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The Common Council has informally agreed to a policy crafted by the comptroller that would govern how it can spend the city’s rainy day fund.

The city set aside enough money to cover its expenses for 30 days when the fund was established in 2008 and has never had to spend it. But the Council never adopted a policy on how to use the money in case that rainy day ever came.

In a special Finance Committee meeting with Comptroller Mark J.F. Schroeder and his staff, Majority Leader Demone A. Smith asked whether the city could use money in the rainy day fund as part of its normal budget process if state aid is cut and vital services were in jeopardy.

Schroeder advised that the city only use the funds when the state cuts aid it had already committed to providing and only after the city had already included that aid in its budget.

“To deviate at all from that language would probably be detrimental, and I would encourage us all not to engage in,” Schroeder said.

Rating agencies do not want to see the city taking money from its rainy day fund and using it to plug a budget gap during its normal process of adopting the budget, he said.

Under the comptroller’s proposal, which the Council is poised to adopt this month, the fund can be used to cover costs related to weather emergencies and natural disasters, emergency repairs to city facilities due to fire or flooding or to cover costs related to midyear cuts in state aid.

Unacceptable uses would be to close a budget deficit or for routine maintenance.

The Council, comptroller and mayor would all need to approve rainy day fund expenses. If the fund is depleted, the money would have to be put back within four years, according to the policy.

Finance Committee Chairman Christopher P. Scanlon said he expected the policy to be sent to the Council in time for its meeting Tuesday and for the Council to act on it quickly.

“We’re not looking to use this to balance the city’s checkbook,” Scanlon said.

The city has a healthy $113.6 million in reserves, but much of that is committed to certain purposes. The rainy day fund, which Council members agreed would be renamed the “emergency stabilization fund,” contains $35.7 million. The fund must cover 30 days’ expenses, according to the city charter.

In addition to the rainy day fund, the reserves also include:

• An “assigned” fund of $29.8 million, which is meant for such things as settling legal claims against the city.

• A “nonspendable” fund of $22.9 million, which is for such things as covering deficits in the city’s solid waste fund.

• A “restricted” fund of $13 million, where the money has been restricted by creditors or others.

• A “unassigned” fund balance of $12.2 million, which the city has been using to plug budget gaps. The city has taken $40 million from this fund over the last three years to pay for recurring expenses. The city’s four-year plan, filed May 8, calls for the city to use $3.9 million in its 2013-14 budget, which will be sent to the Council on May 1.

Schroeder has warned that if the city continues to use this unassigned fund balance, it could jeopardize its healthy credit ratings, and increase its borrowing costs.

email: jterreri@buffnews.com