photo by: Chris Conde/Journal-World

The Douglas County Courthouse is pictured Thursday, Dec. 22, 2022.

Douglas County commissioners this week will consider replacing a policy that limits how much money they can keep in reserve for unexpected expenses with a new policy that removes all such caps.

County commissioners will consider the change at their Wednesday evening meeting. The potential change comes after, as the Journal-World has reported, the county has violated the current policy for the last two years by leaving millions of dollars in excess funds in county accounts. It also comes after a Journal-World investigation in May found the county had total reserves that were about $70 million greater than similar-sized governments.

Douglas County currently has a policy in place limiting the amount of money held 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, approved in January 2023, says the accounts can’t have fund balances that are more than 25% of their revenues.

Now, on Wednesday, commissioners will review a new proposal outlining how the county should manage its rainy day funds. The policy recommends minimum balance targets for fund balances, ranging from 20% to 25% of total operating expenditures.

However, the 25% figure should not be viewed as a cap, Douglas County Administrator Sarah Plinsky said in response to questions from the Journal-World. Instead, the 20% to 25% range is a minimum, Plinsky said.

“The Commission has expressed a desire for flexibility on how reserve funds are used,” Plinsky said via email. “The policy was drafted with that in mind.”

Plinsky said the decision of not including a cap for each of the fund balances “is consistent with other local governments, (the Government Finance Officers Association) best practices and feedback from the County Commission.”

Many area governments don’t set a hard cap on how large their fund balances can grow, but some do set a “target” level for fund balances. Their policies also include language about what actions should be taken if a fund exceeds its target.

For example, Sedgwick County’s policy spells out five ways that “excess unassigned fund balance” may be used by the government. They include using the money to reduce debt levels, funding one-time operating expenses and funding liabilities related to workers compensation claims, among others.

Douglas County’s proposed policy doesn’t include any language about what to do in the event that a fund significantly exceeds the 20% to 25% level. In the past, GFOA has said a fund balance policy should include such language. GFOA also has said a policy should spell out what the government will do if a fund falls below its target level. The county’s proposed policy has no language about that scenario either.

In terms of whether a fund balance policy should set a hard cap on the size of fund balances, a top official with the GFOA addressed the issue during an interview with the Journal-World in May.

Shayne Kavanagh, a professional researcher on the topic of fund balances as the senior manager of research for the Government Finance Officers Association, told the Journal-World in an interview in May that the association is now urging governments to look at fund balances both as a savings account and an insurance policy. In that regard, he said governments do need to be mindful of how large fund balances grow.

“Having the right amount doesn’t mean infinite dollars,” Kavanagh said. “You can over-insure something, absolutely.”

Kavanagh spoke to the Journal-World in May as questions were growing about the amount of money the county keeps in reserve funds. An investigation by the Journal-World found Douglas County’s reserve funds are nearly $70 million larger than the median for a similar-sized county or city with the same high-quality credit score as Douglas County’s.

Those numbers came from Moody’s, the credit rating agency that assigns ratings to governments across the country. Moody’s had evaluated the county’s creditworthiness and found that Douglas County ended 2023 with $131.9 million in its fund balance accounts.

The county’s total revenue for 2023 was $136.6 million. That means for every dollar that Douglas County received in 2023, the county had an additional 96 cents sitting in various funds, waiting to be used for a later day. Other similarly sized local governments with the same credit rating as Douglas County’s had approximately 46 cents in reserve for every dollar of revenue they received, Moody’s found. If Douglas County kept fund balances at a level equal to the median of its peers — i.e. at 45% instead of 96% — it would have had $62.4 million in fund balances in 2023 instead of the $131.9 million amount. That’s a difference of $69.5 million.

As for the specifics of the proposed policy, it calls for the general fund to have a minimum fund balance target of 20% of operating expenses, the employee benefits fund at 25%, the motor vehicle operations fund at 20%, and the road and bridge fund at 20%.

According to a memo prepared for commissioners ahead of Wednesday’s meeting, the minimum targets are to “ensure the financial stability and resilience of Douglas County.”

One fund that was not included in the proposed policy is the Local County Sales Tax, which supports general county operations. The fund ended 2024 with $20.6 million in its fund balance and only $1.1 million in expenditures. The county is designating the fund as “assigned” for debt service and capital project financing, Plinsky said via email. Its status as an assigned fund for debt service exempts it from the other provisions of the proposed policy, and means it has no target level.

That’s different than how some governments handle debt service funds. In the presentation included in the agenda for Wednesday’s meeting, there is a list of several nearby governments that have designated a target fund balance to service debt, including Wyandotte County, Topeka, Olathe and Lenexa.

“Assigned” funds, according to the proposed policy, are “identified (earmarked) for a specific purpose by the county’s administration,” but have not been set aside for a specific use through a formal action by the County Commission.

Plinsky said the commission’s desire for flexibility led her to recommend that the debt service fund not have a target level, although she said commissioners could choose to add one.

The proposed change in fund balance policy comes after the county violated its current policy for the past two budget years.

As the Journal-World reported in February, the County Commission approved year-end transfers that violated the county’s policy by about $6 million. The approvals included:

• Employee Benefits Fund approved for excess funds of 61%, or about $5 million more than what the county’s policy allows.

• Road and Bridge Fund approved for excess funds of 35%, or about $765,000 more than what the county’s policy allows.

• Motor Vehicle Fund approved for excess funds of 35%, or about $77,000 more than what the county’s policy allows.

The County Commission approved the amounts — on a 4-1 vote with Commissioner Gene Dorsey opposed — amid some public criticism, with one commenter at the meeting accusing the county of having “created a very large slush fund.”

The county also had violations of the policy in 2023, just months after the policy was approved. As part of its process for crafting the 2024 budget, the county approved a budget that allowed the county’s employee benefits fund to exceed its 25% cap.

By October of 2024, after multiple violations of the policy, county commissioners said they wanted to consider changes to the policy. Wednesday’s proposal will be the first revisions considered by the commission.