Can a city be too thrifty?

Provo's independent auditor raised that concern Tuesday, noting city reserve funds run a little too deep.The annual audit, conducted by the accounting firm of Hawkins, Cloward and Simister, says the city has a general-fund balance of $4.5 million - more than $1.2 million above the legal amount. State law puts a cap on reserve funds at 18 percent, and the city has exceeded that amount six of the past seven years.

Mayor George Stewart said the city has had excess reserves balances the past few years because sales-tax revenue has exceeded projections. Still, the mayor said his policy will be to maintain a 15 percent reserve in each fund.

"Who knows how long this great economy we have today will continue," he said.

City officials, however, say the excess reserve balance does not mean the city has a lot of extra money to spend. Most of the money is earmarked for future projects.

"We just can't spend the money this year, because we plan on spending it next year," Stewart said.

$1.6 million of the reserve amount is set aside for construction of a new connector road between U.S. 89 and U.S. 189. Construction on the road, which will connect southeast Provo to I-15 near Novell, is expected to begin in about eight months.

The audit also revealed a few areas where the city is not using proper internal control procedures and not complying with guidelines established for state and federal funds. For the most part, however, auditors gave the city's financial picture high marks.

"Nothing major has been found here. There are no show stoppers," a representative of the auditing firm told the City Council.

The city has a vehicle management fund, and the audit shows some vehicle were not purchased through that fund. Auditors found some instances where certain departments failed to notify the financial department in a timely manner of real-property purchases and sales.

One employee in the Personnel Department has accumulated more than 1,600 compensation hours even though federal law allows a maximum of 240 such hours. Auditors also found two instances where the city spent federal funds before allowable expenses were incurred and one instance of spending state funds before the expenses were incurred.

City officials are not too worried about the problems and say they can easily be corrected. They're more concerned about the city's debt obligations and the energy department's small equity line.

Auditors said the Energy Department has about $63 million in assets but is about $62 million in debt. The debt covers the city's costs in the Hunter, Bonanza and Cove Fort power projects. However, the city also owns 80 percent of the Utah Municipal Power Agency, which owes more than $40 million in bond obligations.

"(Previous mayors) are used to seeing far more debt than I'm comfortable with," Stewart said.

While the city could legally bond for about $100 million more, Stewart and most council members are concerned the Energy Department's debt could fall back on the general fund. If cheaper power becomes available the city might be required to reduce rates resulting in even less revenue with which to repay the bonds. The city's current annual debt obligation is about $7 million.

"If we run short on power sales, we'll have to have money available elsewhere to meet those obligations," the mayor said.

Because of the Energy Department's debt, officials say the city will not bond to complete much needed road and storm drain projects. Instead, the city will finance most infrastructure projects with community development block grant funds. In the past, the city has used most grant funds for economic development projects.

"As long as that money is available, we'll use most of it for roads and streets," Stewart said.

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ADDITIONAL INFORMATION

A city in the green

Provo's general-fund reserve balances:

YEAR RESERVES LEGAL LIMIT EXCESS

1988 $3,120,000 $2,098,000 $1,022,000

1989 3,621,000 2,065,000 1,556,000

1990 4,043,000 2,907,000 1,136,000

1991 3,150,000 2,645,000 505,000

1992 2,013,000 2,600,000 -587,000

1993 4,252,000 2,895,000 1,357,000

1994 4,528,000 3,280,000 1,248,000