MOUNT VERNON — Council members modified the formula for the city’s reserve balance account, but left the withdrawal parameters intact during action on Monday night.
Council members created the account in 2017. The current funding formula is based on a percentage of the prior year’s expenses.
Commonly referred to as the rainy day fund, the reserve balance account is tracked through the general fund.
“This has wound up encumbering or appropriating $3,056,000 in the general fund,” Safety-service Director Tanner Salyers said. “If I were to continue budgeting that, that would be a significant amount of money that we are essentially just holding up in the general fund.”
Salyers said that, to his knowledge, the account does not bear interest.
Auditor Paul Mayville explained the city’s main account has a $3 million “sweep” feature. At the end of the day, money is swept into the account if there is a negative balance. If it has a positive balance, it sweeps out of the account and into an interest-bearing account.
The city has $13 million in cash reserves and slightly over $6 million in certificates of deposit, money market, and savings accounts, all of which are interest-bearing accounts.
“So there are a few checking accounts that have low balances that aren’t earning any interest, but most all of our funds earn some type of interest,” he said.
Acknowledging semantics about whether the main account bears interest, Salyers said, “I think the most important thing to note here is that [the reserve balance account] is not its own separate fund.”
Transitioning the reserve balance amount
Salyers said the administration now recognizes the importance of doing three things:
•Capping the amount when the reserve fund balance reaches 13% of the anticipated revenue in the upcoming year. If the city had a “crazy influx” of revenue, it would have to put money into the reserve account to comply with the 13% threshold.
•Creating an interest-bearing account. The safety-service director, city treasurer, and auditor would decide on the best investment strategy. The city could manage the investment or assign it to a third-party administrator. If the council chooses the latter, council members will choose the administrator.
•Transitioning to an interest-bearing account. The city will transfer the current reserve account balance of $3,056,000 from underperforming investments or cash reserves into a separate, interest-bearing account no later than July.
Salyers said that as the city transitions to the new account, officials must consider how accessible the money will be should the city need it quickly.
“The three reasons that we can access that fund remain the same. Nothing changes,” Salyers said. “We’re not spending anything out of the reserve balance account.”
Councilman James Mahan questioned whether the state recommends a certain percentage for a municipality to deposit into a reserve account.
Salyers said it does not but noted it caps its fund at 8.75%.
Council President Bruce Hawkins said the general rule is a minimum of one month of operating expenses.
“Two months is better. Three months you’re flush,” he said.
The $3,056,000 covers roughly two months of city operations.
“And that’s us operating under no austere measures,” Salyers said.
Unanimous approval
The council waived the three readings and adopted the ordinance that caps the reserve fund account and transitions the money to a separate fund.
Councilman James Mahan said it was good for the public to know the city was meeting and exceeding the suggested reserve amount.
Salyers noted that the council can always change the 13%.
Councilwoman Amber Keener thinks 13% is more than adequate.
“I had had conversations with [former auditor] Terry [Scott] before he left about putting this into place, and he was in support of it,” she said. “I have long thought that we needed to do this.”
Salyers said the switch to a percentage of revenues enables better budgeting. Under the expenditure method, the contribution is unknown until the end of the year.
Additionally, it gives a more accurate picture of the city’s carryover on Dec. 31 to cover first-quarter operations of the upcoming year.
