photo by: Jackson Barton/Journal-World File Photo

The Douglas County Courthouse and downtown Lawrence are pictured in an aerial photo Saturday, July 13, 2019.

Each of the last two years Douglas County commissioners have approved budgets that violate — by millions of dollars — their own policy that places a cap on how much money the county’s “rainy day funds” can hold.

The county has a policy in place that limits the amount of money key operating funds can hold in a type of account called a “fund balance,” which operates like a savings account designed to cover unexpected expenses or rainy-day events. The policy says the accounts can’t have fund balances that are more than 25% of their revenues, but one key operating fund for the county has fund balances at nearly 60% — resulting in nearly $5 million that could have been moved to other parts of the budget or returned to taxpayers in the form of a lower property tax rate.

While the policy violations are not in dispute, one county commissioner is now suggesting that the policy — which she and her fellow commissioners unanimously approved in 2023 — should be debated again and potentially narrowed in its scope.

“I anticipate that the new five-person commission will revisit the fund balance policy and look at best practices for each fund rather than a one-size fits all policy,” County Commissioner Karen Willey said via email, referring to the County Commission’s expansion to five commissioners in January.

Another county commissioner declined to be interviewed at all by the Journal-World. Commissioner Shannon Reid said via email that she was busy and “simply (did) not have time” to be interviewed about the fund balance policy violations that were in budgets that she approved in 2023 and 2024.

The Journal-World reached out to both Willey and Reid for comments about their approvals of the 2024 and 2025 budgets, both of which included violations of the policy. Willey and Reid are the two commissioners seeking to keep their seats on the County Commission in the Nov. 5 general election, and both are facing opponents who have been critical of the county’s financial management.

Willey also declined to be interviewed by the Journal-World, but did offer to answer questions via email. Willey, however, did not respond to a handful of follow-up questions, including one about whether the county’s lack of compliance with the policy concerned her, given her past emphasis on the need for the county to implement strong policies in its governmental functions.

photo by: Contributed

Shannon Reid

Public complaints

The county approved its fund balance policy in January 2023. In doing so, it said it checked a longstanding item off its to-do-list. County leaders said they long intended to create a fund balance policy but the pandemic slowed work on that project.

By the beginning of 2023, the creation of the policy was back on track. But the approval of the policy also came at a time when public tensions about the county’s finances were rising. In the summer of 2022, the Journal-World published a series of articles that reviewed key aspects of the county’s finances and tax rates. Among the findings:

• From 2002 to 2021, Douglas County’s property tax rate increased by 70% compared to an average 8% increase in Kansas’ other urban counties.

• From the beginning of 2019 to 2023, the amount of money in the county’s various fund balance savings accounts grew by nearly $30 million during a time period when many residents were seeing increases in their county property tax bills.

• The county had no fund balance policy that spelled out how much the county should keep in such accounts nor how the accounts should be used. For many in the public, the Journal-World article was the first time they became aware the county didn’t have such a policy. A fund balance policy for a government’s general operating fund is considered a best practice by the Governmental Finance Officers Association.

With their approval of the fund balance policy in January 2023, Douglas County checked that box. The policy includes some strong language. It states that fund balances “shall not exceed 25%” of the revenue in a fund. The policy doesn’t provide any exceptions when a fund should be allowed to exceed the 25% level. The policy also covers some funds beyond the county’s general operating fund. Both the hard 25% cap and the expansion of the policy beyond the general fund go beyond the recommendations of the Governmental Finance Officers Association.

Thus, in some regards, the county had a policy it could point to as getting tough on controlling fund balances.

Karen Willey

Exceeding the policy

But then, the county’s 2024 budget process arrived.

Commissioners gathered in the summer of 2023 — about five months after approving the fund balance policy — to begin creating the 2024 budget. Among the many funds in the county’s budget are a large general operating fund and several smaller funds that cover more specialized operations. The Employee Benefits Fund is one such specialized operating fund.

When the County Commission began its budget deliberations for 2024, the Employee Benefits Fund was projected to begin the year with a fund balance of 24.7%, almost exactly at the 25% level that the fund balance policy calls for. But instead of leaving the Employee Benefits Fund balance amount alone in the 2024 budget, commissioners approved a budget that actually called for the fund balance amount to increase by nearly $1 million at the end of 2024. With that budgeted increase, the fund balance would be at 29.2%, above the cap set by the policy.

That’s what was budgeted to happen in 2024. What has actually happened in 2024 is different, and is likely to result in an even higher fund balance amount at the end of the year. According to county budget documents, the Employee Benefits Fund is projected to end 2024 with a fund balance of about $8.2 million instead of the $7.5 million that the county budgeted the fund to have in 2024, due to expenses coming in lower than expected and revenues coming in higher than expected. Such an occurrence is common in the county’s budget, and somewhat expected since it is impossible to accurately predict to the dollar what those revenues and expenses will be.

The end result is the Employee Benefits fund is budgeted to start 2025 $4.7 million larger than what the policy calls for. The fund is more than double the size that the policy says it should be.

