NAUGATUCK — Borough officials have given themselves some more leeway when it comes to using money from the reserve fund.
The Board of Mayor and Burgesses last week approved an amendment to the reserve fund policy to allow the borough to use its unassigned fund balance to pay for capital items in the 2017-18 budget, even if it means lowering the fund balance to less than 8 percent of the budget.
Controller Robert Butler said the fund balance is currently at 8 percent of the budget, which comes out to just over $9 million.
The amendment states the reserve fund is not allowed to drop below 7 percent of the budget and has to be back to at least 8 percent in the 2019-20 fiscal year.
Prior to the amendment, the policy stated the borough couldn’t reduce the fund balance below 8 percent of the budget. Butler said that policy was put into place in 2013 because, at the time, best practices recommended the fund balance be in the 8 to 12 percent range.
Mayor N. Warren “Pete” Hess said because the borough is addressing long-standing issues in the 2017-18 budget, he felt it was prudent to allow the borough to use the fund balance, if necessary.
“As we know we have been kicking the can down the road for years, not investing in roads and capital items. Last year’s budget and this year’s budget have much more significant investments in infrastructure and capital equipment. Because of the rather extensive use of the fund balance last year and because of what is proposed this year, there is a possibility that we could go below the 8 percent number,” Hess said.
Hess said it’s unclear whether the borough will have to rely more heavily on its fund balance since that the state, which is facing an immense deficit, has not finalized its budget yet. Municipalities are in limbo when it comes to how much funding they will receive from the state.
If state funding comes in in the borough’s favor, it will likely not have to deplete the fund balance, Hess said. However, if the borough loses out on money, it could mean relying more heavily on the fund balance.
“So we don’t know exactly where we are going to be,” Hess said last week.
The Joint Boards of Mayor and Burgesses and Finance on Monday approved a $120,436,078 budget for the 2017-18 fiscal year.
The amended policy states if the reserve fund drops below 8 percent, the borough will use any surpluses it realizes to bring it back up.
“What this really says is, if we need to, we can dip below 8 percent. But we have to get back to 8 percent right away and we have to work on going to 12 percent,” Hess said.
The reserve fund is typically used to pay for one-time capital items. However, borough officials used some money from it in the 2016-17 and 2015-16 budgets as revenue for ongoing expenses. This has had a negative impact on the borough’s bond rating.
In April, the bond credit rating company Moody’s Investors Service downgraded the borough’s rating from Aa2 — the third highest — to Aa3.
Butler said the downgrade was due to the borough’s reliance on the general fund.
Butler felt amending the reserve fund policy, especially ensuring it is built back up, was the appropriate action going forward.
“This is a prudent move on our part to show fiscal restraint,” Butler said.