As you have undoubtedly read in your local newspapers, townships are often criticized for possessing seemingly high cash balances. However, what the newspapers will not report is that these apparent “surpluses” can actually be explained in one of three ways.
1) Townships historically are known for making cash payments for capital purchases in lieu of bonding. Many townships are currently saving cash over several years in order to purchase or repair a piece of fire apparatus or build a needed fire station. Just like with a typical family, this is the most fiscally prudent approach to take. Whereas many townships save up over time to make their purchase, other units typically bond for the purchase, forcing them to repay the principle plus interest. Saving revenue over a long period of time ultimately benefits the taxpayer.
2) To address this issue, the ITA supports requiring townships to develop a “capital project plan” to identify such planned purchases. This will allow the public to better understand the reasoning behind the saved amount.
3) Local government units, including townships, have a disincentive to spend down cash balances because of a state law that we are working to change. SEA 1 (2004) took away the ability of local units to “bank” their unused levies. Under this “use it or lose it” concept, local units are forced to max out their levy each year or lose that max levy going forward. Several attempts have been made over the last few years to change this law, but those attempts have largely proven unsuccessful. Many townships would gladly spend down their cash balances if they do not lose their max levy going forward.
At the ITA’s request, Rep. Milo Smith has introduced HB 1288, which would restore the ability of local units to “bank” their unused levies, thus allowing townships to spend down cash balances without being penalized. That bill was unanimously passed by the Ways and Means Committee and is eligible for action by the entire House of Representatives.
Trustees have found that the numbers reported in newspapers are actually cash balances as of December 31st, immediately after townships receive one of their biannual tax draws. This number is grossly misleading because trustees must use these funds to operate the township for the next six months, until they receive their June draw. That’s like saying I have lots of money in the bank after I get my paycheck but before I pay my bills!