The day may come soon when the city of Maple Valley will have to issue bond levies to finance projects rather than dip into its general fund, according to city officials.

At the City Council’s July 23 meeting, Finance Director Tony McCarthy gave a presentation explaining how the city’s general fund balance has been more or less diminishing since 2005.

A general fund balance is the amount of funds the city ends a year with. In a telephone interview, McCarthy explained that a general fund balance is much like a person’s assets minus liabilities, such as credit debt. The general fund balance percentage refers to the amount of money the city has to pay for the year’s expenses.

One month, therefore, accounts for 8.3 percent. The city’s general fund balance is currently at 30 percent. But the city’s financial forecast report has the percentage dropping each year until it reaches 10 percent by 2017.

If it were to drop that low, McCarthy said, the city’s bond rating could be lowered.

In February, Standard and Poor’s confirmed the city’s AA+ rating, but noted that “If the district (city) were to significantly draw down its General Fund (fund balance) we could lower the rating.”

City Manager David Johnston called it a “nice warning.”

“What they’re saying is that…the more you show in your savings account the more confident the investments, the buyers of the bond have that you’re a more stable environment,” Johnston said.

Johnston stated it was also a reminder that the city will eventually have to find other revenue sources to avoid dipping into its general fund to pay for capital and community projects. He said there were several options available, including a bond levy.

“When it comes to any vote initiative, we look at our capital programs or roads improvements,” Johnston said. “You have to ask the voter to have a bond issue which would then dedicate and that goes on top of the property tax bill…Property taxes are stable, you’re always going to get it. So that’s one option.”

Another option is levy lid lifts and transportation benefit districts, which allow the city to raise car tab fees to $40 without a voter initiative, when it was previously $20.

Johnston added, however, “most cities haven’t gone that high.”

McCarthy stated the city’s general fund balance began to decrease in 2005 when it was at 70 percent. The city’s November 2006 purchase of Lake Wilderness Golf Course had a significant effect on the balance.

Johnston stated in an interview, as well as to the council at its July 23 meeting, that the city needs to preserve its general fund balance in order to maintain its bond rating, so if Maple Valley were to issue bonds the interest rates would remain low.

“We have to be very careful how we expand our services,” Johnston said. “There’s always a temptation to do more and even though there’s a 28 percent fund balance, people say ‘You’ve got it, spend it before you come to us.’ You don’t understand, if we spend it and come to you the interest rates are going to be higher because of the lower bond rating. You always have a reserve bond just in case. I know our policy is 10 percent. Most public agencies in the training we get these days say 20-25 percent’s good. That’s what they try to tell you.”

Johnston told the council that debt-financing could employed to avoid using general funds.

“We talk about this point with you because in our other discussions throughout the year we talked about how we may be entertaining using debt as a way of meeting some of our citizens needs when it comes to park and recreation or other capitals needs in the future,” Johnston said. “Therefore we have to remain cognizant of what our bond rating agency is telling us. Just being very basic the lower the rating the cost of using debt goes up and that adds a cost to the debt of our citizen who are asked to repay it, so we really strive to keep it at that 10 percent. We treat it as a floor and it’s our goal to never get to the floor.”

Despite the numbers in the general fund forecast report, McCarthy remained optimistic and said the numbers are merely in keeping with Maple Valley’s habit of budgeting conservatively, where spending is intentionally overestimated and revenue intentionally underestimated.

“I think what their problem has been…is that it always look like it’s (fund balance) going to be lower… because we try to budget conservatively, but if you at the chart from the last year it’s 30 percent for 2011,” McCarthy said. “It’s still 30 percent (now). More than likely when we get the real (tax revenue) numbers from Fred Meyer it won’t go down that far. Basically we always try to be conservative. They’re (Standard and Poor) saying if it did what we say it’s going to do in the budget they would have some concerns. But we’re always better than that.”