Lesson 2: Funds, reserves and deficits

The idea: incentives, and who decides. In Basic Economics, Sowell teaches readers to judge a policy by the incentives it creates, not only by the goals it announces Unverified1. For a budget, that means asking: who decides where the money goes, who bears the cost, and what does the way the accounts are set up encourage?

The numbers

1. The General Fund balance, FY2025. The audit says the balance went from $8,816,153 to $6,035,850, a drop of $2,780,303. Subtract the Streets fund deficit of $1,261,520 and the remaining amount is $4,774,330. The audit says these "net" reserves fell 33.4% (by $2,390,369) from $7,164,699, and that staff link the drop to the General Fund's $2,817,856 share of paying off a pension debt Verified2.

2. Cash on August 31, 2026. The city's treasurer's report shows how General Fund cash is set against deficits in other funds Verified3:

The three deficits add up to $2,025,528 Calculated3. The report also shows $390,099 left of a $2,000,000 General Fund pledge for the E Street project Verified3.

3. The water fund. The FY2026 budget shows the water fund taking in $1,225,441 and spending $1,318,378, a shortfall of $92,937 Verified4Calculated4. In the October 21, 2026 packet, a staff report on an E Street water and sewer project says the General Fund "will provide temporary cash shortfalls of up to $800,000" for the water fund, expected to be paid back by the end of FY2028 Verified3.

What to ask

None of this says anything is wrong. Covering one fund with another's cash is a way to manage timing. But it shows why the questions matter:

• Who decides? The municipal code says the Council adopts the budget and holds public hearings on it Verified5. See Who decides? for who holds which choices.
• Who bears the cost if a fund can't pay it back? Water and sewer are paid by utility bills, not the General Fund Verified4.
• What does the setup encourage? If a shortfall in one fund is quietly covered by another, how would a resident see it? Where is it in the packet?

← Lesson 1 · Next: Lesson 3, one-time money or ongoing money? →

Sources cited on this page

1. Basic Economics: A Common Sense Guide to the Economy (5th ed., 2014; first edition 2000), Thomas Sowell (Basic Books; unofficial / third-party; accessed 2026-11-09) Publisher's catalog page. We rely on the publisher's description (it says the book shows how to critique economic policies by the incentives they create rather than the goals they proclaim). We have not checked page text and quote nothing from the book. ↗
2. City Council agenda packet, September 16, 2026 (file named "Packet 9.10.26") (City of Williams; official; accessed 2026-10-23) Holds the August 19, 2026 minutes (Resolutions 26-23 to 26-27; Ordinances 278-26 on noise and 279-26 adopted) and the audited financial statements for the year ended June 30, 2025 (General Fund budget-to-actual on PDF page 207; management discussion on PDF pages 149 to 151). Text layer. ↗
3. City Council agenda packet, October 21, 2026 (City of Williams; official; accessed 2026-10-16) Agenda in English and Spanish, public comment instructions (item D), and the first reading of Ordinance 282-26 (item 5), among other items. ↗
4. Two-year budget, FY2026 and FY2027 ("submitted 7.16.25") (City of Williams; official; accessed 2026-10-23) Scanned and partly sideways. Figures used here come from Exhibit A (PDF page 7, titled "City-Wide Fund Summary and Preliminary Operating Budgets"), Exhibit D (PDF page 11) and the department pages (PDF pages 13 to 26, headed "Proposed"), read by eye. The department totals add up to the Exhibit A totals. ↗
5. Williams Municipal Code ch. 3.20 (Budget system) (GoCodebook mirror) (GoCodebook (third-party); unofficial / third-party; accessed 2026-10-23) Third-party mirror (2026-10 edition). §3.20.010 requires an adopted city budget; §3.20.040 requires hearings. Check wording on Municode. ↗