Troy's budget season is fast approaching, which means that like Canadian Geese returning from southern climes, Troy's Tea Party will soon return to honk at City Council meetings. We expect them to start shrieking about Troy's Unassigned Fund Balance and how poor city policies are destroying Troy.
So before the disinformation campaign
begins, let's review Troy's bond rating, it's relationship to the
Troy's unassigned fund balance, and how management policies can
effect Troy's bond rating and economic prospects.
What is a Bond Rating?
At the February 03, 2014, City Council
Study Session, Bobby
Bendzinski of Bendzinski & Co. gave a
presentation about Troy's bond rating. Troy was awarded a AAA
bond rating from three independent rating agencies. (Fitch currently
rates Troy as AA+.) Essentially, a bond rating determines how safe a
bond issuer is for investing. The
higher the bond rating, the safer the investment, because it
helps investors know about your ability to pay and how well your city
can handle any emergencies that may arise. Mr. Bendzinski noted that
Troy currently has a higher
bond rating than the United States of America, making Troy the
“best of the best,” in the company of the only other Michigan
cities to possess a AAA bond rating, Bloomfield Hills and Birmingham.
What about Troy's unassigned fund
In a memo
dated August 26, 2013, Troy City Manager Brian Kischnick
explained that a fund balance is, by definition, “the difference
between the entity’s assets and liabilities.” From a financial
standpoint, a healthy fund balance is a “good indication of
In the same memo, Mr. Kischnick
explained that unassigned Fund Balance is approximately $23,454,866,
making the unassigned Fund Balance 43.5% of the total budget. (The
Fund Balance is “unassigned” because it's money not yet been
assigned to important projects, like alleviating debt or investing in
Troy has a sizable unassigned Fund
Balance because there have been a reduction in General Fund
Expenditures. The reduction in those expenditures have come
primarily from “employee concessions, layoffs and early
retirements.” In other words, Troy has a large savings account because we have lost a great deal of our workforce. We've lost
police officers, entire departments, and lots of other employees.
How do management policies affect
Troy's AAA bond rating?
So when Troy's management adopted a
policy of cutting staff and departments to the bone, it resulted in a
sizable unassigned fund balance. And as you can probably guess, a
healthy fund balance is one important factor in obtaining an
excellent bond rating. Other major factors in ensuring an excellent
bond rate can be summed up in one word: Flexibility. The more
flexiblity in management polices, the higher the bond rate. Other
policies that contribute to the economic health of Troy include the
three-year budget plan, maintaining a healthy fund balance, carefully
investing a percentage of the unassigned fund balance, and using
millages to support city assets.
to summarize Mr. Bendzinski's advice, he recommended several
policies to keep Troy strong. First, keep the unassigned fund
balance at 20% of the total budget, miminum. Keeping it
closer to 30% would be ideal. Next, carefully invest a
percentage of the unassigned fund balance in projects that bring
revenue into the general fund. Finally, ensure the library continues
to be funded through it's own millage. According to Mr. Bendzinski,
if Troy were to end the library millage, it would not only hurt
Troy's bond rating, it would be the equivalent to “not charging for
water and sewage...it would be a very bad thing.”
Good management practices have helped
Troy maintain a AAA bond rating. Remember that when Troy's Tea Party
appears before council and starts making unsubstantiated accusations.
posted at Troy Patch.