A first-ever county policy setting a minimum fund balance was unanimously passed by the Orange County Legislature Ways and Means Committee on Jan. 23.
Per the policy, the county shall maintain an unassigned fund balance in its main operating fund, also known as the general fund, at no less than 15 percent of its annual expenses.
If one thinks of the county government as a household, it’s similar to a family having a savings bank account large enough to cover 15 percent of annual spending.
“This has been something that has been talked about prior to me coming to this post,” county Finance Commissioner Kerry Gallagher told the committee members on Jan. 23, noting that credit rating agencies would often ask for such a policy during their evaluations.
“We spoke with a lot of people and had a lot of meetings before we came to the number ‘15.’”
Moody’s, the county’s partner in credit ratings for years, recommends a minimum fund balance level of between 15 and 20 percent of expenses, she said.
The credit rating agency the county will soon switch to work with, S&P Global Ratings, suggests a level between 20 and 30 percent, she added.
Under the policy, when the fund balance drops below the minimum threshold, the county government shall replenish it through actions such as spending cuts, a temporary hiring freeze, and project delays.
When the fund balance rises above the minimum required level—the kind of situation the county is in right now—it’s recommended to use the surplus to reduce debts and set up new reserves.
At the end of 2022, the county had an unassigned general fund balance of $193 million, to which another $40 million will likely be added when the 2023 financial data is finalized, according to Ms. Gallagher.
The required minimum fund balance is about $114 million.
Ms. Gallagher said that after adopting the policy, the county would likely use the surplus to pay for certain capital projects without taking on more debts.
“Just like all of our policies, we will be bringing this back to the table on a yearly basis,” she told committee members. “If we see that we need changes to the percentages or any other factors that we are looking to change, we will do that.”
The policy awaits a vote by the Orange County Legislature on Feb. 1.
