As a member of the Middleburg Town Council, I feel it is important to address some statements made in a recent letter to the editor from Vincent Bataoel titled “The Next Five Years.” Many people have asked me about these statement in recent weeks, and as such, I wanted to provide some fact and insights here from a Council Members view. Mr. Bataoel says he would seek to “Reinvest cash reserves in higher-yielding vehicles — the Town has more than $6.6m in cash reserves. That’s quite a bit that could fund the future if wisely leveraged and invested.”
The repeatedly asked question has been “do we have that much money just sitting there?” Unfortunately, the stated amount of $6.6m in cash reserves is misleading, and it mischaracterizes Middleburg’s overall financial position. It also neglects to take into account our obligations, and that much of that money is already spoken for. This makes it appear as though the town has this sum, free and clear and sitting in a savings account, doing nothing. The reality is this; we don’t. Cash reserves are defined as funds placed in liquid investments, such as low-risk CDs, that can be quickly converted if cash is tight. But more importantly, cash reserves are meant to be our backstop for unanticipated or emergency needs. That is the lens we must view see this through: what is this money supposed to be used for and where does this money actually come from.
This $6.6m claim is not the Town’s cash reserves, there is much more to it and comes from different sources like our operating cash, the required funds to run our utilities, prior year invested surpluses and even $500,000 in borrowed money for our Washington Street improvements. Most importantly it includes our current tax revenues. The problem in saying we have $6.6m in reserves is that it does not acknowledge that most of the money is already spoken for. It pays for everything from our daily operating expenses, to maintenance contracts, citizen services, even the Town Staff and Police Force salaries. Also, it covers our substantial debt service requirements and all our current infrastructure projects. Middleburg carries over $5.6m in debt obligations which had to be borrowed in past years for critical infrastructure improvements ($4.2m in principal & $1.4m in interest).
The current financial position of Middleburg is strong, but this is a recent reality and is in thanks to the hard work of Staff, prior Councils, and the success of our local business and Salamander. In fact, just three years ago our General Fund revenues were $1.5m a year and virtually no savings. It is now $3m annually. The success has brought additional cost but also opportunities fix years of deferred capital assets we previously were unable to afford. This is a good place, but we must not forget the lessons of the past. Many of us remember less than ten years ago we faced multiple annual deficits and near insolvency. Fiscal prudence is important in government, but especially local government. We must be responsible stewards of our citizen’s money. This brings me to the second point of the above quote.
Mr. Bataoel also says he would push the Town to “Reinvest cash reserves in higher-yielding vehicles.” Higher yield vehicles also mean higher risk vehicles. We do have reserves, not $6.6m in them, but nonetheless, the Town Council has a fiduciary and moral obligation to protect the funds of our citizens. This money is for the general welfare and benefit of our citizens. It is for this precise reason Virginia Law, wisely, prohibits local governments from putting taxpayer dollars in higher yield, higher risk investments. Aside from State restrictions, there are IRS penalties which confiscate investment profits from higher yield investments to restrain local government. This is to ensure we invest conservatively and cautiously. We must continuously evaluate our investment options for our reserves to generate a safe and fair return for our citizens, but with minimal risk of loss and within the restrictions of State and Federal Laws. We are fortunate to be in a position to have investment choices, but we cannot take it for granted.
On the Council, we all work to make continual improvements in our infrastructure, town operations and financial health. But we also must look ahead and be prepared for the next economic downturn or recession, as it will come, that is a certainty. A failure to prepare now when things are good and we have options would be a huge mistake.
If you have any questions on the Town’s current financial state or our outlook, please reach out to me, a member of the Council or Town staff. Any of us would be glad to answer your questions or walk you through our financial documents; they are all available to the public.
Bridge Littleton, Middleburg, Va