review and recommendation to the Town Council for final approval. This year, we took the approach of creating a tiered list, which the Finance Committee will review and recommend to the Town Council for final approval.
The proposed tiers were created to first prioritize must-needed requests. In Tier 1, for example, if these requests were not approved for funding through the CIP, the purchases would have to be made through the Operating Budget, leading to an overall increase to the potential FY27 budget deficit. Tier 1 requests are items that have no other funding sources and are items that are broken or no longer usable. Also, we have prioritized Police and Fire safety gear and equipment.
Tier 2, 3, and 4 are additional requests for funding. However, given the knowledge that free cash may be needed to stabilize the operating budget or be used for any
employee health care deficits, or other unforeseen emergencies, it is our recommendation to hold off on these items until later this spring and summer until the budget picture becomes more clear. The Finance Committee can disagree with this recommendation and recommend to the Town Council a strategy they desire.
If the Finance Committee and Town Council approve the Town Policy Tier and the Tier 1 recommendations, the Town will then have $2.25 million free cash remaining to (1) balance any FY27 structural budget deficit (2) pay any health care deficits, or (3) provide additional capital funding in a round 2 later this spring and summer. Tier 2, 3 and 4 should be considered after the FY27 budget comes into greater focus.
This strategy will hopefully put the town in a position to not use any “Rainy Day” money in FY27. In our professional opinion, this is important given the likely future financial pressures that will be on the town due to federal and state fiscal uncertainty. Furthermore, if the town does decide to borrow money, we will want these reserves present to assure our AAA Bond Rating stays intact to have the lowest interest rate possible, which could save taxpayers millions in debt and interest costs.
Free Cash
What is Free Cash?
Free Cash is a revenue source that results from the calculation, as of July 1, of a community’s remaining, unrestricted funds from its operations of the previous fiscal year based on the balance sheet as of June 30. Municipalities cannot expend free cash until it has been submitted to and approved by the Division of Local Services. Free Cash plays a critical role in sustaining a strong credit rating and it is important to adopt policies for its use.
What are Retained Earnings?
A community adopts an enterprise fund by a vote of town meeting or city council. The enterprise fund establishes a separate accounting and financial reporting mechanism for a municipal service for which a fee is charged in exchange for goods or services. Under enterprise accounting, the services revenues and expenditures are segregated into a separate fund with its own financial statements, rather than being commingled with the revenues and expenses of all other governmental activities.
At year-end, the enterprise funds performance is measured in terms of positive (surplus) or negative (deficit) operations. An operating surplus results from revenue collected in excess of estimates and appropriation turnbacks and translates into Retained Earnings, which are retained in the fund rather than closing to the general fund. The Division of Local Services Director of Accounts must certify enterprise fund retained earnings as an available fund based on the communities submission of a June 30 balance sheet to the Division of Local Services. Once certified, retained earnings may be appropriated only for expenditures relating to the enterprise fund.
