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House of Representatives
Session of 2013 - 2014 Regular Session

MEMORANDUM

Posted:	October 30, 2013 10:59 AM
From:	Representative Duane D. Milne
To:	All House members
Subject:	Allowing townships higher cap on operating reserves

I will be introducing legislation on Thursday, November 7 that would amend the Second Class Township Code for the purpose of raising the level of allowable operating reserves for second class townships from the current 5% of general fund revenues to 25% of such. At present, the Second Class Township Code provides that such townships may maintain an operating reserve not to exceed 5% of the estimated revenue of the township’s general fund in the current fiscal year. I have been approached by township officials in my legislative district whose experience has been that the 5% limit is too low and believe that they should be permitted the local autonomy to go to higher levels if so desired and determined at the local level to be prudent for a given municipality. As you might know, township codes in general do not permit municipalities to establish a Rainy Day Fund akin to what state government can and does maintain. As a result, among other purposes, the operating reserve functions in part as a Rainy Day fund for a municipality. Unlike at the state level, the size of the “rainy day” fund is statutorily limited (i.e., the 5% threshold). Supervisors and others in my district and elsewhere express frustration that the cap works against fiscal prudence and planning, because of the limits imposed on the ability of a township to make decisions for itself and to save for the future. Supervisors note the importance of having revenue available in the case of an emergency or a shortfall in tax receipts. Local officials also point out that bond rating firms look at the level of capital and operating reserves when setting an interest rate, if a municipality chooses to borrow money. The township and taxpayers savings from a lower interest rate can be substantial in the case of a large bond issue. Given the foregoing, then, my legislation would raise the maximum allowable amount of the operating reserve to 25% of general fund revenue. Of course, any decision to maintain an operating reserve at all and the amount therein would remain at the local level, with the duly-vested authority of township officials in dialogue with their citizens. PSATS supports this legislative approach.

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