Locke Lord QuickStudy: Revenue Anticipation Borrowings

Locke Lord LLP
March 31, 2020

The economic hardship arising from the COVID-19 pandemic is likely to impact municipal cash flows in two broad areas: local collections from sources such as property taxes, hotel and meals taxes and auto excise taxes, and state aid, since state revenues are significantly sourced from income, sales, capital gains and other taxes dependent upon economic activity.

Recently enacted federal legislation in response to the pandemic delayed the payment date for federal income taxes to July 15, 2020. In response, the deadline for filing state income taxes was also moved back to that date. The change is likely to place considerable pressure on the Commonwealth’s cash flow and its ability to make state aid payments by June 30, 2020. Additional pressure on local cash flows may occur as a result of recently filed legislation that would permit a city or town to move the final payment date for local property taxes to June 1, 2020 from April 1, 2020.

While not utilized by most communities for many years, G.L. c. 44, §4, permits cities and towns to issue notes in anticipation of revenue of the fiscal year in which the notes are issued, to an amount which, in general, may not exceed the total tax levy of the fiscal year preceding the fiscal year of the borrowing, together with the net amount received during such preceding fiscal year from the excise on motor vehicles. The aggregate amount of such notes may not exceed an amount reasonably required and shown on an estimated cash flow statement. The notes must be payable not later than one year from their issue date and the maturity of the notes may occur within the span of two separate fiscal years. Unlike most other borrowings, the issuance of revenue anticipation notes is authorized by the treasurer, with the approval of the mayor or manager, in a city, or by the treasurer, with the approval of the selectmen or select board in a town.

The issuance of revenue anticipation notes can be accomplished on a taxable or tax-exempt basis, but the Internal Revenue Code of 1986, as amended, and the accompanying regulations contain rules governing the sizing, timing and duration of tax-exempt issues.

Please reach out to us if you should like to discuss the cash flow borrowing options available to your city or town.

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