Fund balance problem? Fuhgedaboutit


Maybe Henderson’s fund balance won’t prove to be such a crisis after all.

“If you’ll look closely at the financial results, the fund balance can be back over 8 percent by June 30 if we just make a few little tweaks,” Mayor Clem Seifert said during Monday night’s City Council meeting.

The comment seemed to catch everyone off-guard, and council member Elissa Yount offered the only response a few minutes later: “I want you to tweak that 8 percent real quick tonight and get us that fund balance back up, and that’ll make me feel a whole lot better.”

Yount isn’t the only one who’ll feel a lot better if and when Henderson can resolve its fund balance problem. The state’s Local Government Commission sent Henderson a critical letter last month in response to the city audit for the fiscal year that ended June 30, 2004.

The LGC complained that the audit, released Jan. 28, showed the city with an unrestricted general fund balance of $464,163, or 3.16 percent of this year’s expected general fund expenditures. The LGC recommends a minimum fund balance of 8 percent, or roughly one month’s expenses, and wasn’t satisfied a year earlier when Henderson had a fund balance of more than 14 percent.

It was a big enough problem to spark the first public forum in response to a city audit, and the discussion that began Feb. 28 is likely to continue during the relaunch of Speak Up Henderson at 6 p.m. March 21.

Aside from the issue of how the fund balance fell by roughly $800,000 from its expected level to the audited total June 30 (it appears that less than $400,000 can be attributed to an overrun in the city’s upfront spending for the Embassy Square cultural center), the question hanging over every city financial decision and every city budget projection for next year is how will Henderson restore the fund balance to a level that satisfies the LGC.

In short, what’s the plan?

The last time the city faced a similar crisis, when the fund balance fell below 2 percent in the late 1980s, the City Council responded with a sharp tax increase that within a few years pushed the fund balance above 40 percent. City Manager Eric Williams told the public forum Feb. 28 that a penny on the property tax now is worth about $60,000 a year, meaning a 7-cent boost per $100 of property value would be needed to increase revenue by more than $400,000 and fill up the fund balance.

No one seems eager for a big tax increase, though, and Seifert explained in an interview Thursday why one shouldn’t be necessary.

Generally, Seifert said, revenues come in higher than budgeted because the city has to be conservative in its projections, and expenses come in lower because, for example, job vacancies that pop up during the year aren’t instantly filled.

“If you bring in $100,000 more than you budgeted and you spend $100,000 less, that’s $200,000, and you’re halfway there,” the mayor said.

The tweaking he referred to Monday night involves postponing expenses from late June into July, when the new fiscal year starts.

Finance Director Traig Neal confirmed Seifert’s belief that sales taxes are looking better than expected this year. Seifert cited the improvement in the local retail picture.

Neal also said property taxes, which trickle into the city coffers from the county throughout the year, are looking good through the end of February, eight months into the fiscal year.

The city has a long way to go before closing the books on fiscal 2005, however. Neal said the city should get a utility franchise tax payment from the state next week, but the final payment on that tax won’t come until Sept. 15. The final two sales tax payments from the state also will come after the fiscal year ends, on July 15 and Aug. 15, but will count toward the results for fiscal 2005.

“At this point it’s a guessing game,” Neal said, so he can’t project whether Seifert’s scenario will play out.

A lot of the guesswork should be eliminated in the next three weeks, Neal said. He and Assistant City Manager Mark Warren plan an extensive analysis of revenues compared with last year, and department heads’ spending projections for the rest of this year are due next week, along with their 2006 budget requests.

“They’ll have a lot of explaining to do if they expect to go over budget” this year, Neal said.

You need to look back only a year to see how uncertain all of the fund balance calculations can be. Last spring, the city administration predicted a fund balance of more than $1.2 million. It wasn’t until October that council members received word that the audited fund balance would be one-third of the projection.

The City Council will be more careful while budgeting this spring, the mayor said. Finance and Intergovernmental Relations Committee Chairman Bernard Alston has said he plans for the process to start sooner and involve more public comments than in past years.

“We in good faith delivered last year’s budget expecting the fund balance to be much higher,” Seifert said, “and we got blindsided on that.”