As a percentage of spending, the Haines Borough’s $15 million in savings is exponentially more than what many other municipalities hold onto, but it’s a “prudent cushion,” the Haines Borough’s auditor told the assembly last month.
The $15 million in fund balances identified by Max Mertz of Juneau includes $7.1 million in permanent fund capital, $1.7 million in the permanent fund’s “earnings reserve,” $4.2 million in restricted funds like the townsite service area and medical and fire service areas, and $2.4 million in the areawide general fund.
With monthly operating expenditures of $949,000, the borough’s savings represens about 18 months of operating costs, Mertz said.
“The general rule of thumb is that you want about two months of operating expenses in reserves, or somewhere in the ballpark of 16 percent of your total expenses,” Mertz said. The municipality of Juneau, he said, has savings equal to 1.5 months of operations. “Most governments have three or four months, or a very small number of months. Your permanent fund gives you a certain amount of cushion that other (municipalities) don’t have,” he said.
Even excluding the permanent fund – which can be tapped only through a vote of residents – the municipality has nine months of reserves. “I would call that good capitalization. Most governments down south would be thrilled to have those kinds of reserves,” Mertz said.
The amount of savings “doesn’t make you rich,” Mertz told the assembly. “What it does is provide you with what I’d call a prudent cushion,” considering anticipated reductions in funding from the state.
Municipalities keep savings “to provide for significant shocks,” or to provide for needs that arise, he said, but the money shouldn’t be used for operating expenses.
Assembly member Ron Jackson asked Mertz at the meeting if local taxes might be too high. “Could we cut back on taxes?”
“That’s purely subjective,” Mertz replied. “You have budget issues you’re dealing with. You have future revenue stream issues. My personal feeling is that if I were a taxpayer in Haines, I should feel fortunate,” Mertz said. “You want to feel as though the government is raising adequate funding for its operations. We don’t ever want to feel like you have to go into reserves to pay for current operations, because it’s very difficult to reverse that.”
The downside of the borough’s financial picture is that enterprise funds don’t raise enough money to pay for depreciation costs. Enterprise funds are separate accounts for management of specific, customer-based services such as docks, harbors and water and sewer utilities. Enterprise funds are intended to cover their own costs using fees, grants and facility-specific funding sources.
“If you were going to rely on the current rate structure and resources that you have available to you internally, to pay for these you don’t have the money sitting around that you need to. That also impacts how rich you feel on the governmental side with your permanent fund,” Mertz said.
The borough has previously used state grants to pay for upgrades to facilities operated through enterprise funds, he pointed out. “In the past we’ve had a rich uncle in Juneau who can pay for stuff. Are we going to have that in the future? That’s a question you have to ask yourself.”
Haines Borough Mayor Jan Hill this week declined to say whether the borough’s savings were too much, too little or just right. “I don’t have a hard and fast opinion on that. They’re something we need to look at, as well as looking at the needs we have to address.”
Hill declined to cite those needs, but said residents need to appreciate the borough’s expenses to provide services. “We all have our pet projects and pet services that we think are vital. And they are. But we have to realize everything costs money. I’m not willing to raid savings to make our budgets easier. My concern is people don’t understand the relationship of services to costs.”
“Some people say this is the rainy day. This may be the rainy day, or maybe it needs more rain, but I don’t know because I’m just getting into the budget. As usual, the budget is a top priority,” Hill said.
Assembly member George Campbell also declined to characterize the savings, but said it was “really nice to have that so when things go wrong, you can fix them.” Campbell said the borough might be needing “a whole bunch of its savings” to kick off needed repairs to Lutak Dock and the sewage treatment plant.
Most of the borough’s savings can’t be used directly to pay for the dock or treatment plant, because those services are provided through enterprise funds. Savings could be loaned to an enterprise fund, but would need to be repaid, municipal officials have said.