The Milan News-Leader
A Heritage Newspaper
Weekly Publication
Auditor: Fund balance 'inadequate'
'Rainy day' fund not large enough to cover unexpected
By Brian Cox, Staff Writer
PUBLISHED: January 31, 2008
The city of Milan's "rainy day" fund, while higher than last year, remains inadequate to meet operational needs and serve as a buffer against unexpected contingencies, according to a report presented to City Council Jan. 21 by the city auditor.
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The general fund balance reserve, which currently hovers around $300,000 or just above 5 percent of revenues, should ideally be more than $1 million or 20 to 25 percent, said David Williamson, an auditor with the firm Post, Smythe, Lutz, and Ziel of Plymouth.
The fund balance increased over last year by $212,746 due to cost reductions and revenue increases, Williamson said, but it remains too low.
The increase is the first in seven years. From 2000, when the fund balance reached just over $1 million, it has steadily declined, reaching a low in 2006 of $121,849.
With the help of a graph, Williamson portrayed the shrinking gap between the city's revenues and its operating expenditures, as revenues held steady but expenditures climbed.
Last year was the first time since 1999 that expenditures dropped while revenue rose.
There was a $1.3 million difference between expenditures and revenue last year, but all except $280,000 was put toward helping meet the wastewater treatment plant's $1 million bond payment.
Williamson also pointed out that the city's water and sewer fund is under-capitalized and insufficient to fund any significant projects or provide funding for shortfalls in projected tap revenues.
The fund's net fixed assets far exceed its operating revenues, which fall well short of recommended revenues. The fund's operating revenues have remained largely static the past five years, while its fixed assets have climbed from around $14 million to almost $25 million.
As compared to the $25 million in fixed assets, the fund should generate more than $6 million; instead it hovers just above $2 million.
Last year's rate increase should help the fund's equity and cash flow, Williamson said.
The auditor identified seven key financial challenges for the city in the near future, including:
•Automotive Components Holdings LLC's property tax appeal seeking a $1.8 million reduction for 206 and 2007.
•The additional $13.6 million debt the city took on for the expansion and renovation of the waste water treatment plant.
•General economic conditions.
•Defined benefit costs.
•Aging facilities and the city's lack of bonding capacity.
•The city's non-diversified tax base and utility customer base.
•The inadequate general fund balance.
Staff Writer Brian Cox can be reached at 429-7380 or bcox@heritage.com.
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