The city is finalizing a proposed 2014 budget that allows it to spend up to $128 million in 2014. But don’t expect it to actually do so.
Bernie Hayen, the city’s director of finance, said when the books are eventually closed on that 2014 budget, actual spending probably will be about 20 percent below that allowed figure. Even so, the city may still break the $100 million spending barrier for the first time.
The 20 percent cushion is considered fairly standard, and is accumulated in order to give city officials the flexibility to cope with unforeseen contingencies that can crop up during the year. “It should always be lower,” Hayen said of the budgeted versus actual spending totals.
Hayen said bond rating companies, especially Moody’s, prefers the city hold about 20 to 25 percent in reserve in the general fund, but he thinks that is excessive. He tries to keep about 5 percent in reserve for various funds, including the general fund and the water, wastewater and storm water funds. More substantial reserve needs in other funds tend to raise the overall total.
The projection for 2013 is that city spending will be about $97.5 million, a total that is 19 percent less than the roughly $120 million allowed in its budget. If so, it will be the smallest reserve in several years; the average since 2008 has been about 23 percent.
Most of the unspent money is in the debt service fund. Hayen said although that fund has large cash balances that carry over year to year, it is money already spent. He said the money is sitting there because of the county’s half-cent sales tax. The city is required to put a portion of that tax toward debt reduction, and as a result, it increases the funds in that specific fund more than the total payments for the year.
Hayen said that paying off the city’s debt is not like paying off private debt. Private loan holders have the option of paying off their loans early, but since the city purchases bonds to finance city debt, they are not able to pay off those bonds ahead of time. As a result, the sales taxes collected above the city’s biannual payments simply accumulate in the fund.
In 2013, the city estimated the debt service to be about $24.5 million, but the actual payments totaled about $14 million, nearly half of what was budgeted. Hayen said that was because they have to show in the proposed budget not only the actual payments, but also the money that will be collected. So, every year as those payments are collected and paid off, the debt service will slowly decrease to reflect the sales tax being spent on the debt.
He said other municipalities have cash reserve funds where those cities deposit money for emergencies. Unlike Manhattan, those cities do not include those funds in the annual budget, and therefore those budgets more accurately reflect what the city collects and spends in a given year.
Hayen said several years ago, he went before the commission and asked for two such reserves, a capital improvements reserve and a water/wastewater reserve. He said the commission at that time denied the water/wastewater reserve, but approved the capital improvements reserve as long as the reserve was included in the budget. The fire equipment reserve is also reflected in the budget.
Those reserve funds actually lead to the budget appearing to be annually under-spent. That’s because since the budget must balance, inclusion of cash reserves means the city must inflate the budget to reflect those reserves even though the city knows it will not spend that much. He said if the reserve were removed from the budget, a more accurate of revenues and expenditures would result.
Hayen said the CIP reserve was created because the city has a contract with the mall that states that if the mall is sold at a profit, the city receives a portion of that profit. He said when the mall was sold a few years ago, the city received about $1.8 million.
The city has used the money for various improvement projects over the years, and plans to use the balance for the Peace Memorial Auditorium remodel.