Executives of companies that start hoarding loads of cash shouldn’t be surprised if their shareholders ask questions.
Why isn’t this money being used to grow the business and generate even more profits? Or, why isn’t it being returned to the investors?
We think taxpayers should be asking similar questions about local government bodies that also hoard cash.
While state and federal governments are going broke, a story in last week’s Northwest Herald might have surprised some readers. The story detailed how some smaller municipal governments in McHenry County have been piling up large reserves of cash, even as property-tax bills have risen and property values have declined.
State law doesn’t mandate what an individual taxing body should keep in reserves – neither a minimum nor a maximum. But as a matter of policy, agencies should use sound judgment and not build excessive amounts of cash reserves. After all, it is taxpayer money we’re talking about.
If government bodies don’t need all the tax revenue they collect in a given year, perhaps they’re collecting too much from their taxpayers.
The Government Finance Officers Association of the United States and Canada recommends that a minimum of two months of expenses be kept in reserve by governmental agencies. Many governments use three or four months as a guideline. We think that’s reasonable.
Having a few months in reserves can protect staffing and services during downturns in the economy, as we experienced recently with the Great Recession.
But a glance at some local governmental budgets shows some taxing bodies are keeping reserves up to half or more of their entire annual operating budgets.
That’s too much.
If a government body is able to keep that much cash on hand, the simple solution in the business world would be to return the money to shareholders. In this case, that’s the taxpayers.