The words “Fund Transfers” don’t generally conjure up
enthusiasm or excitement as many would consider this to be the opposite. A fund transfer is needed to shore up an
account that is near or in a deficit.
Contrary to that thought, fund transfers can be a good thing, believe it
or not!
Each year after the audit the city looks at its fund
balances. The city manages its finances
with a few funds. If you are not
familiar with fund accounting it is similar to the bank keeping an account for
each individual. The city has an account
for the various functions it accomplishes.
So the city has a general fund for most activities. There is a cemetery fund to manage the
activities in cemetery operations. A
debt service fund collects payments and taxes for bond payments. An EDA account for Economic Development
activity (very limited funds here) is available. We have a Sewer Operating and Capital
Improvement Fund. We also established a
Revolving Capital Fund. This last fund is used to manage cash flow for
expenditures over time to minimize budgetary swings and to address long term
needs and their expenses.
This past year the city saw some improvement in collection
of taxes with a number of delinquent and past due accounts being paid. We assume that a number of properties changed
hands and as such taxes are required to be current for transfer in ownership to
occur. That and a concerted effort to manage our finances under budget resulted
in a good deal of undesignated reserves.
The level of undesignated reserves is important in that the
majority of the funds received by the city are received in the second half of
the year. This means at year end the
city needs to manage finances for about 6 months before getting property taxes for
the current year. The city established a
fund balance policy to manage the amount of undesignated reserves. This policy provides that the city maintain
45% of the current year’s budget in undesignated reserves and after the audit
is completed funds are considered for transfer.
In most years, with prudent fiscal management, that means funds can be
transferred to the “Future Improvement” designation in the Revolving Capital
Fund. This means the funds are no longer
part of general cash flow requirements of the city and are designated for a
future use.
The sewer operating fund doesn’t have a policy concerning
undesignated funds as all funds are designated for sewer in some form. In establishing a Sewer Capital Fund the city
wanted to create a designation for improvements to be made to the sewer system,
keeping them separate from operating funds.
With no specific policy regarding the operating funds, funds have been
transferred periodically to the capital fund as wanted. This year consideration was made to reduce
the operating funds to 45% of the budget as well. This level of cash flow will need to be
monitored as sewer funds are received quarterly.
At the May City Council meeting a fund transfer was
recommended and approved to move funds to the Future Improvement Fund in the
amount of $232,301. Funds were also
recommended to move from the sewer operating fund to the Sewer Capital
Improvement Fund in the amount of $834,961.
Making these changes moves funds from operating cash flow accounts to
designated accounts to be used by the city when the time comes for improvements,
thereby limiting the amount of budgetary swings or need for debt service.
