Local Commentary

Editorial: Fund Balance Lunacy

The latest annual budget round is completed, and the results have limited the real estate tax rate to a single penny while the City schools received what they asked for. Now is the time for some reflection, action and reform. Here are two good ideas:

1. The City’s current fund balance policy should be revisited. In the 1990s, when the City Council first went about adopting formal fund balance and debt limit policies, the fund balance policy adopted called for keeping eight to 10 percent of an annual operating budget for safe keeping, for a “rainy day fund.” That is, an amount equal to one month to six weeks of cash on hand for emergencies. That was considered responsible and prudent.

Now, however, this policy is drastically changed. It happened when, apparently, no one was paying attention after the unfortunate death of City Manager Dan McKeever in mid-2006. Now, the fund balance policy calls for 12 to 17 percent of annual operating costs to just sit in the bank. With the City’s annual budgets now over $80 million annually, that means holding out $9.6 million to $13.6 million of taxpayer dollars collected to do nothing. Not only that, City Hall considers it essential that the number be maintained right at the top end of the policy range, which it now is.

So, until 2006 or so, keeping $4 million, or in 2015 budget terms, $6.4 million, in the bank for a “rainy day fund” was considered prudent and totally OK. But now, it is virtual religious dogma at City Hall that the number needs to be $13.6 million (this just-approved budget included $1.3 million to “restore” that fund to $13.6 million).

The difference here is not insignificant. It is the difference between $6.4 million and $13.6 million, which is $7.2 million, or equal to 22 cents on the real estate tax rate! That’s right, taxpayers are made to pay 22 cents (per $100 assessed real estate valuation) more on their real estate taxes than was considered OK City policy just a decade ago. That’s $7.2 million of your money, being used for nothing, taxpayers! And to think that this budget came down to a $340,000 difference between what the schools asked for and three Council members were unwilling to give them.

In the unlikely event there was a real crisis and the City needed extra money, it could easily borrow it at very low interest. City Hall says the current policy buoys the City’s credit rating on Wall Street. Well, this is just one more way that Wall Street is sticking it to us, but not without our consent in this case.

2. Real estate assessments should be updated with every property sale, and not averaged out at the end of the year. We know of one commercial property, for example, that is assessed (still is) at $1.3 million but just sold for twice that amount.