HARLINGEN — For the first time, there is a cap on the city’s emergency cash reserves.
That is going to help officials maintain the city’s strong bond rating.
Earlier this week, commissioners stamped a policy mandating officials maintain a fund balance big enough to run operations for at least 120 days in case of emergency.
So based on the city’s $48 million general fund budget, officials are keeping a balance of $18 million.
“That’s the cap,” City Manager Dan Serna said Friday. “That’s the minimum it can go down to on any given year. In emergency situations, we’ll be able to tap into it.”
Meanwhile, the city’s total cash reserve fund continues to stand at $21.6 million.
As a result of the new policy, officials can dip into a pool of about $3.6 million to fund one-time expenses and come up with money to pay the city’s share of grants, Serna said.
“You have to give yourself some room for grant matches or one-time expenses,” he said.
Range of fund balances
At City Hall, Kareem Abdullah, the city’s deputy finance director, released information showing the Government Finance Officers Association recommends governments such as cities maintain fund balances big enough to run operations for at least two months.
However, many cities maintain fund balances big enough to run operations for at least three months, or 90 days, officials said.
“It’s just a rule of thumb, keeping three months in reserves in case something happens,” Finance Director Robert Rodriguez said.
Here, officials decided to set the mark at four months, or 120 days.
“You want to give yourself a little bit of cushion,” Serna said.
Policy helps maintain bond rating
During a meeting Wednesday, Rodriguez told commissioners the new policy will help the city maintain its bond rating, which Fitch Ratings has set at AA+ while S&P Global Ratings put it at AA-.
“It’s very helpful with our bond rating agencies,” Mayor Chris Boswell said, referring to the rating which helps determine the city’s interest rates when officials borrow money. “We want to continue to get good ratings with our bond agencies.”
Such policies help bond rating agencies determine a city’s financial strength, Commissioner Michael Mezmar said.
“It’s because they want to know how much (money) is encumbered and how much is unencumbered,” he said.
While officials had been discussing setting the policy, they hadn’t put it into the books, Serna said.
“We talked about it and we hadn’t done it,” he said.
