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Ask The Monument

I keep hearing about Gray's Undesignated Fund Balance (UFB). Does New Gloucester have one, and if so, how much is it?

It is about 4.4 million dollars.

Town Manager Rosemary Kulow answered:

New Gloucester's undesignated fund balance can only be accurately calculated at the close of each fiscal year when all revenue has been collected and all expenditures made. New Gloucester's audit of FY05 is not yet completed, and the auditor's final adjustments have yet to be made. However, the estimated undesignated fund balance is about $4.4 million - that's over and above capital reserve accounts and other investments.

New Gloucester does not have a written UFB policy that would regulate how much UFB (surplus) it will have. I have developed a financial management policy, with auditors' input, that is currently under staff review and will eventually be proposed for consideration by the Board of Selectmen. Among many other things, this policy recommends using auditors' guidelines for UFB. Below are a couple of paragraph excerpts from that proposed policy under development.

Proposed policy draft excerpt: "Two general rules are commonly promulgated which define an appropriate municipal fund balance. The first is that undesignated fund balance should be, at a minimum, ten percent of the commitment plus one month's expenditures at a minimum . Another rule of thumb commonly used in practice requires fund balance to approximate three month's expenditures at a minimum."

Regardless of these rules of thumb, the elected board and town's people ultimately set policy and the limits for UFB. Keep in mind that every time an elected board or council makes a formal decision, whether it's through a lengthy, written policy or simply a motion, it is making policy. And each time a budget is approved at a town meeting, the people are making policy.

Proposed policy draft excerpt: "Sufficient fund balance is required to maintain liquidity, assure positive cash flow, prevent borrowing through tax anticipation notes, and provide effective cash management. Fund balance is not completely represented by liquid assets, such as cash, but includes unrealized receivables and other assets as components which require a certain period of time to convert to cash. Because of these factors, the Town would want to adopt a policy that would maintain a healthy fund balance that will provide adequate funds to carry the Town through times of relatively low cash flow periods and provide funds for emergency situations."

Ms. Kulow continued: Undesignated fund balance develops when more revenues than anticipated are received and/or less money than budgeted is expended. I've been told that New Gloucester's UFB grew over many years with careful nurturing by the former Town Manager and Boards of Selectmen, whose task it was to bring it back to a healthy level.

New Gloucester uses a sizable portion of the UFB (recently about $250,000) each year to offset the tax rate. Considering the conservative tone of the day, I foresee the UFB growing at a much slower rate, if at all, now and in the near future because of bare bones budgeting and concern over rising property taxes. You might actually see a managed, gradual decrease in New Gloucester's UFB over the next few years, Ms. Kulow stated.