Milford exploring new policy to balance general and reserve funds

MILFORD — The city’s Finance and Public Works Committee got together Monday to discuss a potential new policy to balance the city’s general fund and other monies earmarked for governmental purposes.

Lou Vitola, the city’s finance director, laid out a few goals for the upcoming legislation.

“We really want to first define the minimum level of reserves appropriate for the city of Milford on a fund-by-fund basis,” he said.

The second imperative is to “identify any deficient fund areas and recommend ways of raising the level of funding in a way that doesn’t impact taxes or (utility) rates,” Mr. Vitola said.

He said the third goal is to promote the sustainability of these reserve fund balances.

“Another way to say that is to prevent the irresponsible depletion of them,” he added.

“Once we get these reserves in place and say what the acceptable uses of all these reserves are, that doesn’t mean we should go spend them down all the way to the minimums and then walk away,” he said. “You have to be able to replenish these reserves.”

To accomplish this, Mr. Vitola and the rest of the Finance Department have been working on formulas to calculate the minimum cash requirements for funds set aside for governmental purposes, like the realty transfer tax fund, the municipal street aid fund and the economic development fund.

“The formulas in there are dynamic, so we’re not setting static absolute figures that need to be reviewed and addressed and recommended for changes each year,” he said.

For each fund, Mr. Vitola outlined the formula his department will use to calculate the minimum cash requirement, acceptable uses and potential replenishment sources.

The goal is for city management to be able to quickly address deficiencies in the budget. Once the measure is passed, it won’t have to be reviewed again by council, barring alterations to the formulas or other substantive shifts, which will allow city management to shift money and make other small changes when necessary.

“It’s good to have a structure like this, because as new councilmen come on, it’s almost like with some items, you have to start over with learning how the system works,” Councilman Doug Morrow, who is also on the Finance Committee, said of the potential legislation.

“If we had a set of policies and goals, I think it would be a lot more efficient for incoming councilmen,” he said.

Vice Mayor Jason James, another Finance Committee member, agreed.

“Council can turn over any time. Next time January rolls around, half the council could be totally different,” he said. It would be good to have “something in place that’s formally driven, so it can live beyond any certain administration or council member.”

Mr. Vitola provided an example of the sort of issue this is meant to remedy.

“The actual uncommitted balance in the general fund reserves is next to nothing. That’s a deficiency. We need to build up the general fund reserve balance,” he said.

Rather than having to adjust property taxes incrementally over the course of a decade, raise utility rates or some other unwieldy action, Mr. Vitola said this new legislation would allow city management to simply pull unused money from the realty transfer tax reserves fund.

Mr. Vitola said the goal of the policy is not to prevent spending, but to encourage the city to manage its funds more efficiently.

“Just because the finance geek is arguing that this much of the fund balance should never be touched … doesn’t mean I want to stand in the way of progress or the efficient replacement of vehicles and equipment,” he said.

In addition to helping identify funding for capital projects, a big element of the draft legislation Mr. Vitola shared with the council was that many of these funds will have money earmarked as their equipment replacement reserves.

“This is going to tie back into what (Public Works Director Mark Svaby) was talking about earlier, which is the vehicle and equipment replacement schedule,” he said.

Vice Mayor James said it’s important that each department have a schedule like this and that it’s up to date.

“That really does help predict your cash flows, your time of spending, which kind of tells you when you need to replace or replenish funds and when the money would be coming out,” he said.

From there, the leftover money would be reinvested into the reserve fund.

“To the extent that capital projects and vehicle and equipment purchases consume that funding, then we look to the operating budget,” Mr. Vitola said.

“We’re going to take this surplus and direct it back to the reserve funds,” he said. “That way, the process of funding the reserves and consuming the reserves is decoupled.”

Theoretically, this should also take some of the burden off department heads, who currently have to identify funding for the equipment they need, in addition to focusing on the city’s needs.

Another goal, Mr. Vitola said, is for the city to be more financially prepared for the unexpected.

“They will have to be used from time to time,” he said of the reserve funds the city will build. “There will be things like global pandemics or other budget emergencies.”

If council does choose to pass this legislation, it would not need to be reviewed by the body again unless there are substantive changes, like the alteration of a formula.

Mr. Vitola said this idea is not a unique one and that many other municipalities have similar policies in place.

“A lot of the fundamental hard work and rationale was already done for us. You don’t have to depend on me or any staff here as a subject matter expert,” he said. “We rely heavily on recommendations from accredited professionals. It was tailored specifically to Milford’s needs based on staff input.”

In addition to getting information from the Government Finance Officers Association, a trade group, Mr. Vitola said he was guided by the city’s “independent, professional third-party rate consultants, who produce cost-of-service studies and rate studies for (the) water, sewer, electric and solid waste (departments).”

While discussion of this legislation was tabled from Monday’s City Council meeting and was only first being introduced at the Finance Committee meeting, administrators hope to have the policy in place soon.

“I look at this as being worked on over the next two to three months. I would like to see us get something adopted by the fiscal year’s end, so when we go into the next budget year, we’re going to adhere to a lot of these policies,” City Manager Mark Whitfield said.