Town hovering just above three-month reserves

FRONT ROYAL – As councilmen pondered funding options for the recently approved $545,000 Motorola Police Department radio system, Finance Director B.J. Wilson suggested that the town not loan itself the money.

During a Monday work session, he said the town should instead purchase the system through a 10-year Virginia Municipal League loan with a 3.389 percent annual interest, resulting in yearly installments of $65,305. An internal loan would save $106,650 in interest.

Wilson explained that although it may appear the town has money in its fund balance, that could soon change. He said that while the town is about $6.8 million above its total required three-month reserve, those funds may quickly decrease with potential future projects.

He said over the phone Tuesday that having a three-month reserve is part of the town’s fiscal policy and that bond companies usually require it. In a breakdown of fund balances, he said the town is below its required three-month reserve by about $3.3 million in the general fund; by about $1.7 million in its electric fund; and by $403,988 in its solid waste fund.

“Overall, we’re OK, but with the major projects coming down the line, I just want to make sure that we remain OK,” he said.

Wilson said it is difficult to say at what point the town will either have to stop spending or raise taxes.

“Right now, the way it sits, is we have enough funding to cover all of the projects that we have. Moving forward, depending on what projects they want to do and how much they cost, we would have to adjust accordingly,” he said.

During last year’s budget session, Wilson said his recommendation to Town Council was a half-cent real estate tax increase and incremental raises over the next several years “to help prepare.”

In March, a proposed .9-cent real estate tax increase stalled at a 3-3 vote, with councilmen John Connolly, Christopher Morrison and Gary Gillispie as dissenters. A flat tax rate passed as Councilman Eugene Tewalt flipped sides, which he said was necessary because the town had to turn in rates to the state to receive revenue.

Wilson said that some councilmen feel the town needs to wait for refinanced rates or for real estate reassessments, which could bump revenues.

Tewalt noted Monday that the town’s electric fund “should have been our cash cow, and it’s not anymore.” Wilson said that the town has offered low electric rates while the cost to purchase power has increased and the town is adjusting its power cost “to try and help recover some of this.” He also noted that the water rates might rise to pay for possible construction of a redundant pipeline to the 522 corridor.

The town is above its three-month reserve by about $7 million in the sewer fund and by about $5.3 million in the water fund. Impending projects such as ITFederal’s pump station and a proposed redundant water line, however, will likely result in the town dropping below the required reserve.

Tewalt said that he wants “to make sure the people sitting here in this room realize that these fund balances are not reserved” and “we don’t have enough in the fund balance to cover the cost for three months.”

“Everybody seems to think we have all these millions stashed away somewhere. We don’t have money stashed away. We have money, but it’s already been allocated,” he said.

Wilson noted the town has $40 million in debt service for the recent completion of wastewater treatment plant upgrades and that when the town is below its required reserve funds, “it negatively affects our credit rating.”

Tewalt said the council must realize that every time money is taken out of its fund balances, “it’s giving us less power to borrow money through the bond system in order to cover any debts that we already owe.” He added that if the town’s bond rating drops too low, it will be hard to acquire money for future projects.

Councilmen Jacob Meza and John Connolly were absent from the work session.