By Harry Gatjens
Did you know the City of Edmonds has a $2 million rainy-day fund?
It’s prudent for cities to put a little money aside in the event of an emergency, but in the case of our city, almost no one seems to know about our fund.
As you know if you’ve been following my occasional column on My Edmonds News, I’m a fairly new member of the Levy Committee (examining whether the City needs to have a levy for its future expenses), and in the course of our study, questions came up about our City’s reserve funds.
How much is there? Where is it recorded? What it is for?
Well, it turns out the City has two different reserve amounts. The first is a normal operating cash reserve to handle shortfalls in ready cash. Think of this as keeping a larger-than-needed amount in your checking account, so if a paycheck or rental income is late, you don’t end up overdrawn. The standard operating reserve amount for cities recommended by the Government Financial Officers Association (GFOA) is one to two months’ normal expenditures. In the case of Edmonds, one month’s expenditures are kept in reserve.
The second reserve fund is the emergency fund, set aside in the event of a catastrophic event. The balance in this account is presently $1,927,600. It is not for use in financial emergencies, but rather for acts of nature such as earthquake, flood, or other natural disasters.
So, where is that fund? Is it real money, or only on paper? Does it grow or earn interest?
The money in the emergency fund is real, but it’s not kept in its own separate account. It is invested, together with all of the other excess funds managed by the city, in a state-run investment pool. The emergency fund itself doesn’t grow, because the City Council has set the reserve at a specific amount. Any earnings made by investing this amount are paid into the general fund for use by the city as regular income for normal expenses; the emergency fund stays consistently at $1,927,600. It is called a “set-aside,” and the income it provides for the City reduces the amount of tax the City needs to collect from its citizens.
Would it be better to increase the emergency fund by keeping each year’s interest in the fund so total investment earnings grow each year?
That’s a matter of opinion. If you’d like to share yours, please do. You can email your City Council member with your ideas, or maybe come share them with me at “Coffee with Citizen Harry,” this Thursday morning at the Chanterelle restaurant, 9:30 a.m.
If I know more about what you’re thinking, then I can do a better job for all of us as a volunteer on the Levy Committee. The coffee at Chanterelle is good, and if you’re there by 9:30, the first cup is free.
Some of the interest should be reserved into the fund to help grow the fund because the costs of goods and services that the fund will pay for will continue to increase. Inflation is at historically low levles, there’s almost no where to go but up.
Growing the fund will also provide more revenue for the city because there will be a larger amount on which to earn interest.
Perhaps half of the interest should be paid into the general fund and have reserved in the “set-aside”.
My opinion as an Esperance neighbor of Edmonds.
The current rainy day fund is a bad joke on Edmonds citizens!
The question arose during the levy committee meetings: “\What about the 2 rainy day million, Mr Mayor? Why not use that instead of a levy?” The following council meeting, the same heated question occurred. the Mayor was very evasive and to pooh poohed the discussion. He promptly followed up with a ordinance change that was quickly passed by his last and final compliant 2008 Council, led by DJ Wilson.
The new ordinance basically required a disaster of major proportions, such as an atomic attack or major earthquake to trigger its use. This made it the joke it currently is.
The budget shell game antics of former Mayor Haakensin and his numerous budget directors are still raising questions about the 2 million in the still fuzzily presented Edmonds city budget.
But knowing the always eagers hands around Edmonds, wanting access to such pots of money, raising the bar is probably a good thing. This and knowing that $2 million might not even address the emergency and rebuilding costs from a true disaster, it’s best to leave alone.
Thanks again to Harry for enlightening us so that we can have informed opinions, and informed debates!!!!
Darn, Harry. Wish I could be there for coffee, but I’ll be attached to my Skype headset for work.
Regarding the emergency fund, my inclination is to leave it be, and re-assess if it’s sufficient in an annual review, based on inflation and other circumstances.
In any case, using the fund to supplement the General Fund, to address near-term shortages, does not sit well with me. Such a use implies that we know that the current financial crisis is all but over, and that we will be able to rapidly replenish this fund. I may only be a grandchild of the Great Depression, but I learned that lesson already. Don’t bet the farm that next year will be a better year.
Keep up the good work, and thanks for keeping us all informed.
When we talk about reserve funds in Edmonds we need to sort out the total issue to identify what type of reserve funds we should have, how do we account for them, and how they can be spent, and how can we change the rules if necessary. In Edmonds it is hard to figure out what funds have. Searching the City web site for reserve funds was not very helpful.
Other citys have Fund Balance Policies that clearly identify what funds should have reserves and how they are to be maintined. Here are a list of fund reserves that I have found in other nearby cities.
Contingency Fund. Same as what Harry identifed in this article as the Rainy Day or Emeregency Fund. The coucil passed and ordinance in Oct 2009 that limited the use of this $1.972,600 fund to natural disasters. Some other Cities allow uf the use of such funds for unexpected economic changes or resessionary periods. That question needs to be discussed to be sure our current plan is in line with what the voters would want.
General Fund Reserves. The national recommendation for this type of reserve is 1-2 months of expenses of the general fund. It is like a minimum balance on your checking account that helps insure against the delay of revenue comming to the general fund. Edmonds does not have a policy for this type of reserve. That should be discussed and decided.
Hotel/Motel Lodging tax reserve. This fund pay for promotional activites and other city’s have specified what reserves should be in this account.
Technology Replacement Reserves. Computers and software wear out and become obsolute. Our technology tools are helping city staff to do more with less. Other cities have set aside reserves for replacement. We should do the same.
Equipment and Vehicle Replacement reserves. Edmonds has some of these reserves but do we have a policy for this type of reserve?
Surely there are other funds that should be examined to see what if any reserves should be maintained. If you want to see how one of our neighbors have handled the policy part of reserve funds just go to the City of Mukilteo web site and search for “Fund Balance Reserve Policy” and see how they have handled the fund reserve issues. Searching the Edmonds web site was less successful in finding a clear statement of our reserve policies.