In a report to the Royal Palm Beach Village Council last week, Finance Director Stan Hochman explained the recent action taken in reallocating the $66 million from the village’s water utility sale into the general fund, and the allocation of the existing $5.5 million reserve fund as a tax stabilization fund.
Hochman made the presentation at the request of some council members, who wanted it explained for the benefit of the public.
The money had been rolled into the general fund in compliance with recommendations of the Governmental Accounting Standards Board (GASB), which makes rules and regulations for governmental agencies. The action had raised questions from council members, who did not want that utility sale money comingled with general funds.
Hochman explained that GASB Summary of Statement No. 54 was issued in 2010. “GASB 54 is really what’s driving this whole fund balance scenario,” Hochman said. “That was effective for fiscal years after June 15, 2010.”
GASB 54 changed the nomenclature within the village’s fund balance section so that the balance sheet no longer reflected such items as designated, undesignated or reserves, he said.
“New terms such as assigned, unassigned or uncommitted came about and had to be used in that section of the financial statement,” Hochman said, adding that it also required a written policy for fund balances.
Of major impact to the village, it redefined how special revenue funds could be maintained and created. The utility sale money, which was set up as a special revenue fund, was no longer allowed.
“That had to be consolidated with the general fund,” Hochman said. “What happened because of that is during our budget process, we required a 25 percent fund balance. That amount was about $5.5 million, which we set aside as a ‘reserve’ under the old nomenclature for our fund balance.”
When the more than $66 million was consolidated with the general fund, it created a 350 percent reserve fund balance. “The $5.5 million that was set aside previously in the general fund was effectively freed up,” Hochman said. “In May 2012, a five-year financial plan was presented to the council, at which point that $5.5 million, which was associated with the old general fund balance, the village administration was authorized to use that $5.5 million as a tax rate stabilization amount over the next five years, so as not to have a village tax rate increase.”
As of Sept. 30, 2012, the village’s balance sheet showed a total of $74,998,000, Hochman said, explaining that all the numbers had been combined, and that staff keeps independent books internally that include $8.7 million from the general fund and $66.2 million from the utility sale fund, as well as carryover from the previous year.
The debt service for Commons Park is $21.6 million, which is being paid off at a rate of $1.7 million a year, he said, explaining that the council had authorized staff to use $3 million a year to pay for that debt service, as well as the investment expense for the financial advisory company the village hires.
The remaining $1.3 million is the amount of money that was once transferred from the former utility fund to the general fund to cover administrative costs.
“That number has been increasing since 2006 by whatever inflation was,” he said, explaining that that number, plus the $1.7 million, is the $3 million that comes out of the $66 million as interest. Hochman noted that the $66 million was up to $78 million at one point and was earning far more than the $3 million it earns now. Over time, as the market went down and interest rates decreased and they started paying a debt service for Commons Park, the number went down to $66 million, which he said is still $3 million more than when it started out.
Hochman said that over the next five years, the $66 million fund could go down $2 million a year if nothing changes, and that the fund could drop to as low as $56 million.
“During the past two years, these things that we’ve done, which have been incorporated in our official documents, have all been authorized by the council, but I thought this presentation laying it out there so it would be clearer to everyone,” he said.
Councilman David Swift, recently re-elected to the council after a one-year hiatus, said he appreciated the presentation because he had not kept up on the status of the fund, although he had gone over it with Village Manager Ray Liggins. “It’s complicated, and I know you’re trying to do your very best to animate the information and try to get the general concept of it, but it’s hard to follow for the average resident, so I appreciate what you’ve done,” he said.
Liggins said combining the funds appeared to have confused things, but there were some positive effects. “When they were separate, and we used portions of it to balance the budget, it transferred into the budget and never went back,” he said. “Combined, it works differently.”
Another advantage is that using the $5.5 million former reserve fund as a buffer against a tax increase might not be needed if the economy improves. “When we prepared the budget, we had projected needing $400,000,” Liggins said. “When we did our fiscal report, we ended up not needing any of it.”