A Robust Plan For Stability And The Capacity To Recover From Major Adverse Events Is Essential

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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.


On February 14, the Charlestown Town Council will continue to consider adopting a written fund balance policy. The discussion has been continued so that all residents will have ample time to review and digest the issues involved.

The question that such a fund balance policy would address is, how would Charlestown maintain financial stability over time and also have the capacity to recover from a major hurricane or other disaster?

The Town Administrator recommended that an impartial risk analysis and stress test be conducted by the highly respected Government Finance Officers Association, and the Town Council commissioned the study.

The GFOA’s report considers known adverse events that have occurred in the past and could occur within the 10-year planning period. It also considers the impact on the town’s finances should any one occur in the next 10 years. Finally, it states that the town should consider that there are risks of adverse events that are not known as well and the possibility that two events could occur in the 10-year planning period (or even occur in the same year).

The Budget Commission recommends the following:

  • 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 undesignated fund balance (reserves) 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.

I have advocated for the fund balance policy recommended by the town’s Budget Commission. It establishes a 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. It achieves the goals of planning for severe financial stress, keeping taxation stable, supporting capital expenses, and managing debt.

When I consider what is prudent, I think of the time I rented an apartment on the third floor of a 100-year-old building. The building had no external fire escape and one staircase. The building had survived 100 years; however, I purchased a foldable metal fire escape that could be lowered out a window, hoping that I had planned well enough.

The fund balance policy recommended by the Budget Commission is not new; it updates the current policy based on an impartial study. It sets a sound target range and follows practices that have positioned the town well. Charlestown is financially solvent, has one of the lowest tax rates in the state, and provides services that residents see as a good value.

A target range for reserves of 23% to 33% is recommended on the basis of rigorous analysis and in the face of changing circumstances and solutions that are more expensive than in the past. Let’s not gamble with our town’s financial health.

You can read the Fund Balance Policy recommended by the Charlestown Budget Commission.

Bonnie Van Slyke

 

 

 

You can learn more about Bonnie at her profile page.