Wednesday, June 12, 2024

County approves fund balance policy


Hood County Commissioners Court voted unanimously to approve the county’s first-ever fund balance policy during a regularly scheduled meeting May 14.

A fund balance policy allows a local government to set a goal or a range for its unrestricted fund balance. In essence, the policy will serve as a guideline for how the county’s funds can be spent.

The county first started talking about implementing a fund balance policy after investment advisor Jim Sabonis recommended the court adopt one, saying “all well-run counties” have such a policy in place.

A draft of the policy was presented to the public during the last Hood County Commissioners Court meeting April 23.

“This is the same document that was provided to the court about three weeks ago at our last April meeting,” Precinct 2 Commissioner Nannette Samuelson said Tuesday. “It's now in final form. I wanted to mention that I did send a draft to Mr. Sabonis, and he did provide some feedback that the policy was well written, taking into consideration the needs and issues of the county's different funds."

According to the Comprehensive Fund Balance Policy, the Governmental Accounting Standards Board (GASB) issued Statement No. 54 to improve the usefulness of fund balance information by providing clear fund balance classifications. GASB-54 abandoned the reserved, unreserved and designated classifications of fund balance and replaced them with five classifications: nonspendable, restricted, committed, assigned and unassigned. The five constraints serve to inform readers about the specific purposes for which resources can be spent.

The fund balance policy provides guidelines during the preparation of and deliberation on the annual budget to ensure sufficient resources are maintained for unanticipated expenditures, revenue shortfalls, and to preserve the flexibility throughout the fiscal year to adjust funding for programs approved in connection with the annual budget.

The policy will establish the level of unassigned fund balance required for the county’s general fund, road and bridge fund and library fund balance management.

The five classifications are also outlined:

  • Nonspendable fund balance — Fund balance reported as nonspendable represents fund balance associated with inventory or prepaid items.
  • Restricted fund balance — Fund balance reported as restricted represents amounts that can be spent only on the specific purposes stipulated by creditors, grantors, contributors or other governments like tax levy funds, probation fees and construction programs.
  • Committed fund balance — Fund balance reported as committed includes amounts that can be used only for specific purposes determined by a formal action of the Hood County Commissioners Court, like approved projects, grants and funds.
  • Assigned fund balance — Fund balance reported as assigned represents amounts intended to be used for specific purposes, but not meeting the criteria to be reported as committed or restricted fund balance, like program startup costs, insurance deductibles and recommended use of fund balance at year-end.
  • Unassigned fund balance — Fund balance reported as unassigned represents the residual classification of fund balance and includes all spendable amounts not contained within the other classifications.

The fund balance of the general fund is of primary significance as it is the primary fund that finances most functions of county government. According to the draft, the county desires to maintain stabilization funds in the unassigned fund balance of up to four months of regular general fund operating expenditures (35%) based on the most recently completed fiscal year. This funding is intended to provide stabilization in case of unforeseen events that may occur such as emergencies, contingencies, revenue shortfalls or budgetary imbalances.

As the court prepared to make a motion, resident Tina Brown still had some concerns regarding the reserve funds.

"I would just like to say again, like I did the last court, that I would prefer a six-month fund balance,” Brown said. “We don't know what the future holds. The auditor even agreed that she thought six months was a good number, but it looked like we were talking three or four months in this document, so I'd like to hear some discussion.”

"The fund balance is to stabilize if you're having shortcomings in the budget, and the bottom falls out or something; those funds are there that can keep you afloat for a little bit,” Precinct 1 Commissioner Kevin Andrews explained. “The question is when is enough, enough and when is too much, too much, and I think that's a policy decision. Looking around us, some counties do three months, some counties do six months. We targeted four months thinking that that's a pretty good number. If things got that bad that you're getting that hard into things, I think that there's an anticipation that some services would have to be cut.”

Andrews continued by explaining there is already a contingency rolled into the budget, as money can be moved into different fund balances if the need arises.

"In my way of thinking, we take the least amount of tax money from the individuals as we have to in order to run the county,” he said. “I think having the stabilization funds and the reasonable backing in three or four months is a very, very good number and a good spot to be.”

Brown explained that she didn’t have a problem with the policy — she just believes six months of reserve funds would be better for the county.

Hood County Auditor Stephanie Matlock also confirmed that the last audited financial statement showed a fund balance of 30.7%, meaning that the county is already functioning under the four-month fund balance policy.

Samuelson explained how some counties around the Houston and Galveston area have higher fund balances due to the higher risk of hurricanes and other natural disasters.

"We are somewhat insulated, because we have tornadoes and fires," she said. “Hurricane Harvey did so much destruction, and I think after that there were some counties that increased their fund balance because of the natural disasters. But I think the best practice of three to four months is good for us. When you said that you think that six months is better, what were you basing that on?”

“Just because we all need a backup,” Brown said. “If we've had tornadoes here before, and we see what's going on in Oklahoma, we could be devastated. I just think six months was a better number.”

Samuelson told Brown to also keep in mind that the specific fund balance is labeled as unassigned, meaning if there are other funds available, those would be used first before the reserve balance.

"That would be the fund of last resort, so to speak, so it does kind of make it an even bigger buffer than what the 35% is,” she explained.

Precinct 4 Commissioner Dave Eagle said he believes a four-month reserve policy is “a little too much.”

"I have heard nothing in this county for the last five years, except how much we're growing," he said. “In an upward trend of growth, we don't need a big, fat, fund balance. Fund balance is basically a savings account — the unassigned fund balance — and I don't think it's the government's duty to take more of your tax money to put it in a savings account.”

He added that if the economy started heading in a different direction, then the court could revisit the fund balance at a later date to tweak it if needed.

“If we have to take it up to six months because there's forecasts of a disaster headed our way financially or a bad economy or unemployment and all that kind of stuff, we can do it. But I kind of liked the Davy Crockett story — the government shouldn't add one more penny than it needs to operate,” Eagle said, which resulted in applause from the audience.

"I will say that this policy is excellent,” Eagle continued. “It spells it all out. It gives you definitions. It breaks it down into the five categories of fund balance for the taxpayers to go look on our website, which I think provides more transparency for you because I work for you guys.”

Samuelson then made the motion to adopt the Hood County Fund Balance Policy as presented. Following a second from Andrews, the motion carried unanimously.