City manager: Salisbury showing slim fund balance

Published 12:00 am Thursday, December 3, 2009

By Mark Wineka

Salisbury Post

The city of Salisbury maintains a low percentage fund balance, and City Manager David Treme says it’s because councils in the past haven’t wanted money just sitting around not benefitting the public.

A year-end audit report Tuesday showed that most other N.C. cities similar to Salisbury in population carry much larger fund balances in relation to their budgets.

“I think we’re among the leanest in our comparable group,” Treme said.

Salisbury’s unreserved, undesignated fund balance — the money it had on hand with no strings attached — was 11.34 percent of the city’s general fund expenditures.

That is, the city had just more than $3.3 million in undesignated fund balance.

By comparison, Statesville had an available fund balance of 103 percent; Lexington, 26.66 percent; Mooresville, 20.27 percent; Kannapolis, 20.24 percent; and Thomasville, 7.21 percent.

The statewide average for North Carolina cities in the 20,000-to-40,000 population range is an available fund balance of 30.94 percent.

Treme said he wanted to place an emphasis on the fund balance during the audit report because it’s an important number to understand when council gets into the budget process every spring.

It shows that the city’s budget is actually cutting things pretty close, he said, adding it’s what councils have demanded.

The Local Government Commission recommends a minimum undesignated fund balance of 8 percent of a city’s general fund budget. The city has followed its own policy of maintaining at least a 10 percent fund balance, Treme noted.

Over the past three fiscal years, the fund balance available to the city at fiscal year’s end has been 10.67 percent in 2004, 12 percent in 2005 and most recently the 11.34 percent.

Fund balance, which serves as a measure of what financial resources a city has at hand, is determined by subtracting liabilities from assets.

Finance Manager S. Wade Furches noted the three kinds of fund balance classifications. Reserved fund balance is committed to certain expenditures. It has strings attached.

Unreserved but designated fund balance is money that council wants to spend on certain projects but doesn’t have to spend. Unreserved and undesignated fund balance has no strings attached.

As of June 30, Salisbury had a total fund balance of more than $7.18 million, but $3.8 million of that was reserved or designated.

To meet the Local Government Commission’s minimum of 8 percent for undesignated fund balance, Salisbury would have to have at least $2.3 million available. It had roughly $1 million above that at the end of fiscal year 2006.

Having a fund balances is important for several reasons:

* It gives a city cash flow for months when tax revenues are slow coming in.

* It allows cities to avoid short-term borrowing.

* It provides a reserve for emergencies or unforeseen opportunities.

* It helps a city to fund certain capital projects without borrowing money.

* It increases income from investments.

* It may help city officials avoid a tax increase or a reduction in service.

* It helps protect ratings so that cities can obtain lower interest rates on bonds or loans.

Martin, Starnes CPAs of Hickory performed the most recent audit and gave Salisbury a clean financial bill of health, with no findings, questioned costs or internal control weaknesses.

Notes: The top three revenue sources in the city’s general fund are property tax, 49 percent; charges for city services, 17 percent; and sales tax, 16 percent … Salisbury had outstanding debt as of June 30 of more than $54.5 million. That was safely under its legal debt margin of $164.9 million … The top three general fund expenses are for fire and police, 39 percent; general government, 21 percent; and transportation, 16 percent … The city’s water-sewer utility had net income of $107,064 in 2005-2006 … The city transit service had $572,362 in total revenues but total expenses of $772,140. It required a $213,118 contribution from the general fund (about a penny on the tax rate) to show a net income of $13,340.

Contact Mark Wineka at 704-797-4263, or