The Fiscal Impact of Annexation on Laketown Township

The Fiscal Impact of Annexation on
Laketown Township
Prepared for Laketown Township, MN
by Erik Cedarleaf Dahl
Community Growth Options (U-CGO)
University of Minnesota
August 2009
This project was supported by a grant from the Community Growth Options (U-CGO)
program, a joint project of the Center for Urban and Regional Affairs (CURA) and the
Humphrey Institute of Public Affairs at the University of Minnesota, with funding from the
McKnight Foundation. The content of this report is the responsibility of the authors and is
not necessarily endorsed by U-CGO, CURA, the Humphrey Institute, the University of
Minnesota, or the McKnight Foundation. Visit U-CGO online at www.cura.umn.edu/cgo.php
© 2009 by The Regents of the University of Minnesota. This publication may be
reproduced in its entirety (except photographs or other materials reprinted herein
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educational and nonprofit use only.
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contact the CURA editor at the address below.
This publication is available in alternate formats upon request.
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Table of Contents
Introduction........................................................................................ 3
Methodology ....................................................................................... 3
Laketown Township Revenue Sources ................................................... 4
Laketown Township Expenditures ......................................................... 5
Annexation Scenarios .......................................................................... 9
Hidden Bay/Schmittville Annexation Scenario ................................. 9
East Lake Annexation Scenario.................................................... 12
Rolling Meadows Annexation Scenario.......................................... 15
Oakwood Annexation Scenario .................................................... 17
Conclusion........................................................................................ 20
Map 1: Laketown Study Area Overview ............................................... 22
Map 2: Hidden Bay/Schmittville Annexation Scenario ........................... 23
Map 3: East Lake Annexation Scenario................................................ 24
Map 4: Rolling Meadows Annexation Scenario...................................... 25
Map 5: Oakwood Annexation Scenario ................................................ 26
Appendix A: Carver County Fire District Service Areas.......................... 27
Appendix B: “What Is the Optimal Level of Local Government
Fund Balances?” by Kenneth Kriz ................................................... 29
Introduction
Laketown Township, Minnesota, entered into an orderly annexation
agreement in 1972 with the municipalities of Chaska, Victoria, and Waconia.
The annexations are restricted to specific areas delineated in the provisions
of the agreement. Provisions governing the annexations include: township
areas to be annexed must abut the annexing city, the area must be urban or
suburban in character (or about to become so), the annexing city must be
capable of providing services to the area to be annexed within a reasonable
timeframe, and the area being annexed must be contiguous. Land can be
annexed immediately if it meets these criteria, unless there is a petition
against annexation signed by 80% of the owners of the property proposed to
be annexed, and Laketown Township supports the petition. The municipalities
that are party to the agreement are expected to meet semi-annually to
discuss problems and to coordinate provision of governmental services within
the orderly annexation area. To date, such meetings have not occurred.
Laketown Township is expected to cease to exist by 2030 at the latest. In
anticipation of future annexation, Laketown Township contacted the
University of Minnesota’s Community Growth Options (U-CGO) program to
analyze the fiscal impact future annexations might have on the Township.
The analysis presented in this report is based on several hypothetical
annexation scenarios, and will identify which scenarios or combination of
scenarios could render Laketown Township fiscally insolvent and unable to
provide services to the residents of Laketown Township.
Methodology
To assess the fiscal impact of various annexation scenarios, this analysis
considered revenue from property taxes and local aid, as well as
expenditures for road maintenance, fire and police service, and other
services provided by the Town of Laketown. Potential candidates for
annexation in the township were identified through discussions with the
3
Clerk/Treasurer of Laketown Township. The comprehensive plans for Chaska,
Waconia, and Victoria were also analyzed to determine the most likely
annexation areas within Laketown for each municipality. These areas are
shown on Map 1.
Laketown Township Revenue Sources
Property Tax
According to Keith R. Kern, the Carver County assistant county assessor,
Laketown Township receives an average of 12.5% of property taxes collected
by Carver County on each parcel within the township. This portion has
fluctuated between 12% and 13% during the last several years and can be
expected to continue to fluctuate. For the purpose of this analysis, property
tax revenue was calculated based on a constant rate of 12.5%.
Laketown Savings
Laketown Township currently has approximately $544,000 in savings and
$230,000 in certificates of deposit (CDs) and investments. Although it cannot
provide for the long-term solvency of the township, this savings does provide
a financial buffer that can help offset any yearly deficits from annexation.
The State of Minnesota and the Office of the State Auditor recommend that
at year-end, local governments maintain a fund balance in their general fund
of approximately 35–50% of fund operating revenues or no less than five
months of operating expenditures, which should provide the local
government with adequate funds until the next property tax revenue
collection cycle. 1 The Office of the State Auditor also recommends that “the
adequacy of unreserved fund balance should be assessed based on the
individual local government’s own circumstances.” 2 An article on local reserve
funds published in the CURA Reporter in 2004 (a copy of which is included as
1
http://www.auditor.state.mn.us/other/Statements/fundbalances_0708_statement.pdf
2
http://www.auditor.state.mn.us/other/Statements/fundbalances_0708_statement.pdf
4
an appendix to this report) suggests that the optimal level for local
government fund balances is a minimum of 25% of total revenues.3
Given these recommendations, Laketown Township’s savings level is well
above the recommended 35–50% of total operating revenues. For the
purposes of this report this figure has been estimated as $184,937 $264,195 should remain in savings per the State Auditor’s recommendations.
This will allow Laketown Township to draw upon these reserves while still
remaining within the State’s recommended guidelines. Because the savings
are finite, however, the township will still need to assess at what point these
reserve funds will no longer be sufficient to keep the township fiscally
solvent.
Laketown Township Expenditures
Laketown Road Maintenance Costs
Road maintenance costs were calculated based on a road policy study
conducted by WSB & Associates of Minneapolis and commissioned by
Laketown Township in October 2002. Laketown Township spends an average
of $6,500 per mile to maintain asphalt roads and $7,100 per mile to maintain
gravel roads. Road maintenance costs aggregate all aspects of the road
maintenance for gravel and asphalt roads. This aggregation includes: new
roads, gravel and hauling charges, gravel road repair, asphalt road repair,
gas and oil, equipment maintenance, miscellaneous, and dustcoating. Road
maintenance costs are expected increase with the price of gas and oil and
can be expected to continue to be the largest expenditure for Laketown
Township.
Road maintenance costs are offset to some extent by the town road
settlement from the State of Minnesota and by direct payments from
residents who live on gravel roads and pay a portion of the cost of
dustcoating the road. The actual cost of dustcoating is determined by the
Kenneth A. Kriz, “What Is the Optimal Level of Local Government Fund Balances?” CURA
Reporter 34 (2004): 8–12.
