NEWS ANALYSIS

MILT THOMAS

Last Friday the City of Vero Beach Finance Commission met and spent almost three hours on a subject that has grown in importance as competing pressures mount over the City’s financial future.

General Fund reserves are a necessary requirement for any governing body and are not a fiscally responsible option. The Government Finance Officers Association (GFOA) defines them this way: “It is essential that governments maintain adequate levels of fund balance to mitigate current and future risks and to ensure stable tax rates.”

Reserves are created by budget surpluses and unanticipated revenues. Conversely, the reserves are reduced by unexpected expenses or revenue downturns. According to City Finance Director, Cindy Lawson, “….The City’s General Fund balance has actually fallen in five of the last 11 years, and the net increase in fund balance across this entire time frame has been $2.5 million.”

Of that $2.5 million though, $1 million of the surplus occurred over the past two years. Gorry contends these large unexpected increases occurred as a result of lower than anticipated expenses. “The General Fund is made up of almost 80 percent personnel costs and for the first time we added ten positions into the budget. Not all those positions were filled or were filled later in the year, plus we had people retiring, leaving for other jobs and so forth, so that is a large part of the excessive surplus and is unlikely to recur. ”

To some people, their eyes might light up at the possibility of a tax cut or lower electric rates, but unlike finding money under your mattress, this is not a “found money” revenue source.

However, with $1 million in surplus funds over the past two years and a total General Fund reserve of nearly $10 million, City Council and the Finance Commission asked Lawson to develop a policy recommendation regarding the use and level of reserves.

Her recommendation was discussed at the Commission meeting last Friday. Peter Gorry, Chairman of the Finance Commission, explains: “Cindy recommended a three-tiered fund balance. Assuming the 2015-2016 annual budget of $22 million and projected fund balance of $9.8 million, the first tier would be an emergency reserve of $2 million in case of hurricanes or catastrophes like an accident that causes structural damage to a bridge. The second tier of 10 percent, or $2.2 million, would be for budget stabilization in case of a fall off in revenues or unique one time charges. The third tier of 25% – $5.5 million – would be for working capital. The bulk of revenues don’t come in until December and January, so this would act as an advance of the funds that come later. If this recommendation is approved, when there is an excess over the budgeted balance, those funds can be used to reduce taxes, improve services or whatever Council decides to do with it.”

“These numbers are for discussion purposes,” says Gorry. “We will take it up again in January, after having a chance to study the proposal in depth. Then it will be up to City Council as to what happens with surpluses. We have the stormwater issue and deteriorating roads to catch up on because those issues were postponed during the recession budget years, pay down debt, etc.”

Assuming a final policy on General Fund reserves makes it to City Council, we can expect the usual tug-of-war over maintaining the level of services Vero Beach residents have come to expect, dealing with infrastructure issues or reducing taxes. Given the electorate’s knee-jerk approval to any opportunity or even a promise of lower taxes over just about anything else, it will be up to the City Council whether they are shepherds of Vero Beach’s future or preparing for the next election.