Reserve funds help towns weather storms, but how much is too much?

February 24, 2023

"The village of Oak Brook provides a vivid demonstration of the reason governments need to build a comfortable stockpile of reserve funds against the potential for an unexpected “rainy day.”

The rainy day for Oak Brook, which, like other communities, operates on revenues generated almost solely from sales taxes, came courtesy of the 2020 COVID-19 pandemic.

The crisis hit businesses hard, cutting deeply into Oak Brook’s operational funds, but thanks to the town’s robust reserves, the village handled the downturn without having to cut a single full-time employee, Village Manager Greg Summers said.

Now, with the impact of the health emergency waning, Oak Brook has already rebuilt its reserve fund to $31.3 million – enough to keep the village operating for nearly a year and a half at its current level of $22 million if another emergency appears, That’s how the process is supposed to work. A crisis occurs, a community dips into its reserves to keep operations running and then it rebuilds the fund after things get back to normal.

Fortunately, most towns also find themselves with enough savings to weather even a major financial emergency. In an analysis of municipal reserves, the Daily Herald’s Jake Griffin reported last week that 84 West and Northwest suburbs hold an average of 54.6% of their routine operating funds in reserve. At least 17 towns have enough on hand to manage for a year or more.

But those levels also raise a couple of important questions: How much saving is too much? And, are government units using the money as it is intended?

Taxpayers may well ask whether they are being charged more than necessary if their community is able to collect more savings than it is likely to need in a crisis and whether the money is being used for projects, like a new police or fire station or even municipal hiring, that ought more traditionally require the permission of voters through referendum.

They will get no help with an answer, though, beyond the advice to monitor their community’s reserve levels and question leaders closely about how much they’re saving and what they intend to use the money for.

State law sets neither a minimum nor a maximum reserve level. One monitoring agency, The Government Finance Officers Association, recommends that at least two months of operating revenues be kept in reserve but offers no suggested maximum.

To be sure, every town’s circumstances are different, so it is not surprising to find a wide range of savings strategies among them. But it’s also easy to see how, lacking clear guidelines, taxpayers can be confused or misled.

“Just because your reserves are at 100% of annual operating expenses doesn’t mean you’re too high, as long as your process has been completely transparent with constituents,” said Ralph Martire, executive director of the Center for Tax and Budget Accountability. “Voters have the right to know why you are taxing at a level more than is needed to maintain current operations.”

On that score, much is expected of taxpayers to monitor their community’s reserves policy – or their school board’s, for that matter. So, advocacy groups like Truth in Accounting press with good reason for government reporting requirements that are more uniform, understandable and accessible."

Read the full article on: Shaw Local

comments powered by Disqus