FREEPORT — The Town Council and Finance Director Abbe Yacoben discussed fund balance policies and investment practices Dec. 21 as the council continues to try to update town financial policies.
Concerns brought to light by resident Marie Gunning prompted the council to take a closer look.
She challenged the town’s ability to invest reserve funds in the stock market and said according to recent audited financial statements, the town lost more than $350,000 in reserve funds in the market. She questioned the legality of investing that money in high-risk investments.
Yacoben said the town’s position is that any equity fund can lose principal and these funds are moderate and low-risk for equity funds.
She said the policy was created in 1998 and revised in 2007 to allow the town to invest 30 percent of reserves in equities such as mutual funds while keeping 70 percent in fixed-income investments such as bonds, certificates of deposit and cash.
“I see the point that is made, but it doesn’t make our practice illegal,” Yacoben said.
The council will have further discussion about changing the 70/30 policy and the laws associated with the finance policy in January.
“If the percentages are altered or if the town moves to a 100 percent fixed income, there could be a significant change in composition and income in the account,” Yacoben said.
The council will also address how to incorporate changes to the way the town reports its investments. Yacoben said changes in Government Accounting Standards Board practices would require the town to account for its fund balance differently than has been done in the past.
“The law hasn’t changed, we just need to present the (the accounts) differently,” she said. “We are not going to change our practice, but it will change how we report or categorize our fund balance to the public.”
Yacoben said while no policy changes have been finalized, the council is expected to revise the fund balance policy, reflect compliance with the latest GASB reporting standards and review the unassigned fund balance policy to reflect two months of the total budget, instead of one.
“The current policy is to have one month set aside as a rainy day fund,” she said. “The change to two months would give us more funds to be able to pay our bills in times before property taxes come in and show to the bond rating agencies and bond holders that we have the willingness and ability to pay our bonds.”
One month’s reserve is about $1.8 million, she said.
The council will meet Tuesday, Jan. 18, from at 8:30 p.m. in a workshop to continue the financial policy discussion.
Amy Anderson can be reached at 781-3661 ext. 110 or firstname.lastname@example.org