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County Council, August 14

Budget crunch – hard decision on taxes and spending
Questions need to be asked on Accommodation Fee funding
Warwick Jones

It didn’t need a crystal ball to forecast a necessary tightening of the Council’s budget. The decline in building activity over the last year is cutting fee revenue, and higher than anticipated fuel and other costs are boosting expenditures. This has forced the County to make adjustments to the current fiscal year’s budget. But according to the 5 year projections made by staff of revenues and spending for the General Fund, major adjustments will be necessary over the next few years.

With the delicacy of a surgeon describing the results of an x-ray of a malignant tumor to a nervous patient, Deputy Administrator Bustraan projected the declining health of the County’s financial position. He didn’t describe the process that was necessary to excise the problem but it must have been all too evident to the Council members that the County had to take some bad tasting medicine. It would also have to give up its temporary fix of drawing down fund balances. If it didn’t, the balances would be exhausted in a few years and the County would be in a near terminal position, facing much higher borrowing costs.

There were few questions at the conclusion of the presentation. Council member Inabinett wondered out loud as to whether a tax increase would be needed next year and Council member Bostic suggested there might be tax increases and spending cuts. All that was decided was splitting Council into 3 committees to study the departments/entities making up the General Fund – viz. Elected and Appointed, Operations, Support/CFO. The committees are scheduled to make their reports by October. Presumably, some course of action then will be determined to mitigate the likely deteriorating fiscal position.

Spending cuts already under way
Viewers can see the projections of staff for revenues and spending over the next 5 years by pressing Download file. The budget deficit for this fiscal year was projected some months ago at $0.5 million. However, with the rise in fuel costs and the lower than anticipated revenues, some changes had to be implemented to meet this projection. The County will now cut $3 million from costs with elimination of 34 vehicles and the re-allocation of another 16. It will also take energy conservation measures and eliminate some position in EMS and Public Works. If fuel and utility costs continue to increase, more reductions may be necessary, Mr. Bustraan said.

For next fiscal year, staff projects a deficit between revenue and spending of $5.7 million. This estimate was made on the basis of projections similar to last year – a 4% increase in COLA and Fringe Benefits, a 3% increase in both operating expenses and capital equipment expenses. It also encompasses new projects that have already planned, notably the new jail.

Need to maintain a high level of fund balances
Mr. Bustraan consistently noted the importance of maintaining a high level of fund balances – i.e. a reserve that could be used to support spending should there be revenue shortfalls. Drawing on his discussion with rating agencies, an ideal fund balance was described as about 2 months of spending. The County’s fund balances were around this level but are now dropping. On the strength of the projections made for the next 5 years, the fund balances would be exhausted by the end of 2012 if Council does nothing to reduce the operating deficits.

Action will likely incorporate both tax increases and cost cutting
Our best guess is that Council will attempt to reduce operating costs further and raise property taxes modestly – perhaps 1% or more over each of the next few years. We remind viewers, that under SC law, Council cannot raise property taxes by a rate that exceeds inflation and population growth combined.

We question the process and recipients relating to Accommodation Fee funds

Council is not at its finest when it comes to determining the allocation of discretionary funds. It was criticized over the handling of the allocation to Outside Agencies and the Council subsequently tightened up the process. It recently took steps to tighten up the process relating to distributions of funds from Accommodation Fees. Nothing has been finalized but some suggestions made last night are concerning to say the least.

The issue of distributions came up at the Finance Committee last month. At that time Council considered forming a special committee to vet applicants and their applications. The committee would make recommendations but the final decision would remain with Council. This issue was again before Council last night but with a twist. The Charleston Area Convention and Visitor and Bureau (CVB) had offered to undertake the process at no charge. It would make its evaluations in partnership with the College of Charleston with which it cooperates presently in gathering data on visitors and their economic impact.

Should the CVB be involved?
As some Council members said last night, it makes a lot of sense for CVB to make an assessment. It is in an ideal position. But some, such as Council member Bostic, were not happy that an outside group did the work of Council. How independent could it be? He was joined by Council member Darby who thought staff was up to the task of making the assessment. And although it was there in the data supplied by staff, no Council member mentioned that the CVB had its hand out for another $540,000 from the County. So it was not a disinterested party! Notwithstanding, the Council voted, 5 to 4, to allow the CVB to make the judgments.

