Undesignated Fund

Peter Bragdon – Candidate New Gloucester Selectman

What is a good Undesignated Fund balance?  How much should we have on hand? What should excess funds be spent on? What is the current policy? These are honest questions that we do not have clear answers to.

First of all, what is the Undesignated Fund?  There are many different terms for it: rainy day fund, surplus, slush fund, general fund etc. In general terms, it is the balance of the check book after we pay our bills/commitments. There are times when we tap into this account waiting for taxes/revenues to arrive.  This is the main reason why we must keep some type of balance in this fund.

I have attached a chart below that was provided to me by the town office.  It shows the fund history from 2013 forward.  Displayed is the balance, money withdrawn and the amount increased.

Administration advised me that the auditor recommends we keep 1.9+ million. This is based on the current budget. The Chairman says 3.4+ million.  There is a significant difference between the two numbers.  This balance is determined by keeping a percentage of the town’s expense budget on hand in the Undesignated Fund. This would be similar to keeping say 10% of your household expenses on hand as savings or in your checking account to cover an income shortfall or unanticipated expenses. We could use these funds as a backup until revenue resumed. The same theory applies to town government.

I believe we need to have clear standards as to what the minimum and the maximum balance should be. Too low of a fund balance obviously could have very negative effects. Too large a fund balance is considered over-taxation in my opinion. 

There currently is a section of the comprehensive plan that describes 40% of unspent taxes at the end of the fiscal year goes to offset next year’s tax burden.  60% of unspent taxes go to build the undesignated fund balance. The problem is it doesn’t say what balance to build to.  As an example, the town of Pownal’s policy provides clear guidance that the fund should be equal to one month of the town’s expense plus 10% of the budget. After 20% is in the account, surplus should be used for capital projects, debt relief or tax relief. There are other spending guidelines in their complete policy.

I feel we could have been more creative with using the balance this year to offset the tax increase. PLEASE DO NOT construe this as suggesting over-use or draining the account. I believe we should keep above and beyond what is recommended by the auditor.  But what is that amount?

I often hear that we are falling behind on paving.  I know some of our roads are in dire need of tar/upkeep. No fault of the road crew. The proposed budget the request for paving was

$466,000. It was funded by the selectman at $265,000. This is even less funding than last year.  Due to a large increase in the proposed budget already, more paving wasn’t approved. Could we have used the undesignated fund balance to fund more paving?

One of my goals as selectman will be to have a clear understanding of how we use this fund. Again hearty savings is great and my goal!  But a large undesignated fund balance of tax payer’s money without a plan is not okay.  Clear policy and procedure leaves personal opinion (including my own) out of the equation.

I hope this clarifies my stance on this topic.   Please feel free to reach out to me.   prbragdon@gmail.com