3
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price of oil; in 2008–2009, Laketown Township used magnesium chloride at a
cost of 50 cents per foot. Residents along gravel roads pay 30 cents per foot
of gravel road. For simplicity’s sake in each of the annexation scenarios
described below, dustcoating costs are rolled into overall road maintenance
costs while the portion residents pay is itemized as a separate income source
in the budget.
The town road settlement is a payment Laketown Township receives from the
State of Minnesota for road maintenance based on miles of roads and the
population of the township. Laketown receives approximately $5.70 per
person for the town road settlement and approximately $196.90 per mile of
road. For purposes of this analysis, the payment from the state was
calculated by estimating 2.9 4 individuals per household in each annexation
area and calculating the number of miles of road within the township and
multiplying each mile by $196.90.
Fire Service Costs
Laketown Township has contracts for fire services with Waconia, Chaska, St.
Bonifacius, and Victoria. Each of these fire service contracts covers a
different area of Laketown Township (see Appendix A) and each contract
calculates the cost of fire services differently. Chaska charges Laketown
Township $126 for each residential housing unit that Chaska fire services
cover each year. For the year 2010, this comes out to approximately $33,159
paid to Chaska for fire services to 263 residential housing units. Waconia,
Victoria, and St. Bonifacius all use a similar formula to calculate the fire
service costs to Laketown Township:
S = {[(C + E) + (A)] * [(U+V)/2]} + OC
where S = annual cost of fire protection to Laketown Township, C = 2008(9)
fire department operating cost, E = cost of equipment and apparatus owned
4
U.S. Census Bureau 2000.
6
by the Fire Department and related debt services cost amortized over 20
years, A = 7–9% administrative charge; U = percentage of Laketown
Township fire calls compared to the total fire calls made by the fire
department over the past five years; V = percentage of valuation of the
areas of Laketown Township served compared to the total valuation of the
area served by the fire department; and OC = other charges.
For each of the annexation scenarios below, several fire service scenarios
were developed, with fire services costs declining by 2% to 10% depending
on the size of the annexed area, the number of households served, and in
the case of Chaska the actual number of households that will be removed
from Laketown Township and annexed to Chaska. The fire service cost
scenarios are described in more detail below.
Laketown Police Costs
Police contracts for Laketown Township are estimated to be $31,500 for
2010. The town clerk was asked about the status of police contracts going
forward in the event of an annexation. She was confident that police
contracts would remain approximately the same as they have been
regardless of annexation. Thus, police costs and contracts were not reduced
for any annexation scenario. Police fines collected by Laketown (30% of fines
collected within Laketown) will also remain relatively similar to what they are
for the 2010 budget with nominal fluctuation from year to year.
Other Disbursements
Other disbursements in the Laketown Township budget are not expected to
be reduced in the event of annexation. These include the following:
•
wages and salaries
•
costs for town board supervisors, clerk/treasurer and deputy
clerk/treasurer, and election judges
•
FICA, Medicare, health and life insurance, liability insurance, and
workers compensation
7
•
assessor fees and legal fees
•
office equipment and supplies, postage, travel/mileage, building
maintenance/repair, and utilities
•
watershed disbursements
For each annexation scenario, these disbursements were held constant at
2010 levels.
2010 Budget
The budget for Laketown Township for 2010 was obtained through interviews
with the town clerk of Laketown Township. The estimated budget for 2010
was used for all annexation scenarios and was assumed to remain constant.
This limits the predictive value of the scenarios because expenditures are
likely to increase over time as oil prices rise, employee salaries increase, and
other external factors affect the budget. The estimates obtained for each
scenario are likely to overestimate the fiscal ability of the township to
weather annexations.
Receipts and Disbursements
Each annexation scenario contains two tables: one of receipts Laketown
Township receives and one of disbursements that Laketown Township pays
for services. The receipts table includes estimated total receipts for 2010 for
all of Laketown Township. In 2010, Laketown Township expects to receive
approximately $460,178 in property taxes. The total of $1,250 for the
category licenses and permits was calculated using the average receipts from
licenses and permits collected during the past several years. The total of
$5,500 for police fines includes money collected by the police department for
fines, traffic offenses, etc. The total of $9,000 for fire protection is collected
annually from tax-exempt parcels and is voluntarily paid to the town to help
offset the cost of protection. This amount was reduced by $1,250 because
the actual amount collected will fluctuate depending on the number of tax
exempt parcels in each annexation area and the fire district in which they are
located. The category interest earnings includes the interest earned on
8
savings, CDs, and other investments. This amount is expected to decline if
Laketown Township withdraws money from its savings or investments. The
town road settlement is the dollar amount of State of Minnesota funds that
are allocated to cities and towns based on road miles and population.
Laketown receives approximately $5.70 per person for the town road
settlement and approximately $196.90 per mile of road. For purposes of this
analysis, the payment from the state was calculated by estimating 2.9
individuals per household in each annexation area and calculating the
number of miles of road within the township and multiplying each mile by
$196.90. The category dustcoating includes money Laketown Township
collects from residents who live on gravel roads and pay to have dustcoating
applied to their road. Residents pay approximately $0.30 per foot of gravel
road in front of their residence, and Laketown Township pays the other $0.20
of the cost of dustcoating.
The disbursements table for each annexation scenario includes two budget
items: fire contracts and road maintenance. The complete Laketown
disbursements budget contains many more items, but for purposes of this
report, it was determined that these two items would experience the most
significant change due to annexation. For purposes of this report, all other
disbursement items were held constant at the amount estimated in the 2010
budget.
Annexation Scenarios
Hidden Bay/Schmittville Annexation Scenario
The Hidden Bay/Schmittville Annexation Area, named after the subdivision it
contains, is southeast of downtown Waconia along the shores of Reitz Lake.
It is bordered on the south by County Highway 10 and on the west by Lynn
Wood Road (see Map 2). According to the Waconia Comprehensive Plan
(Development Staging Plan), this subdivision is slated for annexation by
2030. The Hidden Bay/Schmittville subdivision contains 75 parcels. From
9
these 75 parcels, $224,974 is expected to be collected in property taxes in
2010. For 2010, Laketown’s portion is estimated for be $28,121.82.
There are 3.20 miles of road within the Hidden Bay/Schmittville Annexation
Area; 2.06 miles are gravel and 1.14 miles are asphalt. Using the road
maintenance costs per mile, costs for the Hidden Bay/Schmittville Annexation
Area are approximately $22,017 per year. Laketown Township receives
approximately $1,805 from the State of Minnesota for the town road
settlement for the Hidden Bay/Schmittville Annexation Area. This was
calculated by determining that there are approximately 71 households in the
annexation area and there are approximately 2.9 people per household for
an approximate total population of 206 individuals. This population was then
multiplied by $5.70, the amount Laketown Township receives per person for
the town road settlement. Each mile in the annexation area was multiplied by
$196.90, the amount Laketown Township receives for each mile of road for
the town road settlement.
