MOORHEAD — A report released by Minnesota State Auditor Julie Blaha shows cities across Minnesota entered 2020 with strong growth in revenues and expenditures and one year into the COVID-19 pandemic several area cities have managed to maintain healthy budget fund balances.

"The 2019 report is a key source for exploring the financial trends in cities prior to the COVID-19 crisis," Blaha said in releasing the 2019 Minnesota City Finances Report.

"While the strain on city finances caused by the COVID-19 pandemic remains ongoing, this report shows robust growth for cities in both revenues and expenditures in the year prior," Blaha added.

Total revenues for Minnesota cities increased by 6.7% between 2018 and 2019, while expenditures increased by 7.2%, according to the report.

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On the expenditure side, streets and highways constituted the largest dollar jump, while culture and recreation costs saw the largest percentage increase.

The statewide report, which can be found here, provides a financial snapshot of cities across Minnesota, including the area of unrestricted fund balances, dollars cities rely on for a number of things, including times when they are waiting for revenue from property taxes, or when state aid dollars fall short of expectations.

Cities also use money from fund balances to take advantage of unexpected opportunities, such as buying down debt, or acquiring property.

The state advises cities to maintain fund balances large enough to cover a significant percentage of a city's expenditures and cities determine their own approaches for achieving that.

Fund balances may be analyzed in different ways; the report released by Blaha looked at total unrestricted fund balances as a percentage of a city's total current expenditures, with the latter typically excluding capital expenses and debt service payments.

Below is a snapshot of how several area cities are doing as far as maintaining fund balances in the face of COVID-19.

Moorhead

According to the 2019 state financial report for cities, Moorhead saw its total unrestricted fund balance fall about 23% between 2018 and 2019, from about $21.7 million to about $16.6 million.

So, at the start of 2020, that left Moorhead's total unrestricted fund balance at about 46% of total current expenditures, according to the report.

Karla McCall, finance director for the city of Moorhead, said the apparent drop was not really a drop at all but was due to a change in how the city classified certain fund balances.

She said fund balances for the library, parks, transit and EDA were included in the 2018 total unrestricted fund balance looked at by the state auditor.

In 2019, on advice of the city's new accounting firm, those particular fund balances were not included in the city's unrestricted fund balance the state auditor looked at in making her report, McCall said.

McCall said Moorhead's fund balances were strong in 2020, and likely contained enough dollars to cover 60% of the city's anticipated expenditures in 2021.

"We didn't see any big dips (in 2020) in our large revenue streams — which are property taxes and local government aid," McCall said, adding that because those revenue sources stayed in the normal range reserves could be maintained in 2020.

"We'll see in 2021 if there are any changes in those major revenue streams," she added.

Dilworth

From 2018 to 2019, the total unrestricted fund balance in Dilworth grew 8.7%, from about $2.7 million to about $2.9 million, according to the recently released state report, which indicated the latter figure of $2.9 million was about 118% of total current expenditures at the end of 2019.

Dilworth officials and officials in other Minnesota cities don't necessarily view their reserve funds in those terms, but Dilworth Finance Officer Sherri Farwell said that city has reserves available that could cover about 100% of anticipated expenses this year.

Peyton Mastera, Dilworth city administrator, said the city's reserves come in handy in many ways, noting they have been used in the past to pay off Dilworth's share of the construction costs of 34th Avenue in Moorhead, a roadway Dilworth and Moorhead maintain together.

That move saved taxpayers interest costs tied to the construction project, according to Mastera, who added that reserve funds also made it possible for the city to buy some properties adjacent to existing city property when the opportunity arose.

Those purchases will give the city flexibility when the time comes to expand certain facilities, Mastera said.

The city of Dilworth has purchased a number of properties in recent years with the help of fund balances the city maintains as a rainy day resource, including the four lots outlined in red in this image. The city bought the lots as they became available to provide for future for expansion of city facilities. Land outlined in green was existing city property, lots outlined in blue are privately owned. Special to The Forum.
The city of Dilworth has purchased a number of properties in recent years with the help of fund balances the city maintains as a rainy day resource, including the four lots outlined in red in this image. The city bought the lots as they became available to provide for future for expansion of city facilities. Land outlined in green was existing city property, lots outlined in blue are privately owned. Special to The Forum.

While the city's reserves grew in 2019, Mastera said there is an unhappy component to that statistic.

He noted that 2019 was the year the city of Dilworth, which has about 17 full-time employees, saw two employees pass away — Stan Thurlow, city planner, and Don Vogel, maintenance supervisor for the city — both of whom had provided Dilworth with decades of service.

"We talk about 2020 being the year everybody wants to forget," Mastera said.

"I think, from a city of Dilworth perspective, 2019 is one that will live on, negative-connotation wise," he added.

Fergus Falls

The state financial report for Minnesota cities noted Fergus Falls grew its total unrestricted fund balance about 8% between 2018 and 2019, from about $9 million to about $9.7 million.

The latter figure amounted to about 55% of the city's total current expenditures at the end of 2019.

Bill Sonmor, finance director for the city, said the city is in good financial shape and its fund balances reflect that.

All of that, he added, has resulted in the city enjoying a bond rating of Aa3.

An Aa3 bond rating deems a bond issuer to be of high quality and a low credit risk. Cities given such a rating can pay a lower interest rate to people who purchase bonds, thereby saving the city money.

Sonmor said Fergus Falls aims to keep its unassigned fund balance at 35% to 50% of subsequent year expenses and he said it appears that for 2020 the city maintained that goal.

According to Sonmore, fund balances are valuable beyond helping cash flow until property tax revenue starts flowing into city coffers.

He said the funds can also come into play when the city needs to buy major equipment, which he said was the case recently when fund balance dollars were used to make a downpayment on a new fire engine.

The payment reduced the amount the city had to borrow to buy the truck, saving the city money, Sonmor said.

Detroit Lakes

From 2018 to 2019, Detroit Lakes saw its total unrestricted fund balance, including general funds and special revenue funds, grow 14%, from about $7.9 million to about $8.9 million, the latter representing about 100% of total current expenditures, according to the report released by the state.

That growth was largely by design, according to Heidi Tumberg, finance officer for the city.

"We've been kind of squirreling away some money here and there for certain large capital projects we know are on the horizon. So, that's part of why our unrestricted fund balances are growing, it's in anticipation of those larger projects," Tumberg said.

She added that Detroit Lakes likes to keep what is known as its unassigned fund balance, which is a portion of a city's total unrestricted fund balance, at 35% to 50% of the next year's anticipated expenditures, primarily to cover costs early in the year before property tax revenues begin flowing in.

"We receive our property tax revenues twice a year — in June and July and also in December — so you'd want to make sure you have half the year's expenditures available in your fund balance to pay for those expenses until you get those property tax statements," Tumberg said.

Tumberg said she doesn't anticipate the city's fund balances will have grown much when 2020 budget figures are confirmed, but she added the unassigned fund balance will likely amount to about 48%-49% of anticipated 2021 expenses.

"We're right in that target of where we want to be," she said.