Stafford, CT - August 5, 2024
At this time of year, Board of Finance (BOF) meetings can feel a bit like “Groundhog’s Day.” It takes time for final invoices to come in and payments to be made, putting the final budget numbers in flux. Still, reporting on the progress is important, so meetings are filled with critical but not particularly exciting updates. While the town feels confident the budget will have a “surplus” – a word that makes CFO John Lund uncomfortable – it’s not quite clear where the final numbers will land.
Why does “surplus” make Lund uncomfortable? It’s largely because the term is too broad to describe what’s really going on. Sometimes, a department is genuinely able to save money, but quite often, there’s a more complicated explanation. For instance, the ARPA committee may have decided they could pay for a project that was originally part of the referendum budget, or a project just did not come to fruition because of time constraints. The police received a DUI grant, and it only used a portion of that money, causing their budget to show a positive balance. Grants must be used for specific uses and within a certain amount of time so that money is not up for grabs, so to speak.
So, calling it a “surplus” may be a bit of an oversimplification, but for our purposes, that word is the only real choice. Still, there is plenty to be learned from Lund and Morrison’s first end-of-fiscal-year wrangling.
Tackling “large, inherited financial stresses”
Part of the process at the fiscal year’s end is reconciling budget lines within departments and transferring money from one line in a department’s budget to another because negative figures are not allowed. So, for instance, if a department overspends on office supplies, money that went unused in the department’s conference budget may need to be moved. Occasionally, there is an interdepartmental transfer, but that’s a rare case.
This process, however, is helpful for First Selectman Bill Morrison and Lund, who came into office around the same time to find “large inherited financial stresses,” as Lund calls them. Stafford Free Press covered those financial stresses: the ambulance budget, the schools’ self-insurance plan, and the utility fund, which has historically been a drag on the general fund. Seeing where items may have been over-budgeted lets them make better decisions about next year’s budget. Make no mistake about it: Morrison and Lund are already working on fine-tuning next year’s town budget.
Solutions are being implemented for the three big issues identified above, including a new, complex formula that Superintendent Steven A. Moccio told the BOF at his most recent meeting would have the roughly $1 million borrowed by the schools from the general fund repaid within two years and the self-insurance fund back to a healthy $1.8+ million within five years.
As we have reported before, Morrison instituted a budget freeze after coming into office. As he told the BOF at the last meeting, “No services were lost, no projects were delayed.” He also said his policy was, “If you need it, you should have it. If you want it, let’s talk about it.” Since then, Morrison has also instituted monthly meetings with department heads to keep a closer, more real-time eye on budgets. When I spoke with Lund, he described this as a “culture change.”
Now, as the final spending starts to settle, the town is taking a close look at line items that may have been overbudgeted and other places where that money can be used more effectively, which will inform next year’s budget proposal. For instance, the 2023-2024 budget included about $17,000 for crime prevention through Family Services. To date, the department has only used about $3,000 of that money. That line item was already cut to $8,500 in the 2024-2025 budget that passed this spring, which enabled the town to allocate those funds elsewhere.
What happens to leftover funds?
The obvious question is what happens when a department has a surplus at the end of the fiscal year. Does it roll over to the next year's budget? The short answer is no. Traditionally, any leftover funds go back to the general fund, the town’s “rainy day fund.” Given the general fund’s precarious state, any money going back into it is good news.
As we reported earlier this year, it’s recommended that a general fund’s balance should be 8-16% of a town’s overall operating budget. Stafford’s policy says that the balance should be 10-14% of its operating budget. At $3.45 million, Stafford’s unassigned balance is just 7.5% of its operating budget.
Meanwhile, the town auditors can mark parts of the fund as “non-spendable,” essentially keeping them in reserve to pay for utility fund shortages or cover shortfalls in the school’s self-insurance fund.
Why is the general fund important?
The health of the general fund impacts the town’s bond rating, which determines its ability to borrow money and interest rates. When a town has a healthy general fund – which is essentially the town’s savings account – it is able to borrow from those funds to offset cost increases.
For example, last year, Vernon raised taxes for the first time in a long time. However, it was able to offset some of those costs by using money from the general fund, resulting in a smaller mill rate increase than would have been necessary otherwise. CT Insider reported, “Despite the use of reserves, Vernon will continue to maintain roughly $18 million in its rainy day fund, which Champagne said is the amount town auditors recommended.” (Interestingly, Vernon’s self-insurance fund was also a concern during budget season.)
Lund, who has a long history in the financial industry, says it is never his, or Morrison’s, intent to “overcharge the taxpayer.” He senses that Stafford’s budget represents a “reasonably healthy operating budget.” That being said, the town is as subject to changing economic pressures as everyone else and is keeping a much closer eye on spending than it seems has been done in years past.
“We can’t operate in a vacuum,” Lund says. Business decisions must be made, and he says that investing in the general fund or a Capital Improvement Projects fund will pay off more in the long run than incrementally reducing the mill rate in the short term. Just like a robust savings account gives families stability, a more robust general fund gives the town increased stability and flexibility, potentially offsetting tax increases in the future.
Stay tuned, as September is (tentatively) when the town expects to have final numbers.
Comments