The Hidden Bay/Schmittville Annexation Area is within the Waconia Fire
Department service area (Appendix A), which will charge Laketown Township
approximately $48,516.00 in 2010. The Hidden Bay/Schmittville Annexation
Area compromises a relatively small portion of the Waconia fire coverage
area, thus Laketown Township should expect to see a 2–5% reduction in
annual fire service costs. A 2% reduction would mean a yearly decrease of
$6,982.52; a 5% reduction would mean a yearly decrease of $16,789.99.
With these factors considered, Laketown receipts would total $493,418.
Disbursements are shown for two scenarios. The first scenario assumes a 2%
fire service reduction. Under this scenario, Laketown Township will incur a
net loss of approximately $5,972 per year. The second scenario assumes a
5% fire service reduction. Under this scenario, Laketown will collect
approximately $3,835 more in receipts than Laketown disburses.
10
Annexation of Hidden Bay Schmittville (Receipts)
2010 Estimated
Budget
General Property Taxes
Loss from
Annexation
Post
Annexation
$460,178
-$28,121
$432,057
Licenses & Permits
$1,250
-$100
$1,150
Police Fines
$5,500
$0
$5,500
Fire Protection
$9,000
-$1,250
$7,750
$300
$0
$300
$2,500
$0
$2,500
$18,000
-$1,805
$16,195
$2,500
$0
$2,500
$0
$0
$0
$3,100
$0
$3,100
Dustcoating
$12,000
-$3,696
$8,304
Monopole Rent
$14,062
$0
$14,062
$0
$0
$0
$528,390
-$34,972
$493,418
Assessment Search
Interest Earnings
Town Road Settlement
Power & Light Settlement
Tax CreditsMH/AG/Cons/MV/PERA
Miscellaneous Revenues
SAC Charges
TOTAL
In short, if this area is annexed, it will put manageable strain on Laketown
Township’s budget and ability to provide services over the long-term.
However, with Laketown Township’s savings of approximately $500,000 and
investments of approximately $230,000, the township will be able to cover
any budget shortfalls and continue functioning at the current level of service
for a decade or more.
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Annexation of Hidden Bay/Schmittville (Disbursements)
2010 Budget
Non-impacted
disbursements
$265,390
Fire Contracts
$110,000
Loss from
Annexation
Post
Annexation
$0
$265,390
2% Reduction
-$6,982
$103,017
5% Reduction
-$16,790
$93,210
-$22,017
$130,983
Total with 2% fire
service cost reduction
-$29,000
$499,390
Total with 5% fire
service cost reduction
-$38,806
$489,583
Road Maintenance
Original Total
$153,000
$528,390
East Lake Annexation Scenario
The East Lake Annexation Area is bordered on the west by Lake Waconia, on
the south by Arboretum Boulevard (Highway 5), and on the east and north
by Parley Lake Road (see Map 3). According to the Waconia Comprehensive
Plan (Development Staging Plan), this annexation area is slated for
annexation in 2020 and 2030. The East Lake Annexation Area contains 49
parcels. From these 49 parcels, $305,371.07 in property taxes is collected
annually. Laketown Township will receive $38,171.38 of these taxes in 2010.
There are 3.5 miles of road within the East Lake Annexation Area, all gravel.
Using the road maintenance costs per mile, road maintenance in the East
Lake Annexation Area costs approximately $24,924 per year. Laketown
Township receives approximately $1,003 from the State of Minnesota for the
town road settlement for the East Lake Annexation Area. This was calculated
by determining that there are approximately 19 residential households in the
annexation area and there are approximately 2.9 people per household for
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an approximate total population of 55 individuals. This population was then
multiplied by $5.70, the amount Laketown Township receives per person for
the town road settlement. Each mile in the annexation area was multiplied by
$196.90, the amount Laketown Township receives for each mile of road for
the town road settlement.
The East Lake Annexation Area falls primarily within the St. Bonifacius Fire
Department service area, with a small portion within the Waconia Fire
Department service area (Appendix A). Combined these municipalities will
charge Laketown Township approximately $27,000 in 2010. For projecting
this scenario, it was estimated that fire service contract costs would be
reduced by 75% ($10,000) for St. Bonifacius and approximately 3%
($5,000) for the Waconia. Multiple scenarios for fire contract cost reductions
were not considered for this scenario due to a majority of this annexation
falling into the St. Bonifacius Fire Department service area.
Viewing the Laketown receipts budget for the East Lake Annexation scenario
with these factors considered shows that receipts would total $484,170. The
East Lake Annexation scenario adjustments to receipts and disbursements
illustrate that if this annexation occurs, Laketown Township will disburse
approximately $4,296 more than it takes in for receipts, leaving a yearly
deficit of approximately $4,296. Although this will put a slight strain on the
resources of Laketown Township, but given Laketown Township’s significant
savings and investments, the loss of the East Lake Annexation Area will not
cause Laketown Township to become insolvent.
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Annexation of East Lake (Receipts)
2010
Estimated
Budget
General Property Taxes
Loss from
Annexation
After
Annexation
$460,178
-$38,171
$422,007
Licenses & Permits
$1,250
-$100
$1,150
Police Fines
$5,500
$0
$5,500
Fire Protection
$9,000
-$1,250
$7,750
$300
$0
$300
$2,500
$0
$2,500
$18,000
-$1,003
$16,997
$2,512
$0
$2,500
$0
$0
$0
$3,100
$0
$3,100
Dustcoating
$12,000
-$3,696
$8,304
Monopole Rent
$14,062
$0
$14,062
$0
$0
$0
$528,390
-$44,220
$484,170
Assessment Search
Interest Earnings
Town Road Settlement
Power & Light Settlement
Tax CreditsMH/AG/Cons/MV/PERA
Miscellaneous Revenues
SAC Charges
TOTAL
Annexation of East Lake (Disbursements)
2010
Estimated
Budget
Loss from
Annexation
Post
Annexation
Non-impacted Disbursements
$265,390
$0
Fire Contracts
$110,000
-$15,000
$95,000
Road Maintenance
$153,000
-$24,924
$128,076
$528,390
-$39,924
$488,466
Total
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$265,390
Rolling Meadows Annexation Scenario
The Rolling Meadows Scenario is named after the subdivision it contains,
Rolling Meadows. This annexation area is situated along the northern border
of Laketown Township with Arboretum Road bordering its northern edge and
Tellers Road running through the middle of the subdivision (Maps 1 & 4).
