A new fiscal policy in Thurmont would require the town to keep a minimum amount of money in two “rainy day” funds.
The idea, suggested by Linda Joyce, Thurmont’s chief financial officer, is to establish an emergency fund so that the town’s officials won’t have to pay for emergencies out of the general operating budget, said Mayor John Kinnarid.
The Board of Commissioners and Kinnaird workshopped the policy at a town meeting on Tuesday, Dec. 17.
The town has had an “informal” policy about emergencies for the last decade, Kinnaird said. The approach has never been a problem, he said, as the town has had enough operating expenses to be able to cover emergencies when they do arrive. But the funds do not come out of a specific emergency account.
The new policy would create two designated funds for emergencies — one for operating expenses and one for construction costs — so the town can specifically pull from those instead of from different operating funds, which could complicate their annual budgets.
“You guarantee the money is there so you can keep the town running, and not worry about it being sent or assigned to anything else,” Kinnaird said. “We’re earmarking funds that we know we can’t touch until an emergency arises or we have some sort of fiscal issue that requires us to tap into our reserves.”
Thurmont is financially healthy, Joyce said, with about $3.8 million in liquid unassigned assets at the end of the fiscal year. That $3.8 million is in the general fund, which comes from taxes and is used to service the town, Joyce explained. The three other enterprise funds, the water fund, sewer fund and electric fund, are kept separate.
The Governments Finance Officers Association, an organization made up of about 19,000 state and local government finance officers in the United States and Canada, recommends that governments establish a formal policy on how much money from the general fund should be kept in a fund balance reserve. A fund balance reserve is used for operating expenses during emergencies.
The GFOA recommends that they keep no less than two months of general fund operating expenses in the fund balance reserve.
For Thurmont, that number would be $637,054. But Commissioner Martin Burns believes that amount is far too low — “criminally” low, in his words — and that the town should have operating expenses set aside for an entire year. Kinnaird agreed there should be more money in an emergency fund.
“Two months is an interesting number, with us having the electric department and our own water and sewer companies, we have a lot of overhead,” he said. “I’d like to see us have more than what the recommended amount is by the financial advisory group.”
The fiscal policy that Joyce drafted would require 12 percent of the actual unrestricted general fund to be “set aside” for operating costs in case of emergencies.
Similarly, the new fiscal policy would require $250,000 be kept in a capital reserve, which would be used for construction projects during emergencies. Kinnaird said that while it’s great the town has that amount in the fund already, he would like to see about $1 million there.
“One million dollars would get you started on a decent size emergency project,” Kinnaird said.
The commissioners would also need to define in the policy what constitutes an “emergency.” Chief Administrative Officer Jim Humerick said the board would decide what constitutes an emergency when one comes.
“We’re lucky that we haven’t had any real emergencies,” Kinnaird said.
The proposed new policy would also mandate that if either fund dips below its minimum, the town would have five years to get it back to its minimum balance.
The policy will be voted on in late January, when Joyce also presents the year to date actual budget report.
Follow Erika Riley on Twitter: @ej_riley.