How much savings do towns need?
The Haines Borough budget proposed by manager Mark Earnest calls for cuts to facilities and some personnel, but also includes maintaining savings of $3.93 million in two main accounts.
The borough currently holds about $2.3 million in its areawide general fund balance, and a fund balance of $2.1 million in the townsite service area. The latter can be spent only in the townsite.
Earnest said he wouldn’t feel comfortable using areawide fund balance to keep the pool or museum open year-round, as the municipality already will be using $281,000 from the fund balance to cover reduced income from state and federal sources.
Earnest is proposing to close the pool and museum three months a year, in addition to cutting the executive assistant to the manager position from full-time to nine months. Chief fiscal officer Jila Stuart said the three cuts combined would save about $70,000.
Municipalities have discretion over how much money they keep in their general fund balance, which acts as a savings account. Earnest said in his three decades of municipal management, keeping four to six months’ worth of operating expenses in reserves is a well-accepted rule of thumb.
“I know there are organizations that have a lower minimum threshold, but I believe that it would be highly irresponsible to go lower than four months, and I strongly believe that six months is appropriate for Haines,” Earnest said.
According to Earnest’s proposed budget for the upcoming year, the areawide general fund should be carrying a fund balance of about $2 million by June 2014, or 47 percent of annual operating expenses.
At $1.9 million by June 2014, the townsite fund balance would stand at 154 percent – or more than 18 months’ worth – of operating expenses. The borough plans to increase its spending from that account this year to reduce the surplus.
When proposing budget cuts, Earnest said, he usually hears from people who only oppose the cut, though there are other people who support it.
Wrangell’s finance director Jeff Jabusch said three to six months is low for a reserve account. Wrangell’s reserves nearly match its $5.58 million in general fund expenditures.
“One person’s hoarding is another person’s financial stability,” Jabusch said.
Like the Haines Borough, the City of Wrangell owns a school, water, sewer, harbor and other facilities which have their own funds. “Although some of these have adequate reserves, others do not and if something happens, our general fund reserve is the bank,” Jabusch said.
Jabusch echoed many of Earnest’s explanations for keeping a hefty reserve, including fluctuating revenues from state and federal funding sources like Payment in Lieu of Taxes (PILT), Secure Rural Schools, supplemental revenue sharing, and fish tax. Due to the absence of supplemental revenue sharing and the undecided fate of Secure Rural Schools, Jabusch said reserves will be coming in particularly handy in the next several years.
“The federal issues are not likely to get better for a long time so we are not likely to see anything but down trends, and we are all going to want all the reserves we can get to help ride this out for as long as we can without cutting services or raising taxes. If you had no reserves to do this, your taxes would go up or your services would go down from year to year as these changes happen. If a community is okay with that, then that works for that community,” Jabusch said.
The Alaska Government Finance Officers Association (AGFOA), an affiliate of the Alaska Municipal League (AML), advises municipalities keep a fund balance of no less than two months of general fund operating expenditures. The Juneau Borough is currently struggling to reach that two-month fund balance minimum advised by the AGFOA. Juneau finance director Bob Bartholomew said the borough passed an ordinance last fall allocating $5 million of sales tax to the general fund over the next five years in order to build up that reserve.
Skagway Borough treasurer Heather Rodig said the borough’s general fund operating budget for the upcoming fiscal year is a bit more than $7 million. Rodig couldn’t give a hard number on the fund balance, but said it is less than where the municipality wants it.
“Our general fund does not currently have a 3-6 month balance on it and it’s something that we need to visit,” Rodig said.
Skagway’s new manager George Edes, who assumed the position at the beginning of April, is still familiarizing himself with the borough’s budget. Edes said in his previous job as finance director for a 7,800-person California town, the city council voted to keep the fund balance at a three-month minimum.
Edes said a six-month fund balance in the late-2000s allowed the city to weather a pretty tough economic climate. “When we saw the downturn coming, we paid attention to it, we managed our expenditures, and we managed to get through the downturn without laying off staff or having massive cutbacks,” Edes said.
Haines Borough Assembly members have expressed over the past several years that while they would not like to sit on a big chunk of change, they still want to maintain a “rainy day fund,” said borough fiscal officer Jila Stuart. That way, in the event of fluctuating revenue sources or major capital emergencies like the Lutak Road slump, taxes don’t need to be raised significantly and/or services don’t need to be slashed, Stuart said.
“It’s nice to be able to have a fund balance to bridge the gap if some funding source suddenly goes away,” Stuart said.
As far as the pool goes, Stuart isn’t denying that money technically exists to keep it open year-round.
Stuart said she is looking forward to seeing data provided by pool manager RaeAnn Galasso indicating pool usage numbers. The data will be valuable in determining how many people would be affected by a three-month cut in the summer, Stuart said.
While both Stuart and Mayor Stephanie Scott agreed a six-month rule on fund balances is acceptable, Stuart and Scott both said keeping 18 months of operating expenses in the townsite fund balance is excessive.
Scott said she would like to see some of the townsite money, which comes primarily from property tax and sales tax, used for Third Avenue repairs and other capital improvements.
Earnest is proposing to transfer about $400,000 out of the townsite fund for purchase of a loader, narrowbanding radio equipment, and phone/electric upgrades for the upcoming fiscal year.