Granby’s General Fund often shares the focus of the yearly budget process. While the operating budget itself can be viewed as similar to an income and expense statement as in business, the general fund is the checkbook through which all that budget activity runs and, in the end, is the repository for all of those monies coming in and going out—not just for the year but over the years since inception. In that regard it is similar to the accumulated retained earnings found on a business balance sheet.
While there are other funds that act in a similar way and serve a similar function for specific purposes and programs, the general fund is the fiscal workhorse of every municipality. Its health is a key factor in how the financial strength of a town government is viewed, in how its creditworthiness is assessed and what interest rate a town will pay when it goes to borrow. While it takes both time and focus as well as fiscal discipline to build and strengthen the General Fund and the financial position of a municipality, it takes only a few short-sighted blunders to diminish both.
Prior to 2010, the rule of thumb was that a town should maintain a minimum General Fund reserve equivalent to 5 to 10 percent of its annual budget. This served as the rainy day fund—an emergency reserve in case of spending beyond the approved budget for such things as a bridge needing major repair or an increase in special education needs.
The budget problems at the state level and the impact it has had cyclically on state revenue distributed to the municipalities have changed that. Now the municipal credit rating people look for a town like Granby to maintain a minimum reserve of 10 to 15 percent of the budget, if not greater. By paying heed to these guidelines, adhering to the twin precepts of long-term planning and fiscal discipline, we have seen the financial strength of our town steadily improve over time.
Over the past 30 years our credit rating has improved four times, with each notch saving about 0.15–.20 of one percent in interest when we should look to borrow. That is a clear reflection of well-reasoned and principled management of the town’s finances.
There are two schools of thought regarding use of the General Fund. In some towns, it accumulates and is only used for one-time items and emergencies that arise. Others—like Granby—also use it to help balance the annual budgetary equation and, foremost in our case, focusing on flattening out the mill rate implications as we look year to year. When we look at our five-year budget projections, we build in a dose of conservatism, and look to maintain some level of stability year to year with the real mill rate. We prefer working towards a trend with a gentle incline with more focus on the near-term years.
So where do we stand today—and where are we going? Over the past half dozen years, the General Fund has grown from the general target range of 10–15 percent to nearly 20 percent. While the mill rate remained essentially flat over the past three years, more than the usual amount of budgeted appropriations was returned unspent to the General Fund. At the same time, other unbudgeted revenues materialized from state and federal sources. Management has earmarked up to $4M for intended use for the upcoming communications system replacement and upgrade, which will put the General Fund at about 12 percent. While it will rebuild to a degree, we anticipate drawing more on it annually in the upcoming years to help buffer the impact of contract and other cost increases as well as the cyclical decline in money from the state. For these eventualities, we stand prepared, as we look to meet the needs of our town while being sensitive to those who foot the bill—the taxpayers.