Charlestown Considers A Plan For Stability And The Capacity To Recover From Major Disasters
The following letter was sent to local newspapers and is shared with us here by the author Bonnie Van Slyke. Bonnie Van Slyke is a member of the Charlestown Town Council.
How would Charlestown maintain financial stability over time and also have the capacity to recover from a major hurricane or other disaster?
On January 10, the Charlestown Town Council will consider this question and potentially take action on a written fund balance policy. If enacted, Charlestown will be one of the first, if not the first, towns in the state to have a written fund balance policy.
The proposed fund balance policy updates the town’s past unwritten policies and has the following goals:
- To protect against severe financial stress.
- To keep taxation stable.
- To limit debt.
- To support capital expenses.
To maintain orderly financial actions and for planning and forecasting purposes, the town sets a target range for its undesignated fund balance (UFB)—popularly known as the “surplus”— to be held in reserve so that funds will be available if needed. Historically, the range has been 15% to 25% of the former year’s operating budget.
Because Charlestown will face additional challenges in the future (for example, a changing climate), the Town Council wanted to address the following: As a small town, what is the right amount of reserves? And, How resistant would any potential reserve target be to losses?
Therefore, the Town Council commissioned a risk-based analysis and stress test of the town’s reserve requirements through the Government Officers Finance Association (GFOA), the preeminent authority on local government finance. The comprehensive report was presented to the Budget Commission and forwarded to the Town Council in May 2021.
In its report, in addition to the known risks considered (floods, hurricanes, snowstorms, economic recessions, sea level rise, legal suits, and hazardous materials spills), the GFOA noted that there are risks which are now unknown but to which the town will be subject. Finally, it noted that any analysis considers past data and makes forecasts and plans about the future that will change over time.
In its review of the fund balance policy drafted by the town (included in Appendix 1 of its report), the GFOA determined the policy provides for an acceptable and prudent range of reserves, encourages limitations to uses of reserves to purposes and expenses that are sustainable over time, as well as gives guidance as to how these reserves may be utilized and replenished.
At its meeting on December 3, the Budget Commission refined its draft and voted to recommend the fund balance policy for adoption. The policy contains:
- A critical base threshold of reserves of $4.3 million to maintain adequate cash flow throughout the fiscal year.
- A determination of the level of confidence that the town would be reasonably prepared of approximately 90%.
- A target range for the UFB of between 23% and 33% of the town’ s annual operating budget.
- Provision for budgeted utilization of the UFB for purposes consistent with the GFOA report, the adopted policy, and required formal action by the Town Council.
This comprehensive policy recommended by our Budget Commission provides the ability for the town to adjust to changing circumstances and plan for a stable future.
You can learn more about Bonnie at her profile page.
January 6, 2022 @ 10:20 pm
Ralph, Thank you for your comment. Perhaps it will help to know that the town has been following these policies for many years. Because of these policies, the town is solvent and taxes are stable (and the third of fourth lowest in the state).
What is new is that the policies will be written down. Charlestown will be one of the first towns in the state to have a written fund balance policy—a long-range planning document, not an ordinance or law.
Although the town’s reserves are popularly known as the “surplus,” the name is somewhat of a misnomer. The reserves are savings, like the funds a household would save; they have been accumulated over many years and provide the town (or the household) the ability to plan and to adjust to changing circumstances.
It takes about $4.3 million to operate the town during the year (pay our day-to-day expenses). For example, the town is dependent on tax receipts that come in four times a year, but expenses are ongoing. Should tax receipts fall below what is budgeted, the money could be used. It would be the Town Council that would authorize the expenditure.
Expenses caused by known risks (such as extreme weather events, recessions, lawsuits, etc.) and those that are not known (such as a pandemic) are outside the budget and are therefore “unfunded.” It would be the Town Council who would ultimately decide to expend needed funds in the event of an emergency. The funds are available only for an emergency.
In addition to protecting against severe financial stress, other financial goals are to keep taxation stable, limit expensive debt, and support planned capital expenses. The members of the Budget Commission look in detail at these issues during the budget process each year and make ajustments. A budget is then recommended to the voters who then vote on whether to approve, or not, the budget recommended. If a budget is approved, then the budget expenditures can be made. Ajustments to accounts within the budget during the year can be made by the Town Council when necessary.
You are so right that there is always the need to be vigilant that the funds reserved by the town are used for the purposes for which they are intended. The fund balance policy proposed by the Budget Commission will guide these financial decisions.
January 6, 2022 @ 1:12 pm
Thankyou for taking on this very complicated but necessary issue on.
January 6, 2022 @ 12:41 pm
Good governance Bonnie and her council colleagues, many thanks. I would suggest adding pandemics to your list of risks.
Regarding Ralph’s concern, it is the job of the voters of Charlestown to vote into office ethical persons with good values, not ones that say one thing and do another, or who distort half-truths for political gain.
January 6, 2022 @ 10:58 am
Whoa…….I can see the politics running amuck with this plan!! Not being negative here, more like realistic; I’ve lived in Charlestown a very long time. I’ve read this article three times, still not quite certain about how the plan works? I get that there’s going to be a surplus between 23%-33% of the actual operating budget used to fund any unfunded/unforeseen disaster relief. My questions are (1) how is the determination being made as to what is considered an “unfunded” disaster, and….(2) who is going to determine how much of the monies from this fund are going to be disbursed?? When one is considering a $4.3 million fund, there has to be a definitive plan of action in place for those monies as to its disbursement in my opinion. I think this is a good idea for the town to have such a plan, I am concerned that this fund doesn’t become a slush fund to be used indiscriminately for any political party’s personal agenda.