Good news, bad news about town's budget reserve
The Board of Finance learned Tuesday there is good news about the town's unassigned fund balance of $13.41 million -- it's 5.36 percent of the annual budget.
The bad news about the town's unassigned fund balance? That at $13.41 million, it is 5.36 percent of annual municipal expenditures.
"This board in particular, with help from the administration, has taken great pains to pay attention to this number," said Thomas Flynn, the finance board chairman. "We were always led to believe the credit agencies looked for a 5 percent undesignated reserve" as the standard for securing a AAA rating for municipal bonds.
However, he said, officials learned recently that either that number has been updated to a 10 percent unassigned fund balance or "we were operating with false information."
Fiscal Officer Paul Hiller said that for the last several years, the town has targeted the 5 percent number as its goal for the fund. "We were under 5 percent for a couple of years," he said. "We've obviously gone beyond that at this time."
He said in Connecticut, the average fund balance for municipalities with AAA credit ratings is in the 10 percent range. "We are on the lower end," Hiller said, but added that can be deceiving.
Hiller said the town has shown significant improvement for the last four consecutive years. "We've gone from just over $6 million in '05 to $13.4 million in the current year," he said.
First Selectman Michael Tetreau, who first took over as chief elected official in May but had served on the finance board prior to that, agreed that the board first had difficulty getting copies of the credit agency rating reports, and recently learned during conference calls with other area first selectmen and mayors that towns are using the 10 percent benchmark to maintain the top credit rating.
"I'd say that wasn't clearly communicated to the Board of Finance," Tetreau said. "They are looking for 10 percent."
But, Tetreau said, there are other factors considered by the rating agencies. For example, he said, Fairfield does better than some other AAA communities in the area of pension funds.
Flynn said the steps needed to get closer to the 10 percent fund balance will be a major part of budget discussions this year. "These all have to be prioritized," he said.
The chairman also questioned a notation in the annual audit that indicated the town has a policy regarding the unreserved fund balance.
Flynn said he doesn't recall ever voting on such a policy. "I don't ever remember it coming before us for a vote," he said, and asked Hiller to forward a copy of that document.