How would Charlestown maintain financial stability over time and also have the capacity to recover from a major hurricane or other disaster?

On Jan. 10, the Charlestown Town Council will consider this question and potentially take action on a written fund balance policy. If enacted, Charlestown will be one of the first, if not the first, towns in the state to have a written fund balance policy.

The proposed fund balance policy updates the town’s past unwritten policies and has the following goals:

To protect against severe financial stress.

To keep taxation stable.

To limit debt.

To support capital expenses.

To maintain orderly financial actions and for planning and forecasting purposes, the town sets a target range for its undesignated fund balance —popularly known as the “surplus”— to be held in reserve so that funds will be available if needed. Historically, the range has been 15% to 25% of the former year’s operating budget.

Because Charlestown will face additional challenges in the future (for example, a changing climate), the Town Council wanted to address the following: As a small town, what is the right amount of reserves? And, how resistant would any potential reserve target be to losses?

Therefore, the Town Council commissioned a risk-based analysis and stress test of the town’s reserve requirements through the Government Officers Finance Association, the preeminent authority on local government finance. The comprehensive report was presented to the Budget Commission and forwarded to the Town Council in May 2021.

In its report, in addition to the known risks considered (floods, hurricanes, snowstorms, economic recessions, sea level rise, legal suits, and hazardous materials spills), the GFOA noted that there are risks which are now unknown but to which the town will be subject. Finally, it noted that any analysis considers past data and makes forecasts and plans about the future that will change over time.

In its review of the fund balance policy drafted by the town (included Appendix 1 of its report), the GFOA determined the policy provides for an acceptable and prudent range of reserves, encourages limitations to uses of reserves to purposes and expenses that are sustainable over time, as well as gives guidance as to how these reserves may be utilized and replenished.

At its meeting on Dec. 3, the Budget Commission refined its draft and voted to recommend the fund balance policy for adoption. The policy contains:

A critical base threshold of reserves of $4.3 million to maintain adequate cash flow throughout the fiscal year.

Determination of the level of confidence that the town would be reasonably prepared of approximately 90%.

A target range for the UFB of between 23% and 33% of the town’ s annual operating budget.

Provision for budgeted utilization of the UFB for purposes consistent with the GFOA report, the adopted policy, and required formal action by the Town Council.

This comprehensive policy recommended by our Budget Commission provides the ability for the town to adjust to changing circumstances and plan for a stable future.

Bonnie Van Slyke


The author is a member of the Charlestown Town Council.

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