Monday, March 21, 2011

General Fund and CIP - Healthy Reserve Fund Balances for the Event Center?

The city's Director of Finance gave an excellent presentation on the December 31, 2010 Monthly Financial Report at the Informational Meeting on March 14, 2011.

There are two reserve funds that everybody is salivating over as sources of money to build an event center: the General Fund's unreserved fund balance and the CIP's unobligated fund balance.

The General Fund is the city's primary operating fund. It's major sources of revenue are 1st penny sales tax and property tax. Expenditures are used to fund wages and benefits, professional services, repair and maintenance, supplies and materials, utilities and other non capital costs for departments of police and fire, libraries, park and recreation, health, planning and building services, engineering, pw administration, mayor, attorney, city council, human resources, finance, central services, facilities management, media services arena, and convention visitors bureau.

The CIP (Capital Improvement Program) is a plan that lists, by department, major capital projects related to infrastructure and building design and construction. It is funded primarily by second penny sales tax.

The General Fund’s Unreserved Fund Balance started with $41.1 million balance and ended 2010 with $41.7 million. The City Council sets the unreserved fund balance target at 25%. At year end 2010, it was at 33.7% which is well over the minimum policy level. Good news for the city's financial picture and better positioned than other municipalities across this country running a deficit.

But should we start rubbing our hands together and plotting how we can use that money to fund the Event Center construction? The city better save that money because they are going to need it to operate the Event Center, if and when it is actually built in the future. To my knowledge, general fund unreserved fund balance has always been used for operating expenses and has never been used for construction projects. This money should not be used to build the Event Center – ever!

The CIP has an unobligated fund balance of $3.8 million at the end of 2010.  In yesterday's Argus Leader, Councilor Jamison said the mayor wants to set aside savings in the CIP for an Event Center.  The mayor responded by denying he wanted to set aside the money for an Event Center.

Interesting comment by the mayor considering the Finance Director stated on March 14th he would advocate putting the $3.8 million in the CIP unobligated fund balance as a down payment to the cash component figure of $15 million identified in the mayor's financing plan for the Event Center.

Let's consider this. There was zero sales tax growth budgeted in the CIP for 2010 and the mayor budgeted zero growth in 2011. I suppose it’s not outside the realm of possibility that there could be a couple more million built up in the CIP unobligated funds at the end of 2011 because of the budgeted zero sales tax growth. But what about the huge road backlog, the uncertainty of the River Greenway Project, all other projects that should take priority over this down payment of an Event Center project that doesn’t even have a formal finance plan identified yet?

The Finance Director also stated in the March 14th presentation that the city won't borrow money for anything but capital programs and would never borrow money for operating expenses. They shouldn’t use the general operating fund unreserved balance for construction of capital projects either.

Back in October 2010, the mayor identified the General Fund Unreserved Fund Balance as his source for the $15 million cash component of his financing plan for the Event Center. $25 million would come from private sources and the rest would be funded through bonds which would increase the city's debt obligation to what, we don't know yet.

The city has an outstanding debt component of $227 million at the end of 2010. 79% of the outstanding debt is for the Lewis and Clark Regional Water System, water and wastewater system improvements, storm drainage improvements, Eastside Sanitary Sewer and Flood Control. There are two Quality of Life Bonds, one for the Main Library, Harmodon and Drake Springs, the other for the Greenway, Zoo, and Westside Library. The Convention Center/Pavilion Bond finally gets paid off in 2014. 

Healthy Reserves?  I for one do not think there should be any action on using the General Fund unreserved fund balance or the CIP unobligated reserves for the Event Center until the financial plan is completely and comprehensively laid out to the general public.

All this rhetoric about healthy reserves is just that, rhetoric at this point. There is too much economic uncertainty and infrastructure needs to be plotting how to spend what little increases have been achieved to date in both reserves. Oh, and the fact that there is no financial plan presented by the mayor to date for the Event Center.

1 comment:

  1. Hey City Finance Department, don't you need at least $20 million in the General Fund Unreserved balance just for cash flow every month? The mayor doesn't have $40 million in this fund just to play with. Hope somebody in City Hall has some fiscal sanity.