According to the City of Victoria 2030 Comprehensive Plan update (labeled
Exhibit 7) this area is slated for annexation by Victoria by 2030.
The Rolling Meadows Annexation Area contains 65 parcels, from which the
county will collect approximately $173,304 in property taxes. Laketown
Township’s portion of these taxes is approximately $21,663. The Rolling
Meadows Annexation Area contains 1.66 miles of asphalt road. Using the
road maintenance costs per mile, yearly road maintenance costs for the
Rolling Meadows Annexation Area are approximately $10,737. Laketown
Township receives approximately $1,319 from the town road settlement for
the Rolling Meadows Annexation Area. This was calculated by determining
that there are approximately 60 residential households in the annexation
area and there are approximately 2.9 people per household for an
approximate total population of 174 individuals. This population was then
multiplied by $5.70, the amount Laketown Township receives per person for
the town road settlement. Each mile in the annexation area was multiplied by
$196.90, the amount Laketown Township receives for each mile of road for
the town road settlement.
The Rolling Meadows Annexation Area is served by the Victoria Fire
Department (Appendix A). Victoria will charge Laketown Township $16,325
for fire services in 2010. This annexation scenario considers two options for
the reduction of Victoria fire service cost—3% and 5%. A 3% reduction in fire
service costs would constitute a $398 decrease; a 5% reduction in fire
service cost would constitute a $664 decrease. For this scenario, a 3% fire
service cost reduction was used instead of 2% due to the land acreage of the
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annexation area and the number of households in the annexation area
scenario. Viewing the Laketown receipts budget for the East Lake Annexation
Scenario with these factors considered shows that receipts would total
$500,362.
Annexation of Rolling Meadows (Receipts)
2010
Estimated
Budget
Loss from
Annexation
Post
Annexation
$460,178
-$21,663
$438,515
Licenses & Permits
$1,250
-$100
$1,150
Police Fines
$5,500
$0
$5,500
Fire Protection
$9,000
-$1,250
$7,750
$300
$0
$300
$2,500
$0
$2,500
$18,000
-$1,319
$16,681
$2,500
$0
$2,500
$0
$0
$0
$3,100
$0
$3,100
$12,000
-$3,696
$8,304
Monopole Rent
$0
$0
$14,062
SAC Charges
$0
$0
$0
$528,390
-$28,028
$500,362
General Property Taxes
Assessment Search
Interest Earnings
Town Road Settlement
Power & Light Settlement
Tax CreditsMH/AG/Cons/MV/PERA
Miscellaneous Revenues
Dustcoating
TOTAL:
The first Rolling Meadows scenario (3% fire service reduction) leaves a deficit
of -$16,892. The second scenario (5% fire service reduction) leaves a slightly
smaller deficit of -$16,627. If this area is annexed, it will put considerable
strain on Laketown Township’s budget and ability to provide services over
the long-term. However, with Laketown Township’s current savings and
investments, the township will be able to cover any budget shortfalls and
continue functioning at the current level of service for two decades or more.
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Annexation of Rolling Meadows (Disbursements)
2010
Estimated
Budget
Non-impacted
Disbursements
$265,390
Fire Contracts
$110,000
Loss from
Annexation
$0
Post
Annexation
$265,390
3% Reduction
-$398
$109,602
5% Reduction
-$664
$109,336
-$10,737
$142,263
Total with 3% fire
service cost reduction
-$11,135
$517,254
Total with 5% fire
service cost reduction
-$11,401
$516,989
Road Maintenance
Original Total
$153,000
$528,390
Oakwood Annexation Scenario
The Oakwood Annexation Area is located on the Eastern side of Laketown
Township on the shores of Lake Bavaria. It consists of two separate areas,
one containing the Oakwood subdivision near Lake Bavaria with Marsh Lake
road on its southern border, and the other area a mostly agricultural zone
bordered by Victoria Road and County Highway 10 (Map 1 & Map 5). The
Oakwood Annexation Scenario represents the scenario that is most likely to
occur immediately. According to the Chaska Comprehensive Plan, the
Oakwood area is slated for annexation sometime in 2010. The Oakwood
Annexation Area contains 116 parcels; from these parcels Carver County will
collect approximately $437,812 in property taxes in 2010. Laketown
Township’s portion of the taxes for 2010 is approximately $54,726.
There are 2.89 miles of road within the Oakwood Annexation Area, of which
0.25 miles is gravel and 2.64 miles is asphalt. Using the road maintenance
17
costs per mile, annual road maintenance costs for the Oakwood Annexation
Area are approximately $18,824. Laketown Township receives approximately
$2,678 from the State of Minnesota from the town road settlement for the
Oakwood Annexation Area. This was calculated by determining that there are
approximately 106 households in the annexation area and there are
approximately 2.9 people per household for an approximate total population
of 307 individuals. This population was then multiplied by $5.70, the amount
Laketown Township receives per person for the town road settlement. Each
mile in the annexation area was multiplied by $196.90, the amount Laketown
Township receives for each mile of road for the town road settlement.
The Oakwood Annexation Area is within the Chaska Fire Department service
area (Appendix A). Chaska will charge Laketown Township approximately
$33,159 for fire services in 2010. Chaska charges $126 per housing unit per
year for fire services. There are approximately 116 residential units within
the Oakwood Annexation Area, which translates to a reduction in fire service
costs to Laketown of $14,616.
Considering the Laketown receipts budget for the Oakwood Annexation
Scenario with these factors in mind, receipts would total $465,937.
The budget also shows that if this annexation occurs, Laketown Township will
disburse approximately $29,013 more than it receives in receipts. This
annual deficit will place an immediate strain on the resources of Laketown
Township when the annexation occurs. Laketown Township’s savings and
investments of approximately $700,000 will mitigate the impacts to some
extent, and this significant loss of income will likely not cause immediate
insolvency of Laketown Township. However, this annexation scenario in
conjunction with the likely 2010 annexation of the Hidden Bay/Schmittville
Annexation Area (or any of the other annexation scenarios) would place the
fiscal solvency of Laketown Township on very tenuous footing, and likely
18
would mean the township would become unable to maintain a sufficient
budget reserve within fifteen years.
