The Lexington Urban County Council might make changes in January to its emergency savings account and how that money can be used.
The city has been socking money away since 1997.
That means the city’s savings account — called an emergency contingency fund — has steadily grown to $26 million and will reach the stated goal of $30 million in the next few years. That money has never been tapped, even when revenues dipped dramatically during the most recent recession.
Now the council is considering setting a cap on the city’s savings at 10 percent of the previous year’s revenues. The city’s general fund revenues are a little more than $300 million a year but have grown an average of 3 percent to 4 percent each year over the past several years.
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$50,000Amount the Urban County Council contributes to Lexington’s rainy day fund
Putting too much money into savings could hurt the city in the long run. The city has less to spend on capital projects that it is borrowing money to pay for. In the current fiscal year, the city borrowed $57 million to pay for an assortment of projects, including $11 million to build infrastructure for the Town Branch Commons, a proposed linear 2-mile park downtown.
In addition to depositing $50,000 into the economic contingency fund each month, the council deposits 25 percent of any year-end surplus into the fund. The city has had surpluses for several years.
Councilman Bill Farmer Jr., who put the issue of the city’s economic contingency fund into committee, said the city should be commended for saving, but “it reaches a point of diminishing returns.” Farmer said the city needs that money for economic downturns but also needs to save money for bond companies, which look at how much money the city has in savings when determining the city’s bond rating. A bond rating determines how much interest a city pays to borrow. A good bond rating means less interest. “If you get much above 10 percent, you really don’t gain points with bond rating companies,” Farmer said.
During a meeting Tuesday of the Urban County Council Budget, Finance and Economic Development Committee, Finance commissioner Bill O’Mara said the city looked at various cities’ rainy day funds and did not find any one best practice.
Lexington’s economic contingency fund is more restrictive than other cities, O’Mara said.
Currently, a complicated equation process is used to determine whether money can be withdrawn from the account. O’Mara suggested that the formula was too stringent. Instead, he recommended that the money could be tapped if the council approved it.
O’Mara recommended that the city continue to contribute $50,000 a month. That amount would be needed to meet the goal of 10 percent of the previous year’s general fund revenues because the city’s revenues continue to grow, he said. Once a year, the Department of Finance would report to the committee how much money is needed to reach that goal. The administration and the council would then decide what percent of the year-end surplus to put into the fund, O’Mara said.
“That maintains a commitment to the fund but allows for flexibility,” O’Mara said.
Councilman Kevin Stinnett said the council made changes to the ordinance in 2006 because not enough money was going into the fund. In the past five years, the council has dramatically increased deposits into the fund. That’s why the council put so many restrictions on how the money can be used. “We may have made it a little too restrictive,” Stinnett said.
Many council members said they thought the council should maintain the goal of 10 percent of revenue but should not exceed 10 percent.
“I think it should max out,” Councilman Fred Brown said.
Farmer asked O’Mara to return to the committee in January with proposed changes to the ordinance. The committee will vote on changes to the ordinance, and if those changes pass, it will go to the full council for a vote.