Village Funds Explained
As of February 28, 2009, the Village had $14,736,995 on deposit with various financial institutions. The diagram and explanations below show where the money is deposited and why the Village maintains these fund amounts rather than cutting taxes or distributing the funds to residents. Note that some funds have negative balances indicating that these funds "owe" the General Fund. Typically this is due to a cash flow issue for a fund; either an expenditure may have been required before the cash expected for the account was received or no revenue may have been allocated to that specific account.
Table 3: Village funds by Account as of 2/29/08 - Unaudited
|Fund Balances as of 2/28/09|
|Motor Fuel Tax||$821,472|
|Russell Storm Sewer||$58,345|
|Debt Service Funds||$369,760|
|Funds on Deposit as of 2/28/09|
|Wachovia Securities Fund 'A'||$2,500,579|
|Wachovia Securities Fund 'B'||$1,156,060|
|Howe Barnes Hoefer & Arnett, Inc.||$609,574|
|Northside Community Bank CDARS CDs||$1,741,353|
|Illinois Public Treasurers' Investment Pool (IPTIP) Account||$8,076,198|
|US Bank SSA Funds||$41,964|
|National City Bank SSA Funds||$179,182|
|Northside Community Bank||$433,122|
|The CDARS (Certificate of Deposit Account Registry Service®) program distributes Village funds to multiple banks up to the federally insured limit per bank to minimize risk.|
|Rounding error (Fund Balances less Funds on Deposit)||($1,037)|
This goal of the Village General Fund is to provide cash to operate the Village and provide services including the Police Department. As a matter of policy, the Village maintains a balance of $2,650,000 in the General Fund earmarked for the Police Department. This $2,650,000 represents a one-time donation from Discover Card and CCH in 2003 when the Police Department was established and is intended to provide income to support the Village Police Department without touching the principal. This has the effect of reducing the need to raise property taxes to support the Police Department.
The Village Board has set a target for the General Fund of $16.2M based on the replacement cost of the Village sewer and water systems (23 and 27 miles of pipeline respectively plus pumping stations, reservoirs, etc.)
Operating account for the Police department, the target balance for this fund is the Police Department operating expenses for the upcoming month.
Motor Fuel Tax Fund
Account to capture funds remitted by the State of Illinois for road projects. As this fund is restricted by the State of Illinois, the Board has not set a target balance and only uses the fund for Village road projects (culverts, re-surfacing, etc) on an as needed basis.
Duffy Roads Fund
Account established to maintain Duffy Road at the request of the Duffy Road Association after the Village paved the road as a Special Service Area improvement. Funded entirely by residents of Duffy Road.
Russell Storm Sewer Fund
Account established to maintain the storm sewers installed on Russell Road.
Debt Service Funds (SSA Funds 8,9,10,11,15,19,20)
These are funds collected from residents in the above named Special Service Areas to service the debt incurred in constructing water and/or sewer systems. All of the Special Service Area funds have a limited life of 10-20 years and will be retired with a zero balance when the debt is fully paid off.
Consolidated Water Fund
This account serves as both the operating and reserve account for the Village water system. The Village has built a reservoir and 27 miles of water mains covering a large percentage of the Village which has a replacement cost of $23,000,000 based on a replacement value study completed by Gewalt Hamilton in April 2009. The target balance for the fund is designed to cover the replacement of the water system over a 50 year life for the mains and reservoir and 20 year life for pumping equipment. The Village Board of Trustees has set a target balance for the water fund of $7.1M based on the effective life of the system components.
Consolidated Sewer Fund
This account serves as both the operating and reserve account for the Village sewer system. The Village has built 23 miles o f sewer lines covering a large percentage of the Village with replacement cost of $20,000,000 based on a study by Gewalt Hamilton in April, 2009. The target balance for the fund is designed to cover the replacement of the sewer system over a 50 year life for the main lines and a 20 year life for pumping equipment.
The Village Board of Trustees has set a target balance for the water fund of $9.1M based on the effective life of the system components.
Performance Bond Fund
This fund holds performance bonds required of contractors when undertaking construction in the Village. The balance will vary with the level of construction activity at any given point in time.
Where does the Village deposit the money?
Funds are held on deposit at numerous financial institutions with the goal of minimizing the risk of default and maximizing returns to earn as much income as possible from funds held on deposit. The Village holds funds in a 10-year laddered portfolio of bonds and certificates of deposit (CDs). Laddering involves building a portfolio of bonds/CDs with staggered maturities so that a portion of the portfolio will mature each year. To maintain the ladder, money that comes in from currently maturing bonds is typically invested in bonds with longer maturities within the range of the bond ladder.
Laddering tends to outperform other fixed income (bond/CD) strategies because it simultaneously accomplishes two goals:
- Captures price appreciation as the bonds age and their remaining life shortens.
- Reinvests principal from maturing limited-term bonds (low yielding bonds) into new longer-term bonds (high yielding bonds).