It would be inaccurate to say that the County Commission ignored the fund balance issue during the budget process. County Administrator Sarah Plinsky highlighted to commissioners at the county’s first budget workshop for the 2025 budget that the Employee Benefits fund was out of compliance with the fund balance policy. She suggested commissioners spend more time discussing the fund later in the budget process.

By the time the County Commission was set to approve the budget at a public meeting in August — when the room was full of residents complaining about the county’s property tax rate — Plinsky’s public presentation did not highlight that the Employee Benefits Fund was out of compliance with the fund balance policy. That is despite the fact that she did take the time to highlight that the county’s general fund was in compliance with the fund balance policy. (The general fund is budgeted to start the year at 24.9%. If the county’s 2024 budget estimates are off just a bit, the general fund easily could exceed the 25% cap.)

At that point, county commissioners had already decided to leave the Employee Benefits Fund balance at a level that was above the cap. Why they decided to do that depends on who you talk to.

Commissioner Reid offered no explanation for her thinking, declining to be interviewed about the subject. Plinsky, the county administrator, said she’s comfortable with the commission’s decision because it creates stability in the mill levy. The county did lower its overall mill levy for the 2025 budget by nearly 3 mills, which was the largest mill reduction in about 30 years. However, by spending down the Employee Benefits Fund balance to the 25% level, it likely could have reduced the mill levy by another 2 mills without cutting any spending.

Plinsky, however, noted that the county perhaps would have to raise the mill levy in 2026, since it presumably would not have any excess fund balance to apply to expenses in the 2026 budget. However, Plinsky doesn’t dispute that as long as the mill levy increase in 2026 is equal to or less than the decrease in the 2025 budget, taxpayers would have seen a savings. For example, the mill levy for the Employee Benefits Fund is approximately 6 mills. In 2025 it could have been approximately 4 mills, if the fund balance had been spent down. If the mill levy in 2026 again would have been raised to 6 mills, taxpayers would have paid a total of 10 mills in property taxes during the two years. If the County Commission keeps the mill levy steady at 6 mills per year, they would pay 12 mills over the two years.

Plinsky said she believes the commissioners value the steady mill levy approach.

“If we are reducing that mill levy, I want to be able to sustain that reduction in a future year, where possible,” she said via email. “County commissioners have advised that they don’t want to lower the mill levy one year to raise it the next. It causes confusion and can be hard to explain.”

However, it is not clear why the county commissioners have taken that approach. Willey was asked what would be wrong with making a mill levy reduction in one year and alerting the public at that time that the decrease may only last for one year.

“Simply spending out of fund balance to cover ongoing operations — deficit spending — would be irresponsible, but I continue to identify ways that the mill levy can be reduced through operational efficiencies,” Willey said via email.

County officials — as do officials in many other governments — often reject the idea of using one-time money to fund ongoing expenses. However, under Kansas law, all property tax money technically is one-time money, although government leaders often don’t view it that way. But none of the county’s property tax rates automatically renew at the end of the year. County commissioners are required to set new rates each year, and have full authority to raise rates above levels from a year ago to cover any loss of fund balance revenue.

photo by: Dylan Lysen

County Administrator Sarah Plinsky, center, speaks to the Douglas County Commission about a plan to expand the Douglas County Jail during a work session on Wednesday, Dec. 18, 2019. Kevin Rawson, of Turner Construction, sits to the left.

Changing the policy?

Willey’s other comments, however, suggest that she’s no longer comfortable with some provisions of the fund balance policy that she and her fellow commissioners approved last year.

“I support setting guardrails for discussion on fund balances … A hard cap at 25% does not account for variability from year to year,” Willey said via email when asked about her general view of the current policy.

The issue of a hard 25% cap, though, received no pushback from county commissioners when the policy was approved in January 2023. However, commissioners had almost no public discussion about the fund balance policy when it was approved.

Rather, the fund balance policy was approved as part of multiple changes to the county’s overall financial policy handbook. The public verbal presentation that was given to commissioners and the audience in attendance at the meeting provided almost no detail about the policy, and did not even mention the 25% cap, nor did it specify which county funds would be covered by the policy. (Written materials provided in the county’s agenda packet did mention the 25% cap, but did not provide details about which funds were covered by the policy.)

The Journal-World asked Willey whether, in retrospect, there should have been more commission discussion about the policy before it was approved. That was among the follow-up questions that Willey did not respond to.

Willey also was asked whether there was any concern that the public may now view the county’s 2023 approval of the fund balance policy as an appeasement to the public criticism that had mounted about growing fund balance amounts, rather than a policy that the county intended to strictly follow. Willey also did not respond to that question.

The Jan. 18, 2023, meeting where the policy was approved did produce a very brief bit of commission discussion about the fund balance policy, and it seemingly referred to the public criticism that had arisen the previous summer.

“I thought you would want to talk about the fund balance policy,” Plinsky said to commissioners. “That seemed to be our real big topic this summer was our fund balance policy. I was excited about that.”

Then-County Commission Chair Patrick Kelly cut Plinsky off and said: “We are going to move on from that, Sarah.”

With that, commission discussion about the fund balance policy ceased.