Some counties may be holding on to more reserve funds than necessary.
Why the numbers matter.
During debate in the 2023 Iowa Legislature over a technical correction related to the taxable value of properties, the spotlight touched on the topic of reserve funds. The correction in question lowers the amount of taxable valuation counties and other local governments can draw from, and some claimed they would have to cut emergency management positions or other core government services to make up the difference. This threat led lawmakers and others to examine local government reserves to determine whether there would be enough cash on-hand to fill any perceived gaps. It also led ITR Foundation to review financial information in all of Iowa’s 99 counties to see exactly how much counties have in their coffers.
What a reserve fund is.
In local government finance, reserve funds are also referred to as “ending fund balances.” Essentially, they represent the accumulation of operating surpluses a county has been able to leave untouched and available for future use. Of course, because nothing is straightforward in government finance, many different types of reserve funds exist, but the one considered a true reserve fund is the General Fund Unassigned Fund Balance. Local governments aren’t restricted in how they can spend “unassigned” dollars. They can stabilize cash flow during the first few months of a fiscal year before receiving property tax payments, provide cushions for unexpected expenditures or unforeseen dips in revenue, or apply them to any other uses that state or local rules don’t forbid.
The following map of Iowa’s 99 counties shows their reserve funds as a percentage of their expenditures — that is, how much of their budgets they could fund with no revenue at all. A good governance rule of thumb suggests a responsible and reasonable ending balance target would be somewhere between 15 and 30 percent of annual General Fund Expenditures. Unassigned General Fund dollars, or reserves, beyond that range may be considered excessive.
For fiscal year 2022, Iowa counties had more than $650 million in their Unassigned General Fund balances, compared with around $1.4 billion in General Fund expenditures. The average for all 99 counties came to 46 percent, well above the target. Some counties may be holding on to more reserve funds than necessary.
In both dollar and percentage terms, Pocahontas County has the smallest reserves, with $119,810, or 2 percent of annual expenditures on hand. Clinton County has the highest percentage, with 122.4 percent, and Polk County has the largest balance overall, at $129.5 million.
In total, 69 counties are holding more than 30 percent of their expenditures in unassigned fund balances, with five of them over 100 percent of expenditures. On the other side of the scale, five counties have less than 15 percent of their annual expenditures in their reserve accounts.
Details for your county can be found directly from our source: 2022 Annual Financial Reports from Iowa Department of Management. If you decide to look at the data yourself, keep in mind that counties use different accounting methods: cash accounting and accrual, or Generally Accepted Accounting Principles (GAAP), accounting. While this distinction doesn’t make a big difference to most of us, it matters significantly when digging into counties’ budgets and aligning tax collections and expenditures. Five counties (Black Hawk, Cerro Gordo, Linn, Scott, and Woodbury) use GAAP.