After receiving a clean audit report in December from independent audit firm Alexander Thompson Arnold, PLLC, the city of Owensboro was given a recommendation to adopt a formal fund balance policy. Although the city finance department had adhered to an informal fund balance policy for years, city commissioners voted on Tuesday to adopt the formal policy.
“The city’s fund balance operates like a family’s checkings and savings account combined,” said Director of Finance and Support Services for the city, Angela Hamric, at last week’s special called meeting. “It’s important that it covers more than our budget is set for.”
The general fund balance takes into account aspects such as public safety (fire and police departments), funding for parks and city administration, among other things.
Auditors recommended that the city’s formal fund balance policy maintain, at a minimum, no less than two months of operating expenditures.
“I support the 60-day policy. It’s the standard policy, and that’s what the GOFA (Government Officers Finance Association) recommends,” Hamric said.
For the 2018-2019 fiscal year, the recommended best practice for the city’s minimum fund balance includes a budget of $54,883,072 in expenditures, a recommended balance of $9,147,179, and $10,224,365 as budgeted.
Moody’s Investors Service, which affirmed Owensboro with an A2 rating and removed the previous negative outlook, takes into account a city’s formal fund balance policy when assigning a city’s credit rating.
As for the general fund held by the city, fund balances are divided into non-spendables, restricted and unassigned funds. Owensboro’s non-spendables total $60,633. The city’s restricted funds total $1,898,216, while its unassigned funds total $9,306,051. The total fund balance for the city comes out to $11,264,903.
Hamric explained that non-spendables are reserved in the fund balance, but not in spending form. Inventory would be an example of a non-spendable, Hamric said.
Meanwhile, Hamric said restricted funds represent Owensboro’s debt service for the next year. Unassigned funds give the city the authority to spend those funds in addition to the original budget. Hamric said the city commission would have to implement an ordinance and budget reading in order to use those unassigned funds.
Hamric credits the net property tax revenue for allowing the city to keep from going below its two-month minimum.