Annexation of Oakwood (Receipts)
2010 Budget
General Property Taxes
Loss from
Annexation
After
Annexation
$460,178
$54,726
$405,451
Licenses & Permits
$1,250
$100
$1,150
Police Fines
$5,500
$0
$5,500
Fire Protection
$9,000
$1,250
$7,750
$300
$0
$300
$2,500
$0
$2,500
$18,000
$2,678
$15,322
$2,500
$0
$2,500
$0
$0
$0
$3,100
$0
$3,100
Dustcoating
$12,000
$3,696
$8,304
Monopole Rent
$14,062
$0
$14,062
$0
$0
$0
$528,390
-$62,453
$465,937
Assessment Search
Interest Earnings
Town Road Settlement
Power & Light Settlement
Tax CreditsMH/AG/Cons/MV/PERA
Miscellaneous Revenues
SAC Charges
TOTAL
Annexation of Oakwood (Disbursements)
Disbursements
Non-impacted Disbursements
2010
Estimated
Budget
$265,390
Loss from
Annexation
$0
After
Annexation
$265,390
Fire Contracts
$110,000
-$14,616
$95,384
Road Maintenance
$153,000
-$18,824
$134,176
$528,390.00
-$33,440
$494,950
Total
19
Conclusion
None of the individual annexation scenarios considered here will cause the
immediate demise of Laketown Township. However, if all of the annexation
scenarios occurred together, Laketown Township would be disbursing
approximately $54,015 more than it takes in from receipts. This would
deplete Laketown’s savings reserve to lower than 50% of their operating
budget in approximately seven years.
Total Annexation Scenario (Receipts)
2010
Estimated
Budget
General Property Taxes
Loss from
Annexation
Post
Annexation
$460,178
-$142,681
$317,497
Licenses & Permits
$1,250
-$400
$850
Police Fines
$5,500
$0.00
$5,500
Fire Protection
$9,000
-$5,000
$4,000
$300
$0
$300
$2,500
$0
$2,500
$18,000.00
-$6,805
$11,195
$2,500
$0
$2,500
$0
$0
$0
$3,100
$0
$3,100
Dustcoating
$12,000
-$8,986
$3,014
Monopole Rent
$14,062
$0
$14,062
$0
$0
$0
$528,390
-$163,872
$364,518
Assessment Search
Interest Earnings
Town Road Settlement
Power & Light Settlement
Tax CreditsMH/AG/Cons/MV/PERA
Miscellaneous Revenues
SAC Charges
TOTAL
20
If all four annexation scenarios occurred at once or in close chronological
proximity, Laketown Township would quickly reach a fiscal tipping point that
would make its continued existence as a municipality unsustainable. Under
the terms of the orderly annexation agreement, this situation would appear
to necessitate the complete and immediate annexation of Laketown Township
to the final borders delineated in the agreement.
Total Annexation Scenario (Disbursements)
2010
Estimated
Budget
Loss from
Annexation
Non-impacted Disbursements
$265,390
$0
Fire Contracts
$110,000
-$36,996
$73,004
Road Maintenance
$153,000
-$72,861
$80,139
-$109,857
$418,533
Total
$528,390
21
Post
Annexation
$265,390
Zumbra
Co
Parley
East Lake Annex
Map1
un
Zumbra
ty
Laketown Annexation Areas
Hi
gh
wa
y
11
30
hw a y
Auburn, West
Stieger
ty Hig
Auburn, East
Rolling Meadows Annex
Arboretum
Island View
Laketown
C oun
ria
Lunsten
Parley Lake
Waconia
Vic
to
t
un
Co
yH
igh
y
wa
30
Carl Krey
Burandt
Sc
an
Turbid
di a
a
Victori
Airport
Hidden Bay Annex
Tellers
Wasserman
Hi
Reitz
Bavaria
dd
en
County Highway 32
y
Ba
Oakwood Annex
Shady Point
County Highway 10
Pierson
Lakewood
Roads
Rolling Meadow Annex
un
Co
ty
Oakwood Annex
Hi
w
gh
East Lake Annex
ay
10
Lakes
AGRICULTURAL
RES 1-3 UNITS
RESIDENTIAL
0
0.25
0.5
1
±
1.5
2
Miles
Ma
rsh
L
Marsh
ake
Victori
a
County Highway 43
Hidden Bay Annex
Land Use
Shady Oak
Legend
ty
ay
w
h
ig
H
43
County
n
Highway
Data Source: Land Management Information Center, MN Department
ou of Administration, MetroGIS, MN DNR Data Deli
10
C
Created: 6/9/09
Hidden Bay / Schmittville Annexation Scenario
Map 2
Airport
C
ou
nt
y
H
ig
h
w
ay
10
Lynn
Reitz
de
Lynn Wood
d
Hi
d
Woo
n
Gary
Jan View
y
Ba
Legend
Roads
Hidden Bay Annex
AGRICULTURAL
RES 1-3 UNITS
RESIDENTIAL
0 0.05 0.1
0.2
0.3
0.4
Miles
±
County Highway 10
Lakes
Data Source: Land Management Information Center, MN Department of Administration, MetroGIS, MN DNR Data Deli
Created: 6/9/09
Parley
East Lake Annexation Scenario
Map 3
Parley Lake
Legend
East Lake Annex
hway
30
Roads
Waconia
y Hig
Lakes
Coun
t
Land Use
AGRICULTURAL
CEMETERY-PUBLIC
Arboretum
Island View
CHURCH
COMM LAND & BLDGS
COUNTY PUB SERV-OTH
QUALIFY GOLF COURSES
RES 1-3 UNITS
RESIDENTIAL
STATE ACQUIRED
0.5
0.75
1
Miles
ia
0.25
nd
0.125
a
Sc
0
±
Data Source: Land Management Information Center, MN Department of Administration, MetroGIS, MN DNR Data Deli
Created: 6/9/09
Map 4
Rolling Meadows Annexation Scenario
Parley Lake
Lunsten
Auburn, West
Auburn, East
Arboretum
Ca
rd
l
y
k
La
Wildwood
Spring Va
lle
ina
o
et
wn
Legend
Roads
Rolling Meadow Annex
Lakes
Land Use
RESIDENTIAL
ZERO EMV
0
0.05 0.1
0.2
0.3
±
rs
COMM LAND & BLDGS
lle
Te
AGRICULTURAL
Turbid
0.4
Miles
Data Source: Land Management Information Center, MN Department of Administration, MetroGIS, MN DNR Data Deli
Created: 6/9/09
Carl Krey
hway 43
Oakwood Annexation Scenario
Wasserman
Map 5
Hills
Shady Oak
Bavar
ia
Shady Point
Victoria
County H
ig
Bavaria
ria
va
Ba
Ma
rs
Marsh
hL
ake
Bav
aria
Arboretum
cto
Vi
ria
Legend
Roads
t
un
Co
Oakwood Annex
y
Lakes
gh
Hi
Land Use
y
wa
CHARITABLE INS
RES 1-3
3 UNITS
y4
RESIDENTIAL
wa
t
un
o
C
0
igh
H
y SEASONAL RES REC
STATE ACQUIRED
0.125 0.25
0.5
±
0.75
Bavaria
10
AGRICULTURAL
1
Miles
Data Source: Land Management Information Center, MN Department of Administration, MetroGIS, MN DNR Data Deli
Created: 6/9/09
Vi
cto
ria
Appendix A: Carver County Fire District Service Areas
27
28
Appendix B: “What Is the Optimal Level of Local
Government Fund Balances?” by Kenneth Kriz
29
What Is the Optimal Level
of Local Government Fund Balances?
