It’s always nice to have a little extra money to play with, but drawing down your savings account to get it can be risky.

That’s the situation the Killeen City Council effectively endorsed Tuesday when members, by a 4-3 vote, approved lowering the city’s reserve and enterprise funds’ target balance. Instead of the current target range of 22 to 25 percent of the city’s expenditures, the new policy would require a balance of only 18 to 22 percent.

The upside of the decision is that it will free up as much as $2 million annually for the city’s operational fund, which has been strapped in recent years. The council approved a $1.67 million funds transfer to bolster a general fund savings account in January.

On the downside, the policy change will reduce the time the city could operate on the fund balance from three months to 2½, which could hinder Killeen’s ability to respond in a citywide emergency.

Three months’ operating expenses is generally considered a healthy reserve fund balance, according to the Texas Municipal League. Other local cities, such as Harker Heights and Copperas Cove, have strong reserve fund balances along those guidelines.

Harker Heights, with $4.94 million in its reserve/restricted fund, has more than three months in operating expenses set aside. Likewise, Copperas Cove, in its 2017-18 budget presentation, noted the city maintained a reserve fund balance above the “ideal balance” of 25 percent of operating expenses, despite a drawdown of $1.7 million to balance the budget.

In the abstract, the potential Killeen drawdown doesn’t seem too consequential, especially since the city could use the extra unrestricted cash for police overtime, road repairs, vehicle purchases and capital improvement items.

For example, in August 2016, a city fire truck was destroyed at the scene of a gas station blaze on Veterans Memorial Boulevard. The truck was a total loss, but insurance covered only $600,000 of the truck’s more than $800,000 replacement cost. The city was on the hook for the rest. Certainly, more money in the general fund would help in a situation like this.

In early September, a sinkhole opened up on W. S. Young Drive, one of the city’s most heavily traveled thoroughfares. The section of road was closed to traffic for the better part of a week while city crews made repairs. The sinkhole made the street unsafe for use, and city staff found erosion and failure of a drainage pipe — requiring opening the road to replace the pipe and then rebuilding the section of the street. No doubt, that was a hit to the city’s roads budget, and $2 million in freed-up funds could address that issue as well.

Sure, more money in the general fund could help with small, unplanned expenditures. But if an urgent, large-scale expenditure were called for, could the city still pay for it with the lowered city reserves?

If Killeen were to be struck by a tornado or experience significant flooding, the city would be forced to turn to its reserve funds to address repairs, set up shelters and provide other emergency services. As City Manager Ron Olson noted previously, it generally takes the Federal Emergency Management Agency about three months to supply funding in the wake of a disaster. If Killeen had to face such a crisis, the city might be unable to pay its bills if the city’s reserve fund were too low, he warned.

Considering the hurricane-related flooding that ravaged the Houston area last summer and the resulting influx of evacuees into Bell County, the council should have been more cognizant of the potential for sudden, catastrophic damage in our city.

But the lure of additional money for various city departments ultimately won the day.

Mayor Pro Tem Jim Kilpatrick first proposed lowering the reserve range at a Nov. 10 council meeting — just 10 weeks after Hurricane Harvey devastated Southeast Texas.

But then, lowering the reserve fund has been a recurring theme with Kilpatrick.

When then-Interim City Manager Ann Farris initially proposed a city budget with a potential $8 million shortfall in July 2016, Kilpatrick was quick to endorse her suggestion that the city use the reserve fund to bridge the gap — even though that would have meant lowering the fund to less than $11 million, leaving reserves at a fiscally unhealthy 13 percent.

Ultimately, Kilpatrick and other council members hammered out enough cutbacks and deferred spending to make ends meet with only about $1 million taken from the reserves.

But looking beyond Tuesday’s council action, the city has more than a cash-flow issue; it’s facing a significant revenue problem moving forward.

In early August, Olson presented council members with a 20-year budget projection that contained some sobering numbers. One chart showed expenditures outpacing revenues in the general — or operational — fund by $4.1 million as early as 2021, with a potential shortfall of $27.6 million in 2037. Further, the general fund was projected to operate at a loss every year leading up to 2037.

The shortfall is exacerbated by an increasing number of property tax exemptions for the city’s disabled veterans. Though these exemptions are well-deserved by our former service members, the city is getting only little compensation from the state — a little more than $1 million in 2018 despite about $5 million in exemptions.

So, it’s obvious the council must find ways to identify additional, stable revenue streams.

What action the council will take remains to be seen. Proposals for transportation utility fees, developer impact fees and property tax increases have met with considerable resistance by some members over the past two years.

Bottom line, the city is going to have to earn more if it wants to spend more — and that’s something that will require much more than a quick-fix gimmick like lowering the fund balance requirement.

Unless a long-term, comprehensive strategy to enhance revenue is identified and adopted, having a healthy reserve fund will become an impossible challenge.

Ultimately, there won’t be anything left to pull from the piggy bank. | 254-501-7543

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