This weekend, I got to thinking about one of the recent Council topics... it's a topic that goes by several names, including:
1) general fund reserve2) fund balance3) rainy day fundMy concern was no different than my concern raised during previous budget meetings...
in an effort to improve our debt rating, are we taxing people more than we are saving them (in reduced interest expense on debt)? I'm not sure yet, but want an answer because...
It occured to me that in the 3 1/2 years that I've been on the Council, the Town's general fund reserve has increased from
approximately $5million to $8million. Thus, residents have paid an additional $3million in taxes in three or four years.
So what's the benefit? Well, the likely main benefit that may be related was a $1million
($940,000, I think) savings when the town refinanced existing debt. But would taxing $3,000,000 to save $1,000,000 make sense?
(As well, while this refinancing may have related to an improved debt rating... I think it also related to falling interest rates... which would be independent of the Town's debt rating.)And I have another question...
on an annual basis, what additional taxes and savings are assumed by residents to maintain the currently targeted 8% fund balance, instead of the former 5% fund balance? (5% was the target when I got on the Council.)For purposes of explanation only, here's what I mean... Assume the town has a $97million budget in year 1 and a $100million budget in year 2. Thus, the budget increased $3million ($100m - 97m) in one budget year. And if the budget increases $3million, then maintaining a 5% fund balance would require additional taxation of $150,000
($3m x 5%). And maintaining an 8% fund balance would require additional taxation of $240,000
($3m x 8%).
Thus, maintaining the fund balance at 8%, instead of 5%, requires additional annual taxation of $90,000
($240k - 150k).
So the next time the budget committee meets to discuss the general fund balance policy, my questions will be:
1) Does our improved debt rating (and commensurate lower interest expense) offset this increase in taxation?2) What savings have the taxpayers received to offset the $3,000,000 increase in the general fund reserve?I don't know the answers. And I suspect that my explanation here is simplistic... and may even be way offbase... again, I don't know. But I feel that in representing the taxpayers, I'm obligated to get answers to these questions.
As well, I'm glad to know that during prior budget meetings, I've gotten the support of Elizabeth Esty... despite what I felt was resistance by Town Hall to answer these questions. It was suggested by staff that there are many intangibles related to the increased debt ratings. And that's fine. But I also feel that as a policy board, the Council must know those intangibles and pass judgement on them before we continue down this path.
Tim WhiteTown Council, Budget Committee