by Kenneth A. Kriz
Photo by Steve Schneider
S
ometimes it is amazing even to
observers of public finance how fast
financial situations can change. In
November 2000, the Minnesota State
Economist released the official state
economic and budget projection. It
forecast a surplus for fiscal year 2001
(ending June 30, 2001) of just more
than $900 million. Further, it projected
a fiscal biennium 2002–2003 surplus of
$2.1 billion. Based at least in part on
these projections, Governor Jesse
Ventura proposed a $925 million sales
tax rebate and permanent income tax
cuts of $1.1 billion, both of which were
supported by the Republican-controlled
Minnesota House of Representatives. The
governor’s budget also contained transportation measures supported by the
Democrat-Farm-Labor (DFL)–controlled
8 CURA REPORTER
Senate totaling $500 million, along with
other spending increases of $1.49 billion.
The budget that ultimately passed
contained almost $800 million in rebates
along with $300 million in increased
transportation funding. Additionally, the
governor’s “Big Plan” tax reform
contained many provisions that permanently reduced state and local revenues.
The economic optimism that characterized the 2001 legislative session soon
changed. The annual economic and
budget projection released by the
Minnesota Department of Finance in
November 2001 projected a fiscal biennium 2002–2003 deficit of more than
$2.1 billion and a fiscal biennium
2004–2005 deficit of $2.5 billion. Given
this sharp turnaround, Governor
Ventura proposed a package consisting
of net tax increases of $400 million,
one-time savings of $340 million,
spending cuts of $700 million, and use
of budget reserves from the state’s
“rainy day” fund totaling $650 million.
The Minnesota State Legislature finally
passed a budget proposal that used total
fund balances of $1.3 billion along with
$375 million in spending cuts and $130
million in one-time savings to close the
revenue gap, and then overrode the
governor’s veto of the proposal.
However, not even this magnitude
of budget changes could preclude the
deterioration of the state’s budget position. By the time the November 2002
budget and economic forecast was
released, the state faced a $356 million
deficit for the current fiscal year
(FY2003), and a forecasted $4.56 billion
Photo by Steve Schneider
The diversity in revenue mix among Minnesota municipalities suggests that the 5%
fund balance recommended by the state may not be optimal for all local governments.
deficit for fiscal biennium 2004–2005.
Newly elected governor Tim Pawlenty
faced very tough decisions when the
February 2003 forecast showed little
improvement in the deficit position.
Governor Pawlenty closed the FY2003
deficit by using budget reserves and
making some unallotments, along with
accepting some voluntary spending
cancelations. The governor’s response
to the projected deficit was a proposed
budget that included spending cuts of
approximately $2.7 billion from the
February 2003 forecast and revenue
increases of approximately $1.7 billion.
The bulk of the revenue increases was to
come from transferring in the balance
of the state’s tobacco settlement fund,
as well as some other funds. Only $200
million of the revenue increases represented permanent increases. The
spending cuts were heaviest in five
areas: health and human services, local
government aid, higher education,
K–12 education, and transportation.
The legislature made a few significant changes in spending, shifting some
cuts away from local government aid
and health and human services, while
allowing K–12 education to suffer
deeper cuts. However, the general aim
and magnitude of the governor’s
proposals (heavy cuts from base budget
expenditures and the use of one-time
revenue enhancements) was maintained. Only with these massive
changes did the tide of red ink seem to
abate somewhat. When the Minnesota
Department of Finance released its most
recent budget forecast in November
2003, it projected only an additional
$185 million deficit for fiscal biennium
2004–2005 and a forecasted fiscal biennium 2006–2007 deficit of $396 million.
The story of Minnesota is just one of
many stories of state budget woes that
have emanated from the nation’s recent
economic recession. Although the
2001–2002 recession is considered one
of the mildest in history, according to
the National Conference of State Legislatures’ State Fiscal Outlook for FY2002—
January Update, 39 states were forced to
make budget cuts or holdbacks. The
ability of states to draw on budget
reserves in the form of formal rainy day
funds or unreserved fund balances has
been a strong mitigating factor in the
battle for budget solvency. Through
January 2002, 26 states had used budget
reserves to offset declining revenues.
Another mitigating factor has been the
ability of states to cut aid to local
governments. This was evident in the
case of Minnesota, where local government aid suffered a $641 million cut
from fiscal biennium 2002–2003 to
fiscal biennium 2004–2005.
In arguing his case for local government aid cuts, former Governor Ventura
produced reports that showed that local
governments in the state were running
very high unrestricted fund balances,
with most cities having fund balances
that represented more than 30% of total
annual revenues for the previous year,
and some local governments having
balances greater than 100% of total
annual revenue. This figure is significantly more than the state’s recommendation of 5% fund balances.
Furthermore, because aid to local
governments is a large part of the state’s
annual budget and local governments
were saving so much, it was argued,
keeping local government aid at its
traditional levels was a poor budget
choice for the state as a whole.
But this line of argument (which was
also made in other states) rests on a
fundamentally suspect assumption.
The state guideline of 5% fund balances
seems an arbitrary figure.1 Why should
the optimal level of fund balances be 5%
for all local governments in the state?
There is, after all, some diversity in
revenue mix among Minnesota municipalities. The largest municipalities in the
state tend to rely more on aid and less
on property tax revenues than do small
cities. Some cities have adopted local
option sales taxes to support specific
projects.2 Property tax bases in the state
also vary greatly in size and mix of uses.
Any of these might cause the need for
fund balances higher or lower than the
5% level suggested by the state.
So at least two questions emerge that
must be answered. First, is the optimal
level of fund balance for local governments always 5% (or more broadly, is it
always the same for all local governments)? Second, what are the factors that
might change the recommendation for
fund balance levels? This article analyzes
these questions using a simulation model
of local government revenue and expenditures. The model is calibrated to historical data from large- and medium-sized
cities in Minnesota. The research for this
project was supported through a New
Initiatives Program grant from CURA.
