Farmersville City Council passes policies for minimum fund balance and to establish a budgetary uncertainty fund
By Paul Myers @PaulM_SGN
FARMERSVILLE – Despite the much improved economy now 10 years after the initial hit of the Great Recession, cities are bracing themselves for an inevitable economic downturn. Just last week the Farmersville City Council adopted a minimum fund balance and budgetary uncertainty fund policy.
“By adopting this policy we are moving closer to best practices and sending a message that we here at the City of Farmersville are looking seriously at managing our finances responsibility,” said finance director Steve Huntley.
Until last week the City did not have an official policy in place demanding minimum reserves be in place for future emergencies. Now the City will work toward establishing a minimum fund balance equal to 25% of general fund revenues where as the budgetary uncertainty fund is intended to be 15% of general fund revenues. Both percentages are calculated over a three year average of general fund revenues.
According to Huntley a key difference between the minimum fund balance and the budgetary uncertainty fund is what each are intended to be used for. A minimum fund balance is dedicated toward services and making up the difference in budget deficit years. The budgetary uncertainty fund is an emergency savings for long term circumstances. As well, the City Council would be forced to declare a fiscal emergency to use the uncertainty fund and then refund the fund over the following five years.
Huntley does not see any one specific financial hurdle on the horizon but he says being prepared for a downturn or recession is good practice. And having minimum fund balances and an uncertainty budgetary fund in place insulates the City from even minor economic downturns that could still “wreak” a local economy like Farmersville’s. Not to mention the economic rhetoric coming out of Sacramento has been confusing for local finance directors looking for some sort of certainty in economic forecasts.
In January, Governor Jerry Brown proposed an increase to the State’s “rainy day” fund when he unveiled his final budget. His message was centered on a warning that uncertainty, decline and a recession is “out there.” Huntley says California’s treasurer John Chaing has been relaying the same message, and that it has not been particularly useful.
“Saying a recession is coming is like saying there is an ocean to the west of us…it’s obvious and not very helpful,” Huntley says.
As well, the City of Farmersville has had some of their better years since the end of the Great Recession. Huntley says the City is better off than they were even five years ago which is why these policies are important now. According to a staff report on the policies having a minimum fund balance and uncertainty budgetary fund:
- Maintains a good standing with ranging agencies;
- Avoids interest expenses;
- Generates investment income;
- Ensures cash availability when revenue is unavailable and;
- Creates a better understanding of the priorities of staff and council.
“We have a unique moment in time to establish this policy. It could not have been done a few years ago. There has been a lot of hard work to stabilize finances and make this possible,” Huntley said during last week’s City Council meeting.