Kennedy wants Westerly council to adopt policy of 15% minimum surplus

Kennedy wants Westerly council to adopt policy of 15% minimum surplus

The Westerly Sun

WESTERLY — Town Manager Derrik M. Kennedy is recommending adoption of a policy to set the town’s financial fund balance, or surplus, at 15 percent of budgeted annual expenditures but says an even higher amount might best suit the town.

Kennedy discussed the proposed policy with the Town Council during its meeting Monday. “The point of this policy would be to set a standard of where we want to be with our rainy day fund,” Kennedy said.

The policy would set targets and provide guidance on how amounts greater than the recommended surplus would be used as well as steps to take if the surplus drops below the recommended level.

The surplus is intended to provide a safety net in the event of the need for unanticipated expenditures or financial emergencies such as responding to natural disasters. Additionally, bond rating agencies such as Moody’s Investors Services, Standards & Poor’s Global Ratings, and Fitch Ratings consider municipal surplus accounts when determining bond ratings and recommend a fund balance of at least 15 percent, Kennedy said.

Councilor Philip Overton, who works as a financial planner, asked whether Kennedy had considered the town’s risk for incurring damage from a hurricane. Kennedy replied by saying the Government Finance Officers Association recommends governments consider their environment when setting fund balance levels. Kennedy said he initially considered recommending an 18 to 20 percent fund balance but decided against it saying, “I wanted to start with something achievable that doesn’t put a large burden on us right out of the gate,” Kennedy said.

Overton said having a fund balance that reflects the town’s vulnerability to natural disasters is necessary.

“When the next natural disaster hits I don’t want us to be stuck behind the eight ball, I want us to be proactive and ready,” Overton said.

The town’s current fund balance is about 11.5 percent of the total budget. As of June 30 the fund balance, which includes both the town and school system, was $11,633,039, of which $5.6 million was unassigned.

To build the fund balance to the desired level, Kennedy said, town officials will have to work to inform taxpayers of the plan.

“We’ll have to make sure the community understands you would be budgeting for setting aside money... you would be factoring that into the mill rate,” Kennedy said.

Under Kennedy’s policy, a fund balance of less than 15 percent would be a cause for discussion by the Town Council and a balance of more than 20 percent would generally be viewed as excessive.

The policy also lays out replenishment strategies for times when the fund balance falls below certain thresholds. Similarly, the policy recommends use of amounts greater than 20 percent to accumulate funding for capital projects and equipment or to reduce the tax levy. Smaller overages would be used for debt repayment or tax rate relief or to fund other designated accounts or for approved one-time uses.

The policy would also set recommended fund balance levels for the water (50 percent), sewer (50 percent), sanitation (15 percent), and animal shelter (10 percent) funds.


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