Outgoing Finance Director's Advice: Beware of the Fund Balance

At her last Legislative Council meeting Monday, outgoing Finance Director Kathleen Etkin had words of warning for town officials -- beware of the fund balance.

Etkin announced last month that she would be retiring, and Friday is her last day on the job. So Monday night's committee meetings was the last time she would report to the council on the town's finances.

"I would suggest you keep in mind the fund balance during budget season," she told the council.

The fund has dropped precipitously over the past several years. In 2009 it stood at $6.5 million, but a year later that figure stood at $575,000, and now stands at about $558,000, Etkin said.

"It is a very important indicator of municipal stregnth," she said, "and gives a sense of the entity's flexibility and stregnth."

When investors and underwriters see such a staggering drop, it gives them cause for concern, she said, which can translate to dropping credit ratings and higher interest rates.

The fund balance should equal 5 percent of the municipality's operating budget -- or for Hamden, about $9 million, Etkin said. 

"It's a very difficult issue," she said. "It's very hard to rebuild a fund balance."

Etkin urged the council to be very conservative when estimating next year's revenues. 

"When you look at revenues, it's best to be as conservative as possible," she said. If a line item came in at $100,000 for the year, it's best not to raise that to $150,000 the next year, she said, lest expectations fall short and the money has to be found somewhere to make up for it.