Litchfield’s financial position is strong as it and communities across the country face the uncertainty of a pandemic-created recession.
That was the assessment of Justin McGraw of Conway Deuth and Schmiesing, who presented the city’s audit report during the City Council meeting April 20.
The city has “really good fiscal policy that put you in the position you are in today,” McGraw said. “You’re set up to the point where you’re not scrambling to figure out how you’re going to pay your light bill.”
The city’s electric fund saw the largest increase in net position over the previous year among its proprietary funds — more than $1.6 million — due to an increase in service charges and contingency payments it received from Southern Minnesota Municipal Power Agency, according to the audit. The sewer fund also saw an $88,764 increase due to service charge increases, but its operating income declined due to unbudgeted depreciation expense.
The general fund, the main operating fund of the city, had a balance of $1.501 million, up slightly from 2018’s $1.463 million.
Those fund balances were a good sign, especially with current economic uncertainty, McGraw said. The city’s total fund balance of $3.7 million, he said, gives it about a nine-month cushion when compared to 2019 expenditures.
That’s important as the city waits to see how great an impact the COVID-19 pandemic has on residents’ ability to pay property tax and whether the state Legislature alters its local government aid distribution.
“If you’re not bringing cash in from property tax or LGA, you may start to feel it there in the long run … depending on how long the COVID crisis goes on,” McGraw said.
In the short term, the more likely impact on the city’s financial picture will be residents’ ability to pay utility bills. “The utility funds will be the best indicator of people’s inability to pay,” McGraw said.
But with the city’s fund balance growing at a steady, planned rate, it still is in good position “if the revenues started to dry up.”
“We usually recommend six months as a minimum (balance), and you’re three months past that,” McGraw said. “If (there were) significant delays in LGA or others (payments), you have about nine months of wiggle room.”
That assessment was greeted with optimism by Councilor Ron Dingmann, who highlighted that the nine months’ cushion was if there were no revenue coming in to the city.
“We’re going to have some revenue coming in,” Dingmann said. “We can assure citizens we’re in pretty good shape.”
