How the city found itself with millions more than it needed in savings; why none was returned to taxpayers
photo by: Nick Krug
Over the past two years, the City of Lawrence has found itself with a problem many of its taxpayers would love to have: too much money piling up.
The past two summers, as the city updated its current year budget and worked on its budget for the upcoming year, the city has had to transfer a total of $5.4 million into other reserve funds because more money was accumulating in its savings than policy calls for. In the past, there were times when the City Commission chose to essentially return dollars to taxpayers by lowering the property tax rate, but that possibility was not discussed.
In fact, before the most recent transfer was approved, what to do with the money got little public discussion at all.
Before the City Commission approved the transfer earlier this summer, it was a bullet point on one of several presentation slides about amendments to the 2019 budget and the proposed budget for 2020. Amid the broader 2020 budget discussion — in which the commission made various cuts to avoid a property tax rate increase and the addition of entrance fees at recreation centers — whether the extra dollars could be used to lower the tax rate, provide more funding for social services, or be used for some other purpose was not debated. Ultimately, the 2020 budget reduced funding for the Bioscience and Technology Business Center and a city tree planting program and did not fully fund a request to increase support for the local homeless shelter, which is facing a budget shortfall.
The Journal-World asked some city leaders whether a more robust public discussion should occur when the city ends up with millions of dollars more than it needs in savings. Some city leaders agreed that those decisions should be debated going forward, but none definitively said they think those funds should be used for property tax relief.
A more robust discussion
When making amendments this July to bring its 2019 budget up to date, the city revised its expenditures so that it could spend a large part of an extra $4.5 million from 2018 — money beyond what the city is required to hold in savings within its general fund. Specifically, the commission approved two transfers totaling $3.149 million from the city’s general fund to its capital reserve and equipment reserve funds to support capital improvement projects, according to a presentation to the commission. Last year, a similar transfer of $2.249 million was made.
As far as why what to do with the excess fund balance did not receive much discussion this summer, Mayor Lisa Larsen said that combining 2019 budget amendments and the 2020 budget may not have allowed enough time for that debate. Larsen noted the complexity of the 2020 budget and said that going forward, those discussions should take place earlier so as to not wrap so much information into one or two meetings.
“I would have loved to spend more time on all those, and that’s something to consider because once you get that much meat into an agenda and into discussions, it’s hard to ferret out all the details,” Larsen said. “And that’s something we can do better at, I agree. That’s something we definitely need to do better at.”
Vice Mayor Jennifer Ananda said that while using the extra money for other purposes is worth a discussion, she currently thinks it’s reasonable for that money to go toward capital projects given how far behind the city is on infrastructure work. She said keeping up with infrastructure maintenance has been kicked down the road by past commissions, and that the current commission has had to make difficult decisions that impact taxpayers.
“This seems like a pretty reasonable use,” Ananda said. “I know that there are definitely causes that we prioritize as a commission, but our primary function is to make sure that we provide a functional city and part of that is maintaining that infrastructure.”
Fund balance policy
The city made the transfers in order to stay in line with its own policy regarding its savings level, which aims to keep the money in the city’s general fund reserve equal to approximately 25% of its expenditures.
The city’s fund balance policy does not say what the city should do when it has significantly more than that target amount saved, but Finance Director Jeremy Willmoth said it has been the city’s practice to transfer that money to those other reserve funds to support future capital projects.
“If the City Commission decided 25% wasn’t enough, they could always leave more in there, but staff’s practice has been, at least for the last several years, to identify what that number is during the audit and then to transfer that out to support the capital improvement plan in the next fiscal year,” Willmoth said.
However, past commissions have made the move to use extra funds to lower the property tax rate, but that has not happened in years. The last time the city’s property tax rate decreased significantly, or by more than one mill, was in 2005, when the property tax rate decreased by 1.484 mills, or the equivalent of about $34 per year for the owner of a $200,000 home.
Willmoth said the $3.149 million transferred out of the general fund this year brought the fund balance down to about 27%, or about $1.35 million more than the 25% target. He said that the majority of that excess money was due to the city spending about $3 million less on public safety in 2018 than it budgeted. That happened for a variety of reasons, he said, including retirements of senior police and fire-medical employees and spending less on professional services and contracts than anticipated. Willmoth said that while the 2018 excess is a little higher than normal, some underspending is expected and the city is always tweaking its budget to make sure it’s as accurate as possible.
“There is always going to be underspending, barring a catastrophe, because there is a state law that says you can’t spend money that hasn’t been budgeted,” Willmoth said. “And so then the question just comes down to what’s a reasonable level.”
What about affordable housing?
The city has been working to address its affordable housing shortage, as many Lawrence residents struggle with high rents or high mortgage payments. Much of the city’s efforts so far have focused on building new affordable housing, but some, including Commissioner Matthew Herbert, have contended that the city also needs to focus on what it can do help people afford the house they are in. That could include both property tax rates and utility rates.
A recent housing market analysis commissioned by the city found that thousands of households, mostly renters, are cost-burdened. That means they spend more than 30% of their income on housing costs — mortgage or rent payments, property taxes and utilities. The study also found that about 2,300 renters earning between about $35,000 and $75,000 would like to purchase a home, but few affordable homes are available.
In response to whether the commission should have used the excess fund balance to lower the city’s property tax rate, Larsen said she didn’t want to go back and say the city should have done something differently with the budgets that have already been approved. However, Larsen said that all options should be laid on the table and debated going forward.
“I would never throw something out before we even had a chance to discuss it,” Larsen said. “But I think it does deserve a consideration as part of the big picture, and that would need to be talked about, and all of our options laid out there and a decision made as to how we want to do that.”
Ananda said she does not think it’s unreasonable that the city put the money toward future capital projects. But she also says that in the future, the commission should make sure it doesn’t just go with the status quo and approve the staff-based practice of transferring the excess funds to capital reserves.
“I do think it has to be a conversation with each commission about how best to use that,” Ananda said. “I think it’s incumbent on the commission. We receive the recommended budget, we receive the recommended amended budget, we choose what to do with those funds, and that’s the time we have those conversations.”