photo by: Chris Conde/Journal-World

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

Douglas County commissioners at their meeting this evening will consider approving 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 at their 5:30 p.m. meeting today at the Douglas County Courthouse will consider approving 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.

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, are being asked to approve amounts for at least three funds that would violate the county’s fund balance policy. They are:

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

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

• Motor Vehicle Fund would have 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 would be within their rights to deviate from the policy.

“They can waive the policy, and (do) so on occasion, if business needs dictate it,” Plinsky said via email. “The policy is a guideline. It is not a statutory limitation.”

However, commissioners at tonight’s meeting are not being asked to take any formal action to waive the policy, according to the commission’s agenda.

The amount of emergency or “rainy day” funds in the county’s budget has become a point of contention for some residents, who have argued that the funds could be moved to other parts of the budget or returned to taxpayers in the form of a lower property tax rate.

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,” County Commissioner Karen 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. Staff members instead are recommending that the commission make the year-end transfers before any changes to the policy are discussed.

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.

“It will be brought to the commission as soon as the review is complete,” she said via email.

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.

Not all the transfers that county commissioners are being asked to approve tonight 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 — is slated 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.

With the transfers, the general fund would technically be in compliance with the county policy. The county estimates the general fund would have excess funds of 24% of budgeted revenue, putting it one percentage point below the cap.

However, as part of the 2025 budget process last summer, county officials acknowledged that some industry leaders recommend fund balance policies that create caps based on the budgeted expenditures — not revenues — of a fund. Whether the general fund is in compliance with that standard would depend on how the county defines expenditures. If the county defines expenditures only by what it pays to vendors, employees and other outside entities, the general fund almost certainly would be out of compliance. If expenditures are defined more broadly to include not only outside payments but also the fund balances themselves — on the theory that they could be expended, if needed — the general fund likely would be in compliance.