1
The analysis that was used to support Governor
Ventura’s argument for reducing local government
aid has many other flaws besides the assumption
concerning a 5% fund balance. For example, the
analysis of local budget reserves conducted by the
Minnesota Department of Revenue was based on
Comprehensive Annual Financial Report balance
sheet data. Because the state does not award local
government aid to cities until approximately three
months into the fiscal year, and because property
tax revenue collections may not occur until six
months into the year, local governments often
keep high fund balances at the end of the fiscal
year to balance cash flows. In addition, the analysis included fund balances in all funds, although
balances in some funds (proprietary or trust fund
types) are often restricted and cannot be used for
general expenditures.
2
Unlike many states, Minnesota does not allow a
local option sales tax for general purposes, only for
specific projects or purposes.
WINTER 2004 9
Determining the Optimal
Level of Budget Reserves
There are at least two broad observations that can be made regarding the
existing literature on budget reserves.
The first is that the literature is
extremely concentrated on state budgets
and reserves. There is very little discussion of the role of reserves at the local
level.3 The second observation is that
the models developed in the existing
literature tend to be ad hoc in nature.
Joyce,4 to take only one example,
discusses five factors that he considers
elements of the volatility of revenues,
and then develops a model of the
optimal level of reserve funds based on
which factors are present in a state
budget. But he offers no evidence documenting the reasons that these five
characteristics contribute enough to
volatility to create the need for
increased reserves, nor does he document that these characteristics are
exhaustive of volatility sources. In short,
there has been no systematic modeling
of the need for budget reserves and the
optimal level of those reserves.
The remainder of this section
describes the simulation model that was
developed to measure the optimal level
of reserve funds. To more fully capture
the conditions producing the need for
reserve funds, as well as to point out the
choices facing jurisdictions attempting to
plan for future expenditure needs, an
economic model of revenue and expenditure growth was developed. This model
suggests that there are four main drivers
of the optimal level of reserve funds:
revenue growth, revenue volatility,
desired expenditure growth, and the
interest rate earned on invested fund
balances. Next, a simulation model was
created by treating revenue growth and
variability, along with the interest rate
earned on investments, as variables that
can be measured but are sources of risk
for policy makers. Desired expenditure
growth was treated as a policy variable
that can be managed by policy makers.
In other words, one response to a more
uncertain revenue stream might be to
work to reduce expectations for future
growth in expenditures.
To enter the revenue growth and
variability into the model in a policy
relevant way, I obtained data for all
cities in the state of Minnesota with
populations greater than 10,000 for the
years 1984 to 1999. The data were
obtained from the Minnesota State
Auditor’s Office, which keeps a database
of local government financial data
(sample reports are available at
www.osa.state.mn.us/downloads.lasso).
The sample size for the study was 83
cities. Initially, an attempt was made to
distinguish between revenue items and
model their growth separately.
However, this was difficult for some of
the revenue sources. To illustrate, the
distributions of annual percentage
changes in various revenue sources are
shown in Table 1. For revenue sources
such as intergovernmental revenues
and service charges, the variability in
revenue is so large that it creates an
obvious need for very large budget
reserves. In this report, I concentrate
on volatility in total revenue and property tax revenues and discuss some of
the policy implications that arise from
the results.
The method used to compute the
optimal level of budget reserves was a
Monte Carlo simulation. The model was
run using the Microsoft® Excel add-in
Crystal Ball® 2000, made by Decisioneering Incorporated. Monte Carlo
simulations were first developed in the
1940s during the Manhattan Project.
Although infrequently used in public
finance research, Monte Carlo simulation
is one of the core methods used to assess
optimal strategies in the face of uncertainty. The simulations allow an analyst
to predict potential future values for a
theoretical model by entering a large
number of random inputs and then
recording outputs generated from the
model. The outputs—which are usually
in the form of probability distributions—
show the range of potential risks and
rewards of decisions based on the theoretical model under study. For this study,
the growth and volatility of the revenue
sources was modeled as a revenue growth
factor with a normal (bell-shaped) distribution, with the mean and standard
deviation of the distribution equal to the
historical mean and standard deviation
shown in Table 1.
Additionally, revenue growth from
one year to the next is not independent.
There is “serial correlation” in the data,
meaning that one year’s revenue growth
is correlated with the previous year’s
growth. Prospective growth rates were
therefore correlated in the model using
this historical pattern. Interest rates were
approached as a discrete variable taken in
increments of 3%, 5%, and 7%. The base
level of interest rates is 5% because the
discount rate should be approximately
equal to the rate of return on government investments. Discount rates much
less than 5% would indicate that governments should engage in arbitrage,
borrowing money from private markets
and investing in reserve funds. Discount
rates much higher than government
rates of return on investment indicate
that governments should keep little or
no reserves and merely let citizens and
taxpayers assume the risk of sudden
changes in macroeconomic conditions
that affect budget position. Finally,
desired expenditure growth was modeled
in the range of 3% annual growth to 5%
annual growth. With average annual
revenue growth in the 6% range, more
than 5% growth would be unrealistic, so
an upper bound of 5% seems justified. A
nominal expenditure growth rate of less
than 3% means that in real terms, expenditures are falling (the average annual
change in the Implicit Price Deflator for
state and local government purchases for
the period 1983–2000 was 3.21%).
Finally, the simulation was modeled for a
period of 25 years. This time frame was
3
There are two major exceptions to this. Wolkoff
discusses the establishment of rainy day funds in
cities and documents their structure. See Michael
Wolkoff, “An Evaluation of Municipal Rainy Day
Funds,” Public Budgeting & Finance 7 (Summer
1987): 52–63. Tyer discusses policy alternatives and
strategies surrounding the creation of reserve funds
in general. See Charlie Tyer, “Local Government
Reserve Funds: Policy Alternatives and Political
Strategies,” Public Budgeting & Finance 13 (Summer
1993): 75–84. Neither of these articles analyzes the
optimal level of reserve funding at the local level.
4
Philip G. Joyce, “What’s So Magical about Five
Percent? A Nationwide Look at Factors That
Influence the Optimal Size of State Rainy Day
Funds,” Public Budgeting & Finance 21 (Summer
2001): 62–87.
10 CURA REPORTER
Table 1. Summary Statistics for Growth and Variability of Revenue Sources
Revenue source
Mean annual
growth rate
Variability
(standard deviation)
Property tax
8.61%
12.86%
Intergovernmental revenue
3.11%
22.13%
Service charge
5.25%
21.23%
Total revenue
6.55%
14.46%
Note: All figures are based on calculations conducted on nominal data.
chosen because it provides a balance
between the need for current expenditures and the desire to save for future
expenditure needs.
Table 2 provides the base results of
the simulation. It lists the necessary
budget reserve as a percentage of current
total revenues to sustain a desired
expenditure growth rate with a specific
confidence level. Interpreting one
column of the table, if a jurisdiction
wanted to be 25% confident that it
could achieve a 4% growth rate of
expenditures,5 it would not need any
fund balance. But if it wanted to achieve
that growth rate with 50% confidence,
it would need a fund balance of slightly
more than 30% of total revenues. If it
wanted to sustain that 4% expenditure
growth rate with a 75% confidence
level, it would need a fund balance of
191% of total revenues.
