County of Ulster, NY

The Government Finance Officers Association (“GFOA”) has very lengthy guidelines and best practices relative to fund balance in the General Fund. As a minimum, the GFOA best practice recommends municipal jurisdictions “regardless of size, maintain an unrestricted budgetary fund balance in their General Fund which consists of no less than two months of regular General Fund operating revenues or regular General Fund operating expenditures.” Furthermore, the best practice indicates a government’s particular situation often may require a level of unrestricted fund balance in the General Fund significantly in excess of this recommended minimum level.”

GFOA guidelines are very demanding with respect to fund balance and the need for very ample fund balance levels as a tenant of strong municipal financial management.

Prior Recommendation.  CMA’s analysis of the County’s 2021 budget found that the County’s Fund Balance Policy had last been revised in 2013 and needed to be re-evaluated to address the budgetary appropriation of fund balance during challenging economic times, such as the impact of the COVID-19 pandemic. CMA opined that during these times, sound liquidity management tools and fund balance policies become even more critical to ensure long-term success. As a tool, together with strategic, long-term financial planning, fund balance policy adjustments can be utilized to outline what the County determines to be the most strategic method for accumulation of fund balance, the correct level of fund balance, and the timing and proper time for utilizing and replenishing fund balance.

A second recommendation relating to the adoption of more conservative fund balance guidelines that ensure ample reserves and maximum liquidity was included as part of CMA’s review of the 2022 Proposed Budget.

Action Taken.  To date, the County adopted a revised Fund Balance Policy in the Legislature’s Ways and Means Committee on September 14, 2021. The revised policy states “NYS law provides for the carryover of reasonable amounts of fund balance from one year to the next. Reasonable amount determinations include factors such as providing adequate cash flow to cover one month of expenditures thereby providing the liquidity necessary to accommodate the County’s uneven cash flow which is inherent in its periodic tax collection as well as reliance on federal and state aid reimbursements.  The generally accepted operating unassigned fund balance is 5%-10% of current General Fund operating expenditures.  The County will strive to maintain an unassignedfund balance in this range at all times…Any unassigned fund balance above or below the minimum should be remedied within the succeeding year.”

During 2022, CMA understands the Fund Balance Policy was further reviewed on a number of occasions.  Nevertheless, despite various revisions, the policy only focuses on only on unassigned fund balance and does not include guidelines relative to unrestricted funds.

CMA Finding – Fund Balance Policy.  Despite recent revisions to the County’s Fund Balance Policy, the document lacks guidelines relating to unrestricted funds. The adoption of a policy that include both unassigned and unrestricted fund balance guidelines is recommended.

As per GFOA best practices “in some cases, governments can find themselves in a position with an amount of unrestricted fund balance in the general fund over their formal policy reserve requirement even after taking into account potential financial risks in the foreseeable future.  Amounts over the formal policy may reflect a structural trend, in which case governments should consider a policy as to how this would be addressed.”

Surplus Funds and Tax Stabilization Reserves.  The first role of the Legislature is the adoption of the budget. Please see a below reference to the County Charter:

“The County Legislature shall be the legislative, appropriating and policy-determining body of the County and, as such, shall have and exercise all powers and duties now or hereafter conferred upon it by applicable law and any and all powers necessarily implied or incidental thereto, including but not limited to the power:

360.  To make appropriations, levy taxes, incur indebtedness and adopt a budget, including a capital program;”  (https://ecode360.com/9670124#9670124)

With large surpluses in 2022, CMA believes it would be appropriate for the County to utilize the Tax Stabilization Reserve, particularly in light of the forecasted economic conditions for 2023 to mitigate various risks associated with volatile revenue sources.  Benefits and requirements of. a tax stabilization reserve fund include: 

• Legislative oversight and control
• A super majority vote
• Increased fiscal transparency, which may be viewed favorably by credit rating agencies
• More difficult to target during labor negations with unions

Additional details relating to tax stabilization reserve fund may be located on New York State General Municipal Law Section 6e.  As noted, a legal opinion may be needed.

CMA Finding – Strategic Use of Tax Stabilization Reserve.  In light of the forecasted economic turbulence, the large surplus funds would be best suited for deposit into the tax stabilization reserve.  This will assist the County to hedge against volatility in its primary source of revenue, sales tax, which by all accounts will be impacted during 2023.  This is the approach the other counties in New York State have taken.

As noted in the 2023 Proposed Budget message, the budget was balanced with the use of $3,660,918 in fund balance.

Exhibit FB-I provide a tabular summary appropriated fund balance and reserves in the Proposed 2023 Budget.

