Archived Story

No reason for being reserved with funds

Published 10:33am Friday, November 30, 2012

During the past week, as Mower County residents were reading or re-reading notices about their proposed 2013 property taxes, county commissioners were talking about ways that they could reduce the county’s portion of a proposed tax increase.

One of those ways is to spend some of the county’s $13 million-plus in reserves.

Based on the discussion at their meeting on Tuesday that’s what the commissioners are going to do, and it’s a good idea for many reasons, not least of which is that some taxpayers opened their statements to find increases in excess of 25 percent.

There was lots of discussion among commissioners about the need to be cautious in using reserves, about the risks of leaving the county without the equivalent of a big bank balance. What was missing in the discussion is the question of why the county should have any significant reserves.

As families and businesses have struggled to make ends meet during the worst economic times since the Great Depression, the county government has kept an enviable reserve fund – the equivalent of $843 for every household in the county.

That might seem like good management – and indeed it is if one is talking about the finances of a business or a family. But a government is a different sort of animal. Any money it possesses belongs to the people it serves. So the real question is whether it is good management to keep $13 million of the people’s money sequestered.

An argument might be made that it would be better for most county residents if almost anything were done with that money besides holding it in reserve.

It would certainly have been better for taxpayers if they had been allowed to keep that excess $13 million in the first place. A big chunk of it would have been spent locally and circulated through the economy. That is water over the dam, because the money is in the county’s hands.

One way to make better use of a reserve fund would be to simply spend it on county services. If half of the $13 million in reserves had been allocated to payroll, that would also have been good for the local economy — better, at any rate, than holding the money in reserve. Spending on government employees is unpopular with many political conservatives, but from an economic perspective a job is a job.

Or the county can do what commissioners apparently envision, which is use the reserve to fund already-budgeted operations but reduce 2013 taxes — a method of putting the $13 million back into the taxpayers’ pockets, better late than never. This is probably the most sensible solution.

One of the decisions that must be made is just how much of the county’s reserves should be spent down. If one takes the perspective that it is better to have the taxpayers’ money in their own pockets rather than a government account, then the spend-down should be quite aggressive.

It is absolutely correct that having a small reserve might mean a bigger tax increase a year or two down the road. But if the reserve is being kept as a hedge against that possibility, why not go ahead and use it now, a year when taxes would otherwise increase significantly?

Historically, the county has levied taxes in excess of what is needed, otherwise it would not have a reserve. What’s happened historically is often a good guide to what will happen in the future, so there’s every reason to believe that the county would be able to rebuild its reserves — or, at any rate, avoid any problems associated with not having a huge reserve.

It makes sense for the county to keep a small reserve to ease seasonal cash flow issues. But it need not be large, because the county is able borrow funds on a short-term basis, and to pay relatively low interest, should it encounter any unexpected, short-term cash flow problems. Sure, there’s an interest expense, but it would not exceed the benefit to taxpayers of spending down the reserves.

There is every reason for Mower County to place its reserves back into the hands of the taxpayers, and very little reason — beyond government convenience — not to do so. It is, after all, the taxpayers’ money.

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