City Administrator Stone explains Berea’s savings practices

Is the City of Berea too conservative when it comes to saving money? It was a question Berea City Administrator Randy Stone was called upon to address last Tuesday before the Berea City Council after one council member questioned the city’s savings practices.

Citing a memorandum from Finance Director Susan Meeks, Stone compared managing the city’s funds to family finances. Many families set a minimum amount of money they want to put aside every month to make major expenditures (home improvement, a car, retirement) or to have available for emergencies, Stone said. Stone further explained the City of Berea saves money in two major accounts, the Fund Balance Reserve and the Capital Sinking Fund.

Fund Balance Reserve

Berea’s Fund Balance Reserve is much like a family’s emergency or “rainy day” fund, Stone explained. Berea has approximately $2.7 million in its Fund Balance Reserve, which equals approximately two months of municipal operating expenses. In the event the country or region was faced with a major financial downturn or other unforeseen crisis, the Fund Balance Reserve is meant to ensure the city can continue providing services for at least two months.

Capital Sinking Fund

The Capital Sinking Fund is approximately $2.7 million set aside for projects or purchases needed in the future. Again citing Meeks’ analogy of a family budget, Stone explained: “Several years ago the city paid off a bond. At that time, the decision was made to invest what would have been made as bond payments. This is like paying off a car but continuing to pay the payments to yourself to save up for your next car. The thought behind that decision was that the city was already accustomed to making those payments, so this would be a good opportunity to position ourselves to purchase major pieces of equipment without having to borrow.”

Former chair of the council’s Audit and Finance Committee Jerry Little agreed, noting that by using the Capital Sinking Fund, the city can save for items that frequently have to be replaced, such as police cruisers, an emergency infrastructure repair, or other unforeseen expenses. “We decided we would set so much money aside each year for these major purchases in the Capital Sinking Fund. And that’s just good management,” Little said. “This is for major purchases that we know are going to come down the road.”

Others have questioned the city’s investment of $1 million in certificates of deposit (CDs) but that, too, is part of a strategy to earn money, officials said.

“While we’re waiting to determine the best use of these funds, it only makes sense to keep them in CDs where they are earning interest,” Stone said. “The $1 million that was placed in CDs last month will earn over $20,000 over the next year.” The city plans to make over $35,000 in interest revenue from CDs for the current budget, Stone added.

Little interjected that investing in CDs is a way of keeping the city’s money accessible while still earning money. “Something about the CDs I don’t think people understand is we put our money in those CDs, then we cash those CDs when we need them,”

Have those savings strategies worked for the city? Stone said yes. “We did almost a $5 million upgrade to our electrical system without borrowing a penny, because we put the money back into reserve and then we held it until we needed it. That’s been the reason we’ve been able to spend $450,000 this year on shared use paths. That’s the reason we can put the Cherry Road [drainage] project in there because it is our council’s work on the budget and the careful guidance of each of our department heads making sure that monies are spent appropriately. We don’t have a big reserve of money that we’re holding back. All the money we have in the general fund is in play in the budget. We do try to put this money back and we try to earn money. It has worked well for us here in the city for a number of years,” Stone said.

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