photo by: Chris Conde/Journal-World

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

Douglas County commissioners at their meeting Wednesday approved year-end financial adjustments that include nearly $6 million in violations of a policy designed to control the size of the county’s emergency reserves.

The violations of the county’s fund balance policy didn’t become clear until Tuesday, when County Administrator Sarah Plinsky added additional information to a staff memo to commissioners regarding the size of various funds that are recommended to receive millions of dollars in year-end transfers. Plinsky alerted the Journal-World to the new information on Tuesday evening. The Journal-World had been requesting the information for a week.

Commissioners approved on a 4-1 vote the transfer of more than $10 million of unbudgeted year-end financial transfers to a variety of reserve funds and other accounts that are used for non-day-to-day operating expenses.

Commissioners approved the transfers after receiving pushback from a handful of residents who said the county should have given the public more notice that the proposed transfers were in violation of the county’s policy, and also said the county needed to further explore how the surplus funds could be used to lower taxes in the future.

“You have created a very large slush fund,” Douglas County resident John Ims told commissioners. “You might consider returning it to the taxpayers.”

The policy at issue says budgeted accounts shall not have excess funds — called fund balances in the world of government accounting — greater than 25% of the account’s total revenue. The policy — approved by county commissioners in 2023 — is designed to limit how much money the county can keep in certain accounts, which generally act as savings accounts to be used for unexpected expenses or emergencies.

Commissioners, at the recommendation of staff, approved amounts for at least three funds that violate the county’s fund balance policy. They are:

• 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.

Plinsky on Wednesday told the Journal-World that commissioners were within their rights to deviate from the policy, and had the authority to waive the policy. However, commissioners on Wednesday took no formal action to waive the fund balance policy.

The fact that some of the actions commissioners were being asked to take on Wednesday would violate the fund balance policy was never directly stated in the staff memo provided to commissioners, and the fact wasn’t mentioned during the verbal staff presentation made to commissioners at the meeting. The only time the issue came up during the meeting was when members of the public said they had read about the pending policy violations in an online article from the Journal-World on Wednesday.

Not all the transfers that county commissioners approved Wednesday violate the county’s fund balance policy. Some transfers, in fact, would help the county come into compliance with the policy.

The county’s largest operating fund — its general fund — was approved to have about $17 million of funds transferred out of its account and into various reserve and capital improvement funds. Without those transfers, the general fund would be out of compliance with the county’s fund balance policy.

County Commissioner Gene Dorsey said he thought some of those transfers out of the general fund were inappropriate, and he was the lone commissioner to vote against the transfers. He said he didn’t support millions of dollars of transfers that simply moved general fund money to various equipment reserve funds. He said he supported leaving the money in the general fund because it would make it easier for commissioners and the public to see how much money is available to build the 2026 budget, a process that will begin this summer.

Dorsey said it would be better to wait until after the commission has a discussion about whether its fund balance policy should be changed. The fund balance issue comes on the heels of an investigation by the Journal-World in October that found the last two annual budgets approved by the County Commission included violations of the fund balance policy, with the Employee Benefits Fund being the largest fund out of compliance.

In October, county officials did not dispute that violations of the policy had occurred. However, then-County Commission Chair Karen Willey told the Journal-World that the policy 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,” Willey said in October, referring to the County Commission’s expansion to five commissioners in January.

The expanded commission, however, has not debated the policy. Plinsky told the Journal-World that county staff is working on a review of the fund balance policy, but offered no timeline for when it would be brought to the commission for consideration.

A majority of commissioners on Wednesday said they were comfortable with making the year-end transfers before that policy discussion occurs. Some noted that the county had taken seriously the public’s call for lower taxes, including a nearly 3-mill reduction in the county property tax rate for the 2025 budget, which was the largest single-year decrease in almost 30 years.

But commissioners also said it is important to decide whether a change in fund balance policy is warranted.

“The fund balance policy discussion is one that has been flagged in this room before, and it is one we are obviously due to have,” Commissioner Shannon Reid said.

In the meantime, the amount of violations of the policy is growing in terms of dollars. In the summer of 2023, when the county was crafting the 2024 budget, commissioners expected the Employee Benefits Fund to have excess funds of about $7.5 million, which would have put the fund out of compliance by about 4 percentage points. But as 2024 progressed, it became clear the fund actually would have an even larger amount of excess funds due to greater revenues and fewer expenses than budgeted. The county mid-year estimated it would have $8.2 million in excess funds. That estimate ended up being too low. County officials say the fund actually ended the year with excess funds of $8.5 million, which is about $5 million more than the county policy allows.