City finances looking up

The city of Washington?s financial outlook has changed markedly since the beginning of the year. City Administrator Brent Hinson said at a meeting in January that if the city made no changes to its operating procedures, it would end fiscal year 2012-2013 with a deficit of over $500,000. Hinson said in an interview Tuesday that the city should end that fiscal year with a $400,000 surplus.

Hinson said that there are no longer any city fund accounts that are in debt. He said the city has gotten back on its feet quicker than he imagined. When he started going through the city?s budget last fall, he thought the city was eight to 10 years away from being fiscally sound, with comfortable savings in all of the accounts. Now he thinks the city is only five to seven years away from that goal.

The main problem the city faced with its poor financial condition was the inability to get good interest rates. When a city borrows money, the interest it pays on the loan depends on whether it has good bond rating. Cities with their financial house in order earn a good bond rating and can therefore receive low interest rates.

Hinson said that, years ago, cities only needed to get a bond if they borrowed $5 million or so. A city Washington?s size would not need to borrow that much money because it wouldn?t have many projects of that size. However, Hinson said that lending institutions are tighter with their money today and require bonding for projects of $1 million. He said Washington would have several projects over $1 million, so not getting bonded would hurt the city?s ability to finance capital improvements.

The city?s water fund was especially worrisome to Hinson.

?We were in the negative and digging deeper,? he said. ?We?ve gotten that reversed.?

The city now has a positive balance of nearly $300,000 in the water fund. Hinson said the city is trying to build that balance to $600,000 to $700,000.

Hinson said a big piece of the puzzle was untangling the capital improvement projects fund. He said there was a lump sum of money in the account but no one knew why it was there or what it was for. For instance, the city spent $200,000 on a runway for the airport and was then reimbursed for that money. The city took the money out of the general fund, but when the money was reimbursed it went into the capital improvement fund.

The general fund, water fund and sanitation fund were the three funds that were most in trouble. Hinson said the problems with the water and sanitation funds were solved partly by transferring money from the sewer fund, which had unexpectedly high revenues.

The city council shored up the water fund earlier this year when it voted to increase water rates while also decreasing sewer rates. The effect to the residents was imperceptible but the transfer allowed the city to bring all its funds out of debt.

Hinson said the general fund needs to be watched closely so it does not get saddled with all the miscellaneous projects in town. He said that, in the past, if the city needed a little extra money to complete a project, it would take the money out of the general fund. However, when it came time to reimburse the funds that spent money, the money wouldn?t always go to the fund it was originally drawn from.

Another factor in the city?s improved outlook was that it spent less money than expected in the 2011-2012 fiscal year. Hinson attributed that to the restraint of city department heads and also to the absence of full-time staffers in positions such as city administrator, library director and cemetery sexton.

?Those all created short-term staffing problems but it did make the budget look better because we had lower than expected expenditures,? he said.

To avoid the kind of deficit the city faced at the beginning of the year, Hinson recommended that future councils become familiar with the city?s financial reports.