We ask good questions in this city, and good questions need good data. Here are three questions I hear a lot about our city’s finances and data that can help us work toward answers.

Northampton’s budget works like many others: it has an operating budget that pays for day-to-day services and capital budgets for major projects. They’re funded differently because recurring costs need steady revenue, while capital projects are generally funded through grants, borrowing, or one-time funds like free cash or reserves. Mixing the two funding streams risks paying recurring costs with money that won’t return. In Northampton, the operating budget covers day-to-day city services, including its largest service: public education.

1) Do operating overrides pay for capital projects like Picture Main Street?

No. Under Massachusetts law, an override increases the levy limit under Proposition 2½. The additional property-tax revenue supports the operating budget: schools, firefighters, DPW workers, healthcare costs, and more. Capital projects aren’t paid for out of that budget; while there used to be a small annual contribution to capital funds, it was removed in FY27 to provide more money to schools and services. (We’ll get to how capital projects are funded below.)

Picture Main Street is a roughly $43 million project. Most of it, $31.5 million, is one-time state and federal construction money from MassDOT. The city expects to contribute about $11.8 million as a capital expense, and roughly $8.8 million of that is already spent or committed.

Picture Main Street is a one-time capital project, not an annual operating expense. Canceling it wouldn’t create the recurring revenue needed to fund schools or city services an operating override would.

There is one part of the annual budget that does support capital projects: debt. That’s covered in question 3 below. (And Picture Main Street doesn’t rely on debt.)

2) Northampton seems to have something called free cash every year. Doesn’t that mean there’s more money we could spend in the budget?

Free cash isn’t money we know we can count on finding in the city’s couch cushions every year. It’s what departments didn’t spend from their budgets, plus non-property tax revenue that came in over projections, and any free cash from the previous year.

Think of the operating budget as your salary: it’s predictable, and you can plan a year’s spending around it. Free cash is more like a bonus: it may be available each year, but the amount varies significantly. You can use it to fix the car or cover an unexpected bill once you get it, but you wouldn’t want to depend on it to pay for a new lease.

What’s more, the state recommends that communities aim to maintain free cash at between 5% and 7% of their annual budget. As of July 1, 2025, and certified in early December, Northampton had about $6.3 million in free cash, representing roughly 4.9% of its operating budget. Fiscal year 2026 isn’t finalized yet, but preliminary figures from the Q4 reports point to about $2.3 million in new free cash, before any carry-forward is added in. That’s only about 1.7% of the FY26 budget.

Falling below that recommended range can have consequences. We’ll get to those shortly. This variability is also why free cash isn’t used for recurring needs: it’s not a recurring revenue source. In fact, state guidance is that free cash should be restricted to one-time expenditures, capital projects, or replenishing reserves, and not budgeted for ongoing operations.

So what’s the problem with having too little free cash? We also use it to repair our school buildings, buy fire safety equipment, and refill our reserve accounts. Over the last few years, free cash has declined. At the same time, the city has used one-time reserves, replenished in part by free cash, to fund increases for schools and services.

Lower free cash leaves the city with less flexibility to cover unexpected costs, fund one-time needs, and replenish reserves. Those needs don’t go away when free cash goes away.

3) Do capital and operating budgets compete for the same dollars?

Generally, no. But there is one important connection: debt.

When the city borrows (even for a capital project), principal and interest payments have to be funded every year. That’s an operating expense. In FY27, debt service was 3.7% of the operating budget. That cost doesn’t go away until the debt is paid off.

If less free cash is available, the city may need to borrow more to pay for capital projects. That can mean higher debt-service payments in future years, which come out of the operating budget and compete with schools and other city services for the same revenue.

Understanding how the city’s finances work is essential to evaluating the trade-offs we face and what choices we ultimately make. Those conversations should be based on a shared understanding of how the city operates and what it can (and can’t) do with the resources it has.

Sam Masinter lives in Northampton and is a member of the city’s Fiscal Assessment Community Task (FACT) Force. The views expressed in this column are his own.