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Legal, financial reviews show no apparent problems with size of EDC reserve fund

WILLMAR — Hoping to settle the controversy once and for all over the Kandiyohi County and City of Willmar Economic Development Commission reserve fund, the EDC brought in its accountant and attorney this week for an in-depth review of the fund and existing statutes that govern reserve amounts.

EDC staff and members of the joint operating board spent almost an hour Thursday on the discussion, ultimately taking no action to reallocate or decrease the organization’s reserve fund.

Questions have been raised about the size of the fund and they need to be answered, said Steve Renquist, executive director of the Economic Development Commission.

“Above all, we not only want to but we must follow the law,” he said. “If we’re not, we need to find out what we should do.”

Based on a legal and financial review, however, it appears the EDC is not committing any obvious violations in how it maintains its reserve fund.

When it comes to reserve funds for local government and political subdivisions, state statutes are mostly silent, said Mike Burgett, the EDC’s attorney.

“There’s certainly precedent and guidance for the establishment of reserve funds,” he said. But existing laws don’t contain any requirements dictating whether an entity should or shouldn’t have a reserve fund or how large the fund can be, Burgett said.

The discretion ultimately rests with the entity itself, said Jim Ruff, certified public accountant for the Economic Development Commission. “It comes back to the leadership of the organization to make the appropriate decision as to what is a fair reserve,” he said.

For local governments that rely heavily on the property tax as a source of revenue, as the EDC does, the state auditor’s office recommends keeping an unrestricted fund balance of 35 to 50 percent of operating expenses.

The adequacy of this amount “should be assessed based on an individual local government’s own circumstances,” the state auditor’s office said in a position statement issued in 2012. “If the local government’s unrestricted fund balance is less than or greater than the recommended level, the local government should be able to explain the reason for the difference.”

The Economic Development Commission has just under $320,000 in reserved funds. Of this amount, only $53,000 or so is at the discretion of the joint powers board. The bulk of it, $222,700, consists of a revolving business loan fund originating with money that came from Kandiyohi County with a directive to spend it on economic development.

The rest is divided between a tourism development fund and a loan receivable as a local match for a Housing and Economic Development Authority grant. The Economic Development Commission also has $20,770 invested in capital assets and $375,000 in unreserved funds.

Its budget this year calls for spending $506,707 on programs, staff and overhead. The budget includes using $50,000 from unencumbered reserves to help expenses meet revenue.

Thursday’s discussion by the joint operations board was filled with numbers and technicalities but also sparked some back-and-forth debate on how to interpret them.

Board member Bob Enos wanted to know the exact nature of the encumbered funds that came from the county.

“Is there a contract that stipulates? I thought this was a grant,” he said.

The money was transferred to the Economic Development Commission for the stated purpose of economic development, Ruff responded.

“That’s pretty broad,” he acknowledged. What’s clear, however, is that the funds were encumbered by an outside entity — Kandiyohi County, in this case — which would make it “a true restriction,” Ruff said. And if the EDC were ever to be dissolved, the revolving loan fund money must be returned to the county, he said.

Burgett also clarified that the Willmar City Council cannot take a portion of the EDC’s reserve fund and allocate it to the city’s general fund, a question that was raised at a recent City Council meeting.

Under the joint powers agreement that created the Economic Development Commission, the city of Willmar and Kandiyohi County have an equal voice, he said. “There can’t be unilateral access by one of the two entities. The authority would have to come from the joint powers board.”

Anne Polta

Anne Polta covers health care, business/economic development and general assignment. Her HealthBeat blog can be found at Follow her on Twitter at @AnnePolta.

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