After building up the town’s rainy day fund for years, the Star Valley Town Council agreed to dip into the $1.2 million pool to help finance buying the area’s water company.
Most of the council on Tuesday, Dec. 6 agreed to take $600,000 from the reserve fund. The town had considered a loan to fund the $850,000 purchase of Brooke Utilities in Star Valley, but decided against it because it could add as much as $600,000 to the cost.
The town plans to combine money from the general and rainy day funds to buy the 350- hook-up water system in January if a judge approves the deal.
Taking money from the reserve fund for the first time raised concerns from the council that it had set spending restrictions that were too strict.
When set up in July 2010, the rainy day fund was the council’s answer to fear of overspending.
After watching other town budgets crumble due to the recession, Mayor Bill Rappaport said the council wanted a way to protect the town’s money. The town’s budget is made up mainly of money from state funding and photo enforcement since the town lacks a property tax.
Rappaport says the town would be bankrupt if the current council hadn’t put safeguards in place, but now that the council has shown that it makes responsible spending choices, it needs more freedom to use the money. One of the provisions the council is looking at changing in the rainy day fund is a restriction that limits the amount taken out in a fiscal year to half of the fund’s balance. In addition, any money that is taken out must be repaid in five years.
The council agrees that it should change both of these clauses to give greater liquidity to the fund.
“I don’t think the money in the rainy day fund is as good of an idea as what I once did,” said Town Manager and Attorney Tim Grier, who admitted he championed adding to the rainy day fund for the past several years. “I don’t think that it is as good of a policy, especially when you are not suspicious of spending habits.”
Grier suggested the council amend the rainy day fund ordinance at a future meeting and remove “the shackles” that limit spending.
“On paper it seemed good, but not as good in practice,” he said. “The rainy day fund is probably to force council to think before they spend and to be responsible, but that sacrifices liquidity.”
The current council has been tested to spend and chose not to, choosing instead to act responsibly, he added.
Councilor Vern Leis agreed.
“I think we misunderstood the true usefulness of what the rainy day fund was meant to be,” he said. “The money that you are looking at spending is what this town has been trying to do since its inception and that is to acquire the necessary water to let us grow and be a town on our own.”
Councilor Barbara Hartwell said she was not comfortable spending rainy day funds and would have liked to see the council take out a loan.
“I understand what you are talking about as far as interest and the cost of the interest, but if we took the 20 year at the lower interest rate and paid additional money to the principal … that would reduce what we pay in the end,” she said.
According to estimates, a 20-year Water Infrastructure Finance Authority (WIFA) 1.8 percent loan would add $573,000 to the price, while a 2.2 percent 10-year loan would add $229,000.
In addition, it costs another $15,000 to set up the loan, Grier said.
Running the water company efficiently and effectively is the town’s No. 1 goal, he said.
While a WIFA loan first appeared like a good option, “it doesn’t really seem so cheap when you do the math and calculate the interest.”
“So what once seemed like a good idea to me, with financing it at a relatively low interest rate, doesn’t seem like such a good idea today.”
Taking $600,000 from the reserve fund and another $285,000 out of the general fund for the purchase is the best funding route. Besides, the town makes less than half a percent in interest keeping the money in the bank, he said.
At that rate, the town is losing money keeping it in the bank because the interest rate does not keep up with inflation, said Councilor Gary Coon.
Vern Leis agreed, adding although the town will lose rainy day funds it has worked so hard to save; it is gaining the asset of a water company.
Besides being able to better serve water customers, buying the system gives the town water rights, making it able to go after Blue Ridge water and one day expand the water system.
To use rainy day funds currently, the council had to show that the money was going toward either a fiscal emergency, unanticipated expenditure or to cover a loss of revenue.
Buying a water company meets the requirements.
Hartwell questioned what would happen if the town needed the money to put in a sewer system or cover an unexpected cost. The idea of not having enough money made Hartwell “really uncomfortable.”
There have been fears the aging septic systems throughout town could fail and pollute the ground water supply. If that happened, the town would need a way to clean up the mess and a sewer system is one option.
However, current cost estimates are prohibitive, putting the cost of a sewer system at $20 million. Teaming up with the Northern Gila County Sanitary District could lower the price tag.
Regardless how it was done, Grier said the town would need more money than it has and would have to float a bond and institute a property tax.
“The harsh reality is that it is going to mean new taxes and are you willingly to put a property tax in place?” he said.
“I haven’t heard a council to date that is going to go to plate and swing that bat and say we want to put a property tax in place”
The council voted unanimously to take $600,000 out of the reserve fund for the purchase of the water company.