Willmar audit shows a healthy reserve fund
WILLMAR — In theory, the city of Willmar had enough money in its general fund reserves at the end of 2017 to fund the vast majority of the estimated general operating expenses for the city in 2018.
According to the 2017 audit, presented at Tuesday's work session of the Willmar City Council, the city finished 2017 with about $13.4 million in general operating reserves. The estimated general operating expenditures for 2018 total approximately $14.5 million.
"We could cover basically the upcoming year," Steve Okins said in an interview with the Tribune on Wednesday.
However, according to Okins, most of that $13.4 million in reserves is already earmarked for such items as employee vacation, self-insurance and emergency funds for the next two years. The reserves also cover the cost of the insurance buyout program for both current employees and retirees.
There is also $4 million set aside to help pay the city's bills in the next budget year as the city waits for its twice-annual property tax and local government aid payments, along with the quarterly payments from Willmar Municipal Utilities.
"The big thing is cash flow. You have to pay bills," Okins said. Without the money set aside to pay bills, the city would have to borrow the funds and pay interest.
The current city policy is to have 100 percent of the general operating budget in reserves, even though the state auditor's recommendation is to have 40 to 50 percent in reserves. David Euerle of Westberg Eischens, the company that does the city's annual audit, said Tuesday that most cities keep between 70 and 100 percent of their general operating budget in reserves.
"It kind of limits you on what you can do as far as spending down your fund balance," Euerle said of current city policy.
In the past few years, the city has been starting to draw down its reserves, using it to balance the budget between annual expenses and revenue without having to raise the tax levy higher than a few percentage points a year.
"You are still in very good shape," Euerle said.
With this drawdown, the city's reserves don't actually meet the current policy, which means the City Council should review the policy and possibly change it.
"We can change it, if we choose to," Mayor Marv Calvin said Tuesday.
Calvin's 2019 budget calls for using $1,449,080 in reserve funds. Part of his proposed reserve drawdown would come from the $849,079 in funds that rolled over from the 2017 budget. Funds that roll over from one year to another usually come from unused salaries or lower-than-estimated costs for budgeted items.
The remaining $600,000 in reserve funds that Calvin calls for using would come from reducing the emergency funds for 2019 and 2020 by $300,000 each. For each of the two years, $1.3 million is earmarked as emergency funds. Calvin is calling for a reduction to $1 million for each year.
There was also discussion Tuesday about whether an additional $275,000 in reserves could be used in 2019 instead of increasing the tax levy by 5 percent.
Okins said during the interview Wednesday that he believes Willmar will have its reserves down to the 50 to 75 percent range in the next few years as the budget gets tighter. In his opinion, the city will need to keep at least $7 million to $8 million in reserves every year in order to meet its obligations.