Dip into Undesignated Fund Balance Proposed to Cut Tax Rate

While Town Administrator Galen Stearns and Chief Financial Officer Susan Hickey are projecting an increase in revenues to offset a one-time infusion of cash from the Undesignated Fund Balance, Town Councilors and some community members weren’t so sure.

Stearns’ working budget, originally presented with a $1.01 per $1,000 cut to the tax rate, achieves that in part by tapping the Undesignated Fund Balance to fund the overlay and Veterans Exemption and offset taxes.

One of Stearns’ and Hickey’s arguments is based on the recent successful auction of town-owned property, which put $1 million of taxable property back on the tax rolls and immediately gained the town $565,000. Hickey that she hoped to have another auction this fall and one in spring 2016.

Hickey and Controller Janice Mobsby spoke to the initiative at the April 21 Town Council meeting.

Council Chair Thomas Cardon asked for definitions of the Committed and Unexpended Fund Balance (UFB). Mobsby said the Committed Balance includes funds that have been set aside for Capital Reserve, long-term obligations, compensated absences and other needs. In 2014, $1.3 million was committed to capital projects. Earned time liability can go as high as $400,000, but usually hovers between $100,000 and $200,000, she said.

There is currently $11,175 in the UFB, she said, and Stearns’ proposal called for taking out $1.7 million to reduce taxes and help with the new Veterans Exemption. If this is done it will leave the town about $9 million in the UFB, she said.

Mobsby said the New Hampshire Department of Revenue Administration recommends that a town keep between 5 and 17 percent of the UFB intact. “It has been this Council’s policy,” she said, “that 13 percent of the town and school district appropriations be kept for the UFB.”

“How will that affect our bond rating?” Cardon asked.

“It won’t ‘kill’ us,” Hickey said after a pause. “But we will need to look at our long-term goals and how we fund capital projects. If we drop too low, bond companies will start to wonder about us.”

It will make a difference in the interest rate offered if the town decides to do a bond, Hickey added.

Stearns said he wasn’t concerned because he has plans in place to recoup the funds. The sale of town-owned property is a major component, he said.

Councilor Joshua Bourdon asked Hickey and Mobsby if they were concerned about dipping into the UFB. “Do you think it’s sustainable?” Bourdon asked.

Hickey said that revenues will be coming in. “But as budgets decrease, it’s going to be harder and harder to replenish that fund,” she added. For example, motor vehicle registrations are down by $20,000 this year.

As appropriations are lowered, Hickey said, “it will be more and more difficult to have them at the level where you want them to be.”

Mobsby reminded the group that one of the reasons the UFB increased in the past few years was from one-time revenues.

Bourdon observed, “In my personal life, I would never base a budget on ‘anticipated’ revenues.”