Faced with a variety of mounting financial pressures – from rising wages and health insurance costs to pension debt to over $7 million in upcoming capital projects – Traverse City commissioners are considering a path that will give them more flexibility to spend several million in fund balance dollars this year.
Commissioners will soon vote on suspending the city’s fund balance policy to provide greater flexibility in addressing budgetary needs. The fund balance is essentially the city’s financial reserves or “savings account,” said City Treasurer/Finance Director Heidi Scheppe. Municipalities typically have a policy on how much they keep in their fund balance, aiming to strike a balance between having enough reserves to weather an emergency and not hoarding taxpayer dollars that could be put to active use. Traverse City’s policy is to maintain a fund balance that’s no less than 15 percent and no more than 20 percent of annual expenditures.
After planned set-asides, the current unassigned fund balance is $8.79 million. That represents 33.5 percent of expenditures, putting the balance over its allowed maximum by $3.54 million. While commissioners would normally spend that down as part of their approval of the 2026-27 budget in June, staff recommended suspending the policy and allowing those several extra million dollars to remain in the fund balance.
That’s because staff for the first time are preparing a multi-year budget, said City Manager Benjamin Marentette, which will show projections out to 2029. However, key data needed to complete those projections won’t be available until the fall, when “treasury accounting cycles are much more complete,” he said. Once that information is in hand, an ad hoc committee of three commissioners, Marentette, and Scheppe will meet this fall to make recommendations to the board on spending down the fund balance.
There’s no shortage of crucial needs where funding could be directed, Marentette said. The city is underfunded on its pension obligation at 55.2 percent funded; the state minimum requirement is 60 percent. The city has needed to significantly increase wages to “attract and retain employees in an increasingly competitive job market,” said Marentette, pointing to declining applications for positions that provide critical services. Pension contributions also rise with increased wages, while healthcare costs continue to climb, he said.
The city also has over $7 million in capital projects planned for 2026-27. “We are now taking a strategic, informed view of the needs for maintaining our facilities,” Marentette wrote in a memo to commissioners. “Facility needs will require a tremendously significant investment in order to efficiently protect and preserve the useful life of our assets. The Governmental Center is becoming more and more operationally obsolete, and we are looking at the future of the building as well as the Law Enforcement Center (pictured) and the needs for the new (TC Fire Department ambulance services), which will require a new facility.”
Scheppe said big-ticket items like the Governmental Center would likely be bonded when the time comes. However, being able to make a large down payment upfront will save the city interest in the long term, she noted. “It is evident that the city will need to make a substantial future investment – either through major renovations or construction of a new facility,” she wrote in a memo. “Preserving fund balance will better position the city to respond to this uncertainty.”
Another financial consideration is the city’s willingness to sacrifice certain revenues to support its goals. For example, the city recently adopted a set of strategic objectives and key results (OKRs) that includes addressing affordable housing. One way the city will likely do that is approving more payment-in-lieu-of-taxes (PILOT) agreements, which provide developers tax breaks in exchange for building workforce housing. The city loses $600,000 annually to such PILOTs now, representing roughly three percent of captured taxes. “The cumulative concession associated with existing PILOTs is estimated at approximately $6 million,” Scheppe wrote – a number that would only grow as more projects are approved.
Commissioners were in study session Monday, so did not vote on suspending the fund balance policy. They will do at an upcoming meeting, however, with the board expressing general support for the concept.
“It will give us the time to be more thoughtful and more proactive and less reactive in our approach to the fund balance,” said Mayor Pro Tem Laura Ness.