Oro Valley Mom made some excellent observations, (comments on recent candidate response to Explorer posting) especially this one!
"Mary Snider:...How should... the council use reserves ($17 million) which are in excess of the required reserve ($7-8 million)?"
Great question. Because you're running for council, you should know the answer. Contingency reserve funds are to be used for one-time or unforseen emergency expenses. Because we face several more years of recession, we won't be putting as much money into the reserve funds, and they will quickly diminish to the required level and possibly below without any help from council members who would like to spend them on recurring expenses instead of cutting costs.
February 3, 2010 11:24 AM.
Oro Valley Mom, it looks like you observed that Mary Snider holds similar views to Mayor Loomis and the council, when they voted to use contingency funds to balance the budget.
David Andrews, our former town manager, discussed in the FY2009/2010 budget why using contingency funds to balance a budget was not a good idea. He advocated spending cuts. However, he was ignored.
REASONS WHY CASH RESERVES ARE NOT RECOMMENDED TO BALANCE BUDGET (Exhibit 9 from 2009/2010 OV Budget)
• Cash reserves have been built up over the years due to annual operating surpluses
created by new residential and commercial growth – one-time construction taxes and
building permit fees. That growth is no longer occurring or projected to return in the near
future, thereby eliminating the ability to replenish any draw downs on cash reserves to
fund recurring expenses.
• If recurring expenses are exceeding recurring revenues, as in our case, this will only
continue unless structural changes are made to the organization to reduce recurring
expenses over time to match recurring revenues. This is the main tenet and guiding
principle to maintaining a balanced budget. Plugging these deficits with one-time
revenue sources and cash reserves results in a one-time, not ongoing, fix and only
delays the need for deeper cuts to a later time.
• Use of cash reserves to balance the budget draws this savings balance down, thereby
leaving the Town vulnerable and in a weaker financial position to handle an unforeseen
emergency, natural disaster, or insurance loss.
• Bond rating agencies view jurisdictions with strong fund balance reserves more
favorably during ratings reviews and take a negative outlook when jurisdictions use their
cash reserves to fund ongoing, recurring expenditures. Negative outlooks often result in
bond rating downgrades, making it more expensive for the Town to borrow capital
• Cash reserves are recommended for funding one-time expenditures, such as pay-as-you-go capital improvement projects. This eliminates the need to issue debt or finance
these capital projects over time, thereby saving debt service and interest payments and
spending more for these projects over time.
• With the uncertainty of how long this current recession will last, using cash reserves only serves as a “band-aid” and ignores the long-term impacts of having recurring
expenditures that exceed recurring revenues.
• Using reserves only delays future cuts and leaves the Town with limited reserves if the
economy continues to falter.
• The current economic downturn is not considered an unexpected, sudden event, which
is typically justification for use of cash reserves. There is adequate time for action to be
taken to balance next year’s recurring expenditures with recurring revenues by adjusting
staffing, service levels, and programs offered.
• The Town’s adopted Strategic Plan calls for a focus on Financial Sustainability, and
financial sustainability cannot be achieved by using cash reserves to close projected