Setting The Town Tax Rate: Good Use Of Rainy Day Fund?

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The Selectboard will set the municipal tax rate at its meeting on Wednesday, July 11.  Town Manager Herb Durfee is proposing a property tax rate of $0.5035, an increase of 1.66% from last year, using $264,290 of the Town's rainy day fund to reduce the rate by about 3.5 cents.  

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Using the rainy day fund to reduce the tax rate is the usual practice in Norwich for at least several years. Perhaps this year should be different. The Town has unreimbursed expenses of $500,000 from the July 1 Storm Event that are NOT in the budget. Why not use the $264,290 of the rainy day fund to pay part of those expenses? After all, July 1, 2017 was an extremely rainy day. 

In round numbers, the cost for road and infrastructure repairs from the July 1 Storm Event is $4 million. It is expected that 87.5% of the repair cost will be reimbursed, 75% by FEMA and 12.5% by the State.† That leaves the Town responsible for 12.5% or about $500,000. The initial plan was to borrow to cover that $500,000 amount, with payback over 10 years. See Town To Borrow $4.3 Million Short Term, Then $537,500 For Ten Years

The rainy day fund, officially called the Undesignated Fund (UDF), is an amount the Selectboard holds in reserve to cover cash flow needs and emergency expenses. Two months of expenses is the minimum recommended by the Government Finance Officers Association (GFOA).* Two months is 16.67% of a year. The proposal in the Selectboard packet is to reduce the UDF to that minimum in order to reduce taxes. 

At the same time, we are borrowing money, maybe over 10 years, to cover what seem to me as rainy day costs. Is the Town robbing Peter to pay Paul? To lower taxes this year, we are using money in the rainy day account. At the same time, we are borrowing money, maybe over 10 years, to cover what seem to me as rainy day costs. Isn't that paying for the tax break by borrowing money? 

I like lower taxes. I simply wonder if any excess in the UDF would be better spent on the storm costs rather than a tax reduction. I am no finance wizard and do not know the answer. I’m encouraging the Selectboard to discuss it. 

Last year, the Selectboard specifically discussed keeping money in the UDF “to offset costs to repair damages caused by the July 2017 storm,” according to Selectboard meeting minutes from July 12, 2017. Lowering the UDF to 16% to reduce taxes makes it imprudent to use any further amounts from the UDF against the unreimbursed $500,000 storm costs, per GFOA guidelines.*

† The State share would have been 17.5%, saving taxpayers an added $200,000, had the Town taken appropriate action between 2014 and when the Town Plan expired in 2016. See Inaction Costs Norwich $200,000?.

POSTED: 07.08.2018 

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