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Finance director keeps lid on cash reserves
(by Sue Reid - July 29, 2009)
Finance director keeps lid on cash reserves
By SUE REID
Solon Finance Director William Weber stressed to City Council's finance committee last week the fact that the general fund cash reserves should not be used for recurring operating expenses, such as payroll.
Instead, funds should be used in conjunction with the cash-reserve policy the city has in place, he said.
Councilwoman and committee member Susan A. Drucker said that using the funds for recurring operating expenses never had been requested by council or the administration.
His comments were not based on council's procedures but on suggestions that have been "floating around," Mr. Weber said. "This needs to be said to people who are talking about this particular subject," he said.
"The general fund cash reserves should not be used for recurring operating expenses such as payroll, utilities or supplies," Mr. Weber said. "That is very dangerous." It could cause the reserves to quickly be depleted if used in that way, he said.
As of the end of June, Solon had $20 million in general fund cash reserves, which is a healthy amount, Mr. Weber said.
He said the city should not look at the reserves as if they were free and clear of any obligations. That is because the city has $5.7 million in short-term debt or bond-anticipation notes. That short-term debt is associated with Fire Stations Nos. 2 and 3 and should be treated as an encumbrance against the $20 million.
"The $20 million is an asset, and the debt is a liability," Mr. Weber said. "The point I am trying to make is that a lot of the $20 million is encumbered." Using that money to pay off debt does not change the city's financial position, he said.
"The reason we have not used reserves to pay off the short-term debt is because we are earning more interest revenue on the reserves than we are paying on the notes," Mr. Weber said. However, it is the opposite with the library bonds, where the city is paying more interest on them than they are earning. Recently, council members approved paying off the library bonds eight years ahead of schedule.
Councilman and committee member Lon D. Stolarsky also said the city has over $40 million in total debt, which is another very important reason to maintain this reserve level. There may be some other debt we may be looking at using to pay off with the cash reserves, he said.
Mr. Weber said there has been a lot of discussion about the city's general fund cash balance.
Mr. Weber also said the $20 million is a slight increase over what the city had at the start of the year. This is unusual, he said, because the general fund income tax receipts are down $1.5 million as of June 30 when compared to June 30, 2008. Some of the reasons for the increase in the cash balance, despite the income tax receipts being down, are that other revenues are doing good and the city's general fund spending is well below budget as of June 30.
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