HUMBOLDT — Neil Phillips had some stern words for city council members here Monday night.
“Your (budget) fund balances are dangerously low,” said Phillips, with the Chanute auditing firm of Jarred, Gilmore & Phillips.
To wit, the general fund, which supports most city operations, had all of $240 at the end of 2013. The gas fund had $6.18, the water fund $155 and the sewer fund $1,826.
That didn’t mean the city was near bankruptcy, Phillips said, but it did mean with the city bound by Kansas’ cash-basis law, Humboldt was swimming in perilous financial waters.
“We have recommended that cities have balances of three to six months’ available at the end of the year,” Phillips said, but encouraged Humboldt leaders to have an immediate goal of one month’s balances, with so little to build on.
Humboldt has been headed this way for some time, Phillips said.
“It’s a trend we’ve noticed for the past four or five years,” Phillips said. “Now, with a change in management — (Monday was Cole Herder’s first day as city administrator) — it’s time to find a way to deal with it.”
Allowing his solution wouldn’t be popular, Phillips proposed Humboldt consider raising property taxes or increasing utility rates, and “you probably need to have a mix of the two.”
Phillips noted that in recent years utilities have been considered as business accounts and relied on to generate a profit so that revenue could be transferred to the general fund. An advantage is utilities usually are sold beyond a town’s limits while property tax revenue comes strictly from residents.
City Attorney Fred Works pointed out that several years ago Humboldt paid down debt from reserves, which affected balances. The reason was reserve accounts were drawing about 1 percent interest income while debt service came with a price tag of 7 percent.
A good idea, Phillips said, but now is the time to restore reserves and build balances.
“You’ve probably cut expenses about as much as you can, which leaves only increasing taxes and utility charges as ways to improve budget balances.”
The city has several reserve accounts earmarked for specific uses, totaling about $514,000 at the end of 2013, but that does nothing to massage low fund balances, Phillips said.
“We’re fully aware of the finances, and we’re working to rebuild reserves,” Mayor Nobby Davis assured Phillips.
Meanwhile, council members agreed to some expenditures.
A year ago middle-school students and their teacher, Mary Durand, attracted a $200,000 grant from the Kansas Department of Transportation to construct more than 2,100 feet of sidewalks near the elementary, middle and high schools, as well as amenities such as handicap accessible ramps, signage and crosswalks. The project is called Safe Routes to School.
