Some members of the Town Council are interested in seeing the town get a little more aggressive in how it manages its money.
At a finance committee meeting Wednesday night, council members discussed a host of changes to the town’s investment policy, how it handles its fund balance and how the town plans for future expenses.
Committee members agreed they’d like to see the town establish a five-year plan for capital expenditures – costly, one-time expenditures for things like large equipment or land purchases, building construction or park development. Called a Capital Improvement Plan, or CIP, the plans are common among North Carolina towns, but Knightdale has historically considered approval of capital expenses on an annual basis as part of the budget process.
Under the new process, if it is approved by the full council, the finance committee would be charged with developing a five-year plan. Council members would be asked to approve funding for the first year of the plan. Each year council members would have the opportunity to modify the plan if new needs arise or if funding is not available to pay for all the items on the list. Including the additional four years to the plan gives council members a look at the town’s future needs and a chance to begin saving money to pay for them.
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As part of the effort to find money to pay for those large expenses, committee members spent time Wednesday night looking at the town’s fund balance, which is similar to a family’s savings account.
“I do want us to be fiscally conservative, but mindful of what our needs are. If you keep the fund balance too high, you make the case to say your tax rate’s too high. But if we have needs and we have reserves, I feel like we have an obligation to mee those needs,” said Council member Pete Mangum.
The town’s fund balance policy doesn’t formally specify a minimum amount that must remain in savings, though the state requires towns to keep at least 8 percent of a year’s operating costs in savings. Knightdale’s policy requires the town to transfer money into a capital reserve fund whenever the fund balance jumps over 40 percent of a year’s operating costs.
Finance Director Kim Kenny said council members will be asked next month to transfer about $700,000 from fund balance to the capital fund for that very reason. At the end of the 2015 fiscal year, the town had just over $6.2 million in unassigned funds in its savings account.
Kenny offered committee members a look at what would happen to the town’s fund balance if council members decided to reduce the amount it keeps in savings. By reducing the fund balance from 40 percent to 25 percent, the town would have about $2.1 million to spend on projects.
She also said the town could use traditional financing to pay for projects that are easy to collateralize, such as building construction or land acquisition. Other projects, which don’t have collateral could be paid for with the money that would come from reducing fund balance, such as providing WiFi service to Knightdale Station Park.
Mayor James Roberson said he would be comfortable reducing the fund balance to 25 percent of a year’s operating costs, but Councilman Mark Swan wasn’t ready to commit to a cut that deep.
“I’m not ready just yet to say I’m OK with going to 25 percent, but I think it makes sense to look at how we’re using our money,” Swan said.
The committee also spent time Wednesday looking at how the town invests the money in its savings. With interest rates paid on investments shrinking sharply since the start of the recession, the town’s interest income has dropped sharply. State law limits the places a town can invest its money, mostly to relatively safe CDs, money market accounts and treasury notes.
The town’s current investments earn about $52,000 per year based on current rates. By investing in other state-approved vehicles, the town could boost its interest income by nearly $45,000.
“That’s enough for another police officer position right there,” Mangum said.
Council members will review the committee’s recommendations during the council’s mid-year planning retreat in January.