Table 3 shows the results achieved
when varying the interest rate,
assuming a base desired expenditure
growth rate of 3%. This table shows that
the base results are somewhat affected
by differing interest rates, but the
median (i.e., 50% confidence) results
indicate fund balances of more than
25% of total revenues for interest rates
up to 7%.
There is less need for budget reserves
when using a less volatile revenue
source. Table 4 reports the results of the
same analysis using the property tax
growth and volatility figures. The table
shows that for desired expenditure
growth rates of less than 5%, very little
or no reserve funds are necessary with
50% confidence. However, even using
the property tax, one would still need a
sizable reserve fund to reach the 75%
confidence level.
Conclusions and Implications
The results of this analysis suggest that
a standard 5% rule for local government fund balances is far too oversimplified and is likely to be inadequate to
maintain, with much confidence, even
moderately high growth rates in
government expenditures for extended
periods. The 5% rule seems to have a
basis in credit ratings because the rule
was originally credited to “Wall Street
analysts.” Even among such analysts,
however, recently there has been
movement toward higher recommended reserve fund levels. For
example, Standard and Poor’s criteria
now suggest that total general fund
5
In Bayesian terms, the posterior probability that
it could sustain a 4% expenditure growth is 25%.
Table 2. Base Simulation Results (Assuming an Interest Rate of 5%)
Confidence level
Desired expenditure growth
3%
4%
5%
25%
0.00%
0.00%
7.54%
50%
8.88%
30.66%
99.29%
75%
80.15%
191.32%
407.34%
Table 3. Simulation Results with Varying Interest Rates (Assuming Desired
Expenditure Growth of 4%)
Confidence level
Interest rate
3%
5%
7%
25%
0.00%
0.00%
0.00%
50%
36.24%
30.66%
26.44%
75%
237.64%
191.32%
153.15%
Table 4. Simulation Results Using Property Tax Growth and Variability (Assuming
an Interest Rate of 5%)
Confidence level
Desired expenditure growth
3%
4%
5%
25%
0.00%
0.00%
0.00%
50%
0.00%
1.30%
10.31%
75%
25.67%
58.14%
134.82%
balances be at least 15% of general
fund revenues for the jurisdiction to
achieve a “strong” rating in this area. A
more reasonable figure supported by
the research in this report is at least
25% of total revenues.
My results also show that this
recommendation is strongly
dependent on a particular jurisdiction’s revenue history and revenue
mix, the jurisdiction’s desire for future
expenditure growth, and the success of
the jurisdiction in producing interest
earnings on its fund balances.
Although 5% is a recommendation
that may work for some jurisdictions—
especially those that have strong
revenue growth rates and low revenue
volatility along with strong discipline
in constraining future expenditure
growth pressures—it can hardly be
viewed as a universally optimal level.
It is interesting to note that the results
of this analysis imply that as jurisdictions shift toward less reliance on
property taxes, they should keep
significantly higher reserves.
The implications of these findings
are that jurisdictions need to thoroughly analyze their revenue histories
to develop working policies for appropriate reserve fund levels. The important point is that there is no magic
recommendation that will shield jurisdictions from budgetary stress during
economic hard times. At the state level,
even states with strong reserve funds
entering the last recession encountered
fiscal distress.
There are some limitations of this
research that should be discussed. First,
past data are not necessarily representative of future conditions. However, the
burden of proof should lie with those
that seek to model the future in a way
different from the past. Even within the
16 short years from which the data were
draw for this analysis, there are periods
of economic expansion and decline. As
more data can be brought to bear on the
issue, we can get a better picture of
historical trends. Projecting future
outcomes that deviate significantly from
historical trends is risky at best. Second,
WINTER 2004 11
Photo by Mike Greco
only two sources of revenue were used
for this analysis. As more data become
available, it will be necessary to model
only those revenue sources that are used
to fund general government activities
(general and debt service fund
revenues). Still, within the bounds of
these limitations, this article offers a
unique approach to the question of
reserve funds, and finds the current
recommendation lacking. Reserve fund
policies should be an individual jurisdiction’s policy and must be evaluated in
the context of each jurisdiction’s particular economic situation.
A standard 5% local budget reserve may
be inadequate to maintain even moderately high growth in government expenditures for extended periods. A more reasonable figure supported by this research
is at least 25% of total revenues.
Initiative grant from CURA. These grants
support projects that are initiated by
faculty, community organizations, government agencies, or students and that are
not appropriate for consideration under
another CURA program. A version of this
article was previously published as “The
Optimal Level of Local Government Fund
Balances: A Simulation Approach,” State
Tax Notes (March 10, 2003): 887–892.
Kenneth A. Kriz is assistant professor of
public finance at the School of Public
Administration, University of Nebraska at
Omaha. He was assistant professor of
public and nonprofit management at the
Hubert H. Humphrey Institute of Public
Affairs at the time the research for this
article was undertaken. His current
research focuses on municipal debt
management, economic development
policy, and transportation finance, along
with the use of alternative estimation
techniques in public finance. He teaches
courses in public sector economics, public
finance, and statistical analysis.
The research upon which this article is
based was supported through a New
Updated Directory of Nonprofit Organizations of
Color in Minnesota Coming Soon!
T
he Directory of Nonprofit Organizations of Color in Minnesota, which
was first published in 1991, has
long been one of CURA’s most popular
publications. The latest edition of the
directory—published in fall 2001—lists
more than 600 not-for-profit associations, organizations, and mutual assistance and fraternal groups in the state of
Minnesota that are controlled by people
of color or primarily serve one or more
communities of color. To make information about Minnesota’s nonprofit organizations of color more widely and easily
available, the last edition of the directory
was also converted into a searchable
online database that can be found at
12 CURA REPORTER
www.cura.umn.edu/publications
/npoc.html.
We are pleased to announce that
during the next few months, CURA will
be undertaking an update of both the
print and online versions of the directory. This effort will include contacting
all organizations listed in the fourth
edition to ensure that information about
the organization is accurate and up-todate. One of the most difficult tasks in
updating the directory, however, is to
identify new organizations of color in
Minnesota that have appeared during
the last few years. If you know of new
nonprofit organizations of color that are
not currently listed in either the print or
online directory, or if you know of other
directories that list nonprofit organizations of color in Minnesota, please let us
know by phone at 612-625-7501 or by
e-mail at [email protected].
The updated print edition of the
directory is slated for publication in fall
2004. Look for an announcement in
future issues of the CURA Reporter.