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Finance committee weighs raising unassigned fund-balance target to two months
Summary
Orono’s finance committee reviewed a draft policy setting an unassigned fund-balance target equal to two months (16.67%) of operating activity, debated whether the base should be general fund revenues or municipal operating expenses, and discussed allowable uses for amounts above the target, including capital projects, debt reduction, or tax relief.
Orono’s Town Council Finance Committee on June 17 debated a draft fund-balance policy that would set the town’s target unassigned fund balance at 16.67% — effectively two months of operating activity — and require action if the balance fell below a 12% floor. Jacob, the committee chair, said the draft reflects guidance the town’s bond consultant and auditors provided and asked staff whether the committee wanted to vet the policy now or circulate a revised draft.
The proposal prompted detailed dialog about which number should be used as the denominator. Clint, the town manager, and Zach, the finance director, said the draft measures the target as a percentage of general fund revenues (the term used in the audit), while several committee members said they preferred framing it as a percentage of municipal operating expenses (the municipal operating budget that includes town, county and school commitments) because that is easier for residents and councilors to interpret. Zach said the two formulas should produce the same annual-calculated dollar value but recommended using audit language to maintain consistency with prior reports.
Committee members also raised liquidity and cash-flow concerns. Staff noted November is a heavy outflow month (county and school payments) and recommended using recent cash-flow analyses to validate the floor. The finance director said the town’s days-of-fund-balance metric is comfortably above typical thresholds today (staff cited about 155 days under current balances), but it would fall toward roughly 85 days if the balance dropped to the proposed 12% floor. Jacob said he wants the FY26 audit and recent daily cash-flow reports reviewed before the committee finalizes the number.
Members debated allowable uses for amounts exceeding the target. The draft lists capital improvements and one-time expenditures as recommended uses, subject to manager recommendation and council approval; some members asked that the language explicitly permit paying down debt and making taxpayer refunds or mill-rate reductions. Committee members suggested replacing the ambiguous phrase "one-time expenditure" with "one-time outlay" and adding examples so the policy does not needlessly constrain choices. Staff agreed to clarify the wording and keep a two-step check-and-balance (manager recommendation followed by council approval) for spending funds above the target.
The committee questioned technical terms in the policy as well. A member asked whether the policy should reference the audit’s term "unassigned fund balance" rather than the broader term "unrestricted." Staff advised following audit terminology and said they would check definitions with the auditor (RKO/Casey) to avoid confusion about "assigned" versus "committed" balances. The committee requested updated cash-flow data and the FY26 audit before taking a final vote and directed staff to prepare a revised draft that clarifies calculation base, allowable uses, and definitions.
Next steps: staff will update the draft to clarify wording on calculation base and permitted uses, verify terminology with the auditor, and return a revised policy to the finance committee prior to council consideration.
