Sv Debates Fate Of Reserve Fund

If law requires council to pay itself back for water company — why not just change the law?

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With enough votes, town councils can repeal any ordinance.

The Star Valley Town Council had this epiphany Tuesday when the town’s manager suggested the council modify the rainy day ordinance so the town does not have to put back in the fund the money it took out to buy a water company.

Town Manager Tim Grier said the town’s new water company probably won’t generate money to repay the rainy day fund in the required five years. To avoid violating the ordinance, he suggested the council simply rewrite the law so it need not replace the $600,000.

The council set up the rainy day fund three years ago with the requirement that any money withdrawn had to be repaid in five annual installments. This was done, staff said, to prevent “runaway spending.”

While the public may challenge the decision to change the ordinance retroactively, ultimately the council can do what it wants, Grier said.

“You as council also have the authority to say, ‘We are not going to do that, we are going to amend our ordinance,’” he said.

This announcement seemed to startle several councilors. Some questioned why the town bothers to adopt any ordinance if a future council could simply revoke it.

Councilor Vern Leis said he only voted to use $600,000 from the $1.2 million rainy day fund because the council was required to repay it.

“We can now, after the fact, sign on the dotted line and do any damn thing that we want to with it (the rainy day ordinance). Is that what you are telling me?”

“That is what I am telling you,” Grier said.

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George Binney

Councilor George Binney objected.

“It is one of the absolute things I hate about government — how can you change a contract after the fact? We borrowed the money… so legally I say we owe,” he said.

Binney said he questioned the rainy day ordinance originally, but the council adopted it anyway.

“We all sit here and make these decisions and they are not real well thought out,” he said.

Grier defended the establishment of the fund. He said at the time, many towns in Arizona were facing massive deficits due to overspending. In addition, the council had just hired Grier to replace a town manager many councilors felt was mismanaging funds. Star Valley was a relatively new town with lots of revenue from photo enforcement cameras. The council stashed much of that money in a contingency fund.

Grier and then-town financial advisor Glen Smith suggested the council instead shift the money to a reserve fund for future worthy causes. Putting the funds in a contingency account would only dilute the budget, Smith said.

Over the years, the council added to the rainy day fund, until it totaled $1.2 million.

Then, several months ago, the council decided to buy Brooke Utilities’ water company for $775,000 and staff looked to the reserve fund for financing.

Grier said using rainy day money fell under one of the ordinance’s four approved circumstances: an event that threatens the health, safety or welfare of town citizens.

On Tuesday, Binney said he had his doubts.

“Where was the health and safety for a water company?” he said to Grier. “It was an operating water company that wasn’t broken down, the people had a water source — it was safe, it is tested — there is no health and safety. I think we did a good thing, don’t get me wrong, but when you can construe things to anything you want…(what is the purpose of the ordinance).”

Grier said the council must decide what to do — not him. However, putting $600,000 back into the fund would tie up a big chunk of the town’s funding in a restricted account.

He noted that the water company will bring in about $128,000 in gross revenue annually. If the council devotes all that money to repaying the rainy day fun, it won’t have any money left to make improvements.

Councilor Paty Henderson asked if the town had to use water company revenue to refill the rainy day fund.

“I think it does,” Grier said.

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Vern Leis

“It was what the money was used for, which has to pay it back,” Leis said.

The council can simply change the law so it won’t have to refill the rainy day fund.

But that’s just moving money from one pocket to the other, said Councilor Gary Coon.

Vice Mayor Del Newland said he didn’t see the point of a reserve fund.

“Why tie ourselves up with something (the rainy day fund)? If we want to use it completely, use it. It is like taking your pocket book and hiding it someplace and forgetting where you hid it.”

Grier said the fund was set up with good intentions, but times have changed.

“I don’t think I have a council that is guilty of runaway spending so that upside of reigning you in from excessive spending doesn’t seem to be much of an upside to me,” he said. “I think we have a careful, frugal council that carefully considers purchases.”

He suggested the council amend the ordinance.

“I would recommend reducing the amount of money you have in the rainy day fund,” he said.

But Coon said wants to restock the rainy day fund. “I know we are paying ourselves, but still in some ways, it has to be paid back,” he said.

Binney asked why the council didn’t just do away with the fund, since the council can take money out at will anyway.

Leis agreed. “Based upon the fact that what we have done holds no water and we can do anything we want to at anytime with what we have, I have to second George’s motion because there is no justification for having the account,” he said.

However, Barbara Hartwell said every town that removes restrictions on its rainy day fund ends up in the red.

On the other hand, after the next election the council could “change everything that we have done with one vote,” said Mayor Bill Rappaport.

“But we can do that right now,” Binney said.

“What we are talking about is meaningless,” Rappaport said.

Coon agreed to reduce the size of the rainy day fund, but rejected eliminating it.

“Just because we can and because down the road someone else can change it, what is going to happen if we take this radical move?” he said. “I don’t think you should make silly ordinances just because someone can change it in the future, you should make ordinances with the idea that it is not going to be changed.”

Grier suggested the council revisit the issue after it gets a look at next year’s budget on May 15. So the council voted to revisit the rainy day fund on July 17.

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