Administrator's study spurs controversy over undesignated fund balances in local government

A study by Isabella County’s administrator has sprung up some controversy as it suggests smaller units of government statewide are sitting on sizable savings, despite calls to operate at a lower cost.

Administrator Tim Dolehanty concentrated on the 2009 fiscal year and sifted through financial audits of all 1,856 of Michigan’s local governments via the state Department of Treasury.

He said he didn’t begin with any specific expectation but examined the cumulative total of funds collected in undesignated or unrestricted accounts between cities, counties, villages and townships. That total, about $1.2 billion, he said he found surprising.

“We’ve got to get away from the rhetoric to dismiss things because we don’t like the way it looks,” Dolehanty said. “If you’re paying taxes to a community, we have a responsibility to know what our local government is doing with it.”

According to the findings, townships are the healthiest financially of all local entities, with an average undesignated fund balance in the same league as 150 percent of their yearly operating budgets.

Villages were close at 100.96 percent, while cities and counties were much further behind with 31.21 and 20.15 percent, respectively.

The study, “An Embarrassment of Riches: Exposing the Well-Kept Secret of Local Fiscal Surplus,” Dolehanty said was intended to spur discussion and to understand that funds are “not just sitting there and accumulating interest.”

“To put it frankly, unbudgeted or unrestricted funds suggest you don’t have plans for it,” he said.

Larry Merrill, executive director of the Michigan Township Association, said Dolehanty’s study compares apples to oranges by not taking into account how much of the undesignated money is spent by the fiscal year’s end, which for townships is March 30 and June 30 for cities and villages.

“We’re talking about a different time of the year and, on top of that, we collect our taxes at different times of the year,” Merrill said. “But these numbers that Mr. Dolehanty is measuring out is not at our lowest point. They’re at our highest point.”

Dolehanty’s study states the average accumulated undesignated fund balance for one township in Huron County is nine times higher than the amount recommended by the Government Finance Officers Association, surmising it could provide services at the current level for nearly 11 years.

He said in instances of plans to use undesignated funds, such as purchasing a new fire truck, other accounts could be formed so the public can clearly see its use.

But Merrill disagreed and said most townships will accumulate high balances for capital improvements and other projects because small units of government aren’t as apt to borrow money to pay for them as others.

“The townships, they know what their major capital outlays are and have no need to create any additional book-keeping,” he said. “Even if you’re a large government, a large city, and you have to put a new roof on something, you can go and borrow. But smaller (units), they’ve got to save up.”

Regardless, Dolehanty said he hopes the results inspire local residents to take an interest in the goings-on of their community.