General Fund – Historic Trend of Fund Balance Composition.  During the fiscal years December 31, 2017 to 2021, total fund balance in the County’s General Fund had been relatively stable with a slight decline in 2019 followed by a significant increase in 2020 and 2021.  Unassigned fund balance, which is considered to be the most liquid form of fund balance, increased in 2016 to 2018, decreased abruptly in 2019 and increased substantially in 2020 and 2021.

Exhibit FB-II and Exhibit FB-III provide a tabular and visual summary of the composition of fund balance in the County’s General Fund over the period December 31, 2017 through 2021, inclusive.

General Fund – Budgetary Appropriation of Fund Balance.   During the fiscal years December 31, 2018 to 2022, inclusive, the appropriation of fund balance in the annual budget decreased significantly from approximately $12.2 million to $3.6 million.  There are no budgeted reserves included in the summary tables for the 2023 Proposed Budget.

Exhibit FB-IV and Exhibit FB-V provide a tabular and visual summary of fund balance and reserve appropriations in the adopted General Fund budgets of the County for the fiscal years 2018 to 2022 and as proposed for the 2023 fiscal year.

Community Development Fund – Historic Trend of Fund Balance.  The Community Development Fund is utilized by the County to account for proceeds received under the Workforce Investment Act and Community Development Block Grant programs.  Fund balance in the County’s Community Development Fund increased by approximately 128.2%, from $115,573 to $263,775 between 2017 and 2021.

Exhibit FB-VI and Exhibit FB-VII provide a tabular and visual summary of the composition of fund balance in the County’s Community Development Fund over the period December 31, 2017 through 2021, inclusive.

County Road Fund – Historic Trend of Fund Balance.  During the fiscal years December 31, 2017 to 2021, fund balance in the County Road Fund increased from approximately $2.0 million to $2.4 million.  Fund balance in the County Road Fund is classified as assigned, meaning the amounts can only be utilized for intended purposes. 

Exhibit FB-VIII and Exhibit FB-IX provide a tabular and visual summary of the composition of fund balance in the County’s County Road Fund over the period December 31, 2017 through 2021, inclusive.

County Road Fund – Budgetary Appropriation of Fund Balance.   During the fiscal years December 31, 2018 to 2023, inclusive, the appropriation of fund balance in the annual budgets for the County Road Fund increased significantly from approximately $0.3 million in 2016 (adopted) to $2.3 million in 2021 (proposed). However, the 2023 Proposed Budget did not include an appropriation of fund balance in the County Road Fund.

Exhibit FB-X and Exhibit FB-XI provide a tabular and visual summary of fund balance appropriations in the adopted County Road Fund budgets of the County for the fiscal years 2018 to 2022 and as proposed for the 2023 fiscal year.

Road Machinery Fund – Historic Trend of Fund Balance.  Fund balance in the Road Machinery Fund decreased between fiscal 2017 and 2020, increased slightly in 2020 and decreased significantly in 2021.  Fund balance in the Road Machinery Fund is classified as assigned, meaning the amounts can only be utilized for intended purposes.  As of December 31, 2021, the fund balance was approximately $0.6 million.

Exhibit FB-XII and Exhibit FB-XIII provide a tabular and visual summary of the composition of fund balance in the County’s Road Machinery Fund over the period December 31, 2017 through 2021.

Road Machinery Fund – Budgetary Appropriation of Fund Balance.   During the fiscal years December 31, 2018 to 2023, the appropriation of fund balance varied greatly. The 2023 proposed Budget did not include an appropriation in the Road Machinery Fund.

Exhibit FB-XIV and Exhibit FB-XV provide a tabular and visual summary of fund balance appropriations in the adopted Road Machinery Fund budgets of the County for the fiscal years 2018 to 2023, inclusive, and as proposed for the 2023 fiscal year.

Debt Service Fund – Historic Trend of Fund Balance.  Fund balance in the Debt Service Fund as of December 31, 2021 was reported as $2.4 million.  Fund balance in the Debt Service Fund is restricted, meaning it is subject to enforceable legal restrictions.  

Exhibit FB-XVI and Exhibit FB-XVII provide a tabular and visual summary of the composition of fund balance in the County’s Debt Service Fund over the period December 31, 2017 through 2021.

Debt Service Fund – Budgetary Appropriation of Fund Balance.  During the fiscal years December 31, 2018 to 2023, inclusive, the appropriation of fund balance in the annual budgets for the Debt Service Fund varied.  For the Proposed 2023 Budget there was no appropriation of fund balance in the Debt Service Fund.  

Exhibit FB-XIII and Exhibit FB-XIX provide a tabular and visual summary of fund balance appropriations in the adopted Debt Service Fund budgets of the County for the fiscal years 2018 to 2022 and as proposed for the 2023 fiscal year.