It is a maxim in government that maintenance expenditures are insufficient to meet the actual needs of a community. Particularly this year, the increasing cost of infrastructure development and the economic recession will force many communities to make deep cuts in already tight operating budgets.

Typically, money that is earmarked for capital maintenance is one of the most vulnerable areas of a community's budget. Even the most no-nonsense community leaders are hard-pressed to keep funding projects such as parks, sidewalks, public buildings and schools if neighbors are in need during tough times. People must come first, but letting a community's physical assets deteriorate creates a large expense for future taxpayers to fund.

Newburyport, Mass., wanted to ensure that its unique assets would be preserved and maintained for future generations. However, because budgetary funds are subject to the annual appropriations process, allocating money for maintenance had proven ineffective in the past. (Maintenance expenditures are generally the first to be eliminated when revenues are insufficient to meet expenditure needs.)

The city realized that properly structured local investment accounts could allow it to self-fund maintenance and capital projects in perpetuity. They also could make it possible to remove certain maintenance line items from the annual operating budget, keeping maintenance dollars safe from political whim and economic crises.

However, Massachusetts prohibits local investment accounts, so the city approached the legislature with a special home rule petition. Newburyport wanted a change in state law to allow the city to make investments outside of the operating budget for the sole purpose of capital maintenance and improvement.

In November 2001, the state legislature allowed the city to establish special investment accounts that carry balances from year to year. The interest and dividends earned on investments from those accounts are re-invested automatically, and expenditures are allowable only for the specified purpose for which the accounts were established. Newburyport restricted the use of the accounts' principal balances, allowing them to be used only during a financial emergency. Deposits to the accounts originate with direct appropriations from the community's operating budget or from an annual surplus.

Once the legislation was in place, Newburyport created four Capital and Maintenance Funds:

  • The Sidewalks Fund is restricted to the maintenance, repair and construction of sidewalks, many of which are paved with bricks, making them about 400 percent more expensive than their concrete counterparts.

  • The Parks & Recreation Fund is restricted to long-term maintenance of existing recreational areas and allows the limited use of funds for construction of new parks and recreational spaces. That fund was particularly important to the city since, in recent years, the community invested substantial private and municipal resources into the reconstruction of blighted parks and the construction of new spaces.

  • The City Buildings Fund, restricted for maintenance and capital investment in city buildings, also was critical to Newburyport since the city still is recovering from previous years of under-funding such maintenance.

  • The School Building Fund was created in anticipation of continued and dramatic change to school funding formulas and student needs.

  • The special investment accounts provide a sound financial management strategy for Newburyport. They will be able to support more maintenance and investment as each year passes because half of the interest earned in each account will be reinvested as principal each year.

    Lisa Mead, a Newburyport, Mass.-based consultant, is the former mayor of Newburyport. Stephen Lisauskas, administrative assistant to Massachusetts State Senator Steven Baddour, is the former administrative assistant to Mead.