Kent City Council plans to boost rainy day fund

The Kent City Council wants to keep a larger rainy day fund in the city’s budget.

City leaders are expected to vote later this year on a financial policy to keep 18 percent of the current year budgeted expenses in a cash reserve fund. The council informally agreed at a workshop on Tuesday night to raise the present policy of 10 percent in reserve funds.

“We talked about our fund balance reserve that was at 10 percent and is proposed to be 18 percent, and I think most of the council members are in line to approve 18 percent, which is about two months of expenses,” Council President Bill Boyce said. “It’s something we try to do for our own selves is to try to save for a rainy day.”

About eight years ago, the city had practically drained its cash reserves before it slowly started to rebuild the fund balance. Staff cuts, new and higher taxes and fees (B&O utility taxes), the economy moving out of the recession and a focus by city leaders to boost the rainy day fund has put the city in a strong financial position the past couple of years as far as cash reserves.

In 2012, the council adopted new taxes and tax increases in an effort to diversify the city tax bases, build back cash reserves and pay down debt. The city’s financial struggles from 2009 to 2012 had led to downgrades to the city’s bond rating by Moody’s Investors Services, which has since upgraded the rating.

“I have been talking about 10 percent is a little low and we should be looking at 16 percent,” City Finance Director Aaron BeMiller said to the council. “At (the council’s) Operations Committee there was discussion about whether 16 or 18 or 20 was a better number and it kind of dialed in on 18 percent, so we have updated the policy to reflect the 18 percent number.”

Councilman Dennis Higgins has seen the highs and lows of the cash reserves.

“If you had told me eight years ago when I started here that we would have a reserve of 18 percent by the time I left eight years later, I would have looked at you like you were off your rocker,” said Higgins, whose second four-year term ends this year. “I’m so proud that has come to pass.”

Kent is expected to end 2017 with a fund balance of $20.2 million, according to city documents, and reach a similar number at the end of 2018 for general fund budgets each year of about $98.5 million.

“As we have looked at the fund balance over the last three years as it’s been growing, I’m very comfortable we are setting a policy of 18 percent,” Councilman Jim Berrios said. “I think it’s important for people to note that when we look at the fund balances, in 2016 we came in at 20.4 percent and then the projection for 2017 is 20.6 percent, which is very encouraging.”

The policy also makes clear that reserve funds are for unexpected events such as unfunded mandates, the failure to receive projected revenues or to offset the unexpected loss of a significant funding source for the remainder of the fiscal year. The policy states fund balances shall not normally be applied to recurring annual operating expenses.

“The thing I am the most pleased with is it lays out very clearly what reserves are for, so there is no misconception that there is a pile of cash there that doesn’t serve a purpose,” Councilwoman Dana Ralph said. “It’s extremely important to the city’s financial health and our bond rating that we have that ability.

“It’s very similar to the savings account we all hope to have in our homes to cover those several months of expenses. It clearly lays out what we should use these reserves for and that is one-time expenditures and not ongoing maintenance and operation. I’m grateful that’s included in here.”

The council still must figure out how to address the potential loss of $10 million in the next couple of years in state revenue when the city loses its Panther Lake annexation sales tax credit as well as the streamlined sales tax mitigation funds to help compensate for revenue lost when legislators changed the state in 2008 from an origin-based system for local retail sales tax to a destination-based system. Kent, with its large warehouse district, has many businesses that ship or deliver goods to other areas of the state.