We won’t make much of fact that there could be a potential conflict over the fact that the CVB is already the major a recipient of Accommodation Fee funds. It is also possible that some of its members and directors could represent beneficiaries. The bureau is funded by government - local, state and federal - and private groups. Funding from private groups made up less than 20% of the $6.9 million funding in 2007. Its board has over 30 members, appointed from the 9 municipalities of the County, and the County itself. Board members are also appointed by the private groups, which we gather are hotels and non-profits largely. The make-up of the board ought to ensure that it is free from too much pressure from any one potential recipient. And given the nature of its purpose, it is probably best placed to assess the worthiness of any applicant and the proposed funding.

But the College of Charleston is a partner with CVB, and it wants funds too!
But what about the partnership with the College of Charleston? The College has its hand out for $300,000 this year and for $300,000 a year for the next 14 years. How will this allow for unbiased views?

A mockery of fair play!
But it is worse. Council member Condon, subsequent to the Finance Committee meeting last month, inserted the application from the College. As plain as daylight, on the front page of the Application Form of the County, “Applications must be received by 5.00 pm, - Friday February 29, 2008 (NO EXCEPTIONS)” flashes in bold. Unless staff has made a large error, the application was received well after that date and late enough that it received no scrutiny prior to mid July 2008 Finance Committee meeting i.e. nearly 5 months after the application deadline from which Council has stated there would be no exceptions. Can Council so willingly flaunt its own rules? What a mockery of fair play! It also means that the public will no be able to comment before a vote on the issue. Finance Committee meetings do not allow for public comments. Public comments are allowed at the the conclusion of a Council meeting but with a vote scheduled for this coming Tuesday, they will be too late.

Discussion of allocations deferred
Council member Condon was the first to speak in the discussion on allocating the funds and suggested that $200,000 go to the College. Council member Pryor suggested that this was too much and it should be cut to $100,000. Nobody else had a say. Chairman Scott stopped the discussion on allocations as he could see where it was heading – towards chaos. He suggested that each member study the list of applicants and propose allocations. These lists would be distributed to each member and the final allocation debated at the Council meeting on Tuesday.

We fear the “horse trading” that will be undertaken over the next few days as Council members “scratch each others’ back” to ensure that their favored entities receive appropriate funding. Some entities will miss out, and probably few will get all they sought There are 29 applicants on List C – meeting Council Policy – seeking at total of $1.426 million, There are another 9 on List D – meeting Council Policy but failing on review or Audit Requirements – seeking a total of $312,000. The list of applicants at the July Finance Committee meeting can be seen by pressing Download file. The list given at yestersday's meeting is essentially the same but with the inclusion of the College of Charleston's application, and that by the towns of Hollywood and Ravenel,for $8000.

The College should get nothing in our view
In our view, the College of Charleston should get nothing. The funding is sought for debt servicing relating to the basketball arena. The project, on a site at the corner of George and Meeting Streets is near completion. Funding has already been arranged and the grant from the Accommodation Funds will simply ease the cost on borrowings. This in turn will allow funds previously marked to pay interest to be diverted to general college activities i.e. the funds will not help the tourist industry.

We note that Council member Condon and others have stated a number of times the need to ensure that funds go to putting “heads on beds”. We don’t see how refunding an already-funded project does this. We also wonder how many tourists the facility will draw to Charleston. The College submission suggests, amongst other things that the South East Wildlife Exposition (SEWE) will be welcome to use the facility. The SEWE has been coming to Charleston for some years and has been functioning successfully without access to the stadium. Maybe the new stadium will benefit SEWE but we would ask how before we considered any allocation. The stadium also has no parking facilities.

We would also ask Council member Condon how she justifies $200,000 for the College? Spoleto and SEWE, perhaps two of the major tourist draws are requesting $100,000 and $40,000 respectively. The chances are they will receive less. But put these amounts next to the $200,000 suggested by Council member Condon, and it become laughable.

Citadel stadium funding was the precedent
If there is an excuse for the outlandish request by the College, it lies with the grant out of Accommodation Fee funds made last year by Council to the Citadel for the funding of its stadium. We miss few Finance Committee meetings but we must have missed the one where it was discussed. We have no recall of the decision and it is something we would not have missed. According to the data provided by Council, the Citadel is to receive $350,000 a year for 10 years to help fund the stadium!

These institutions do not need Accommodation Fee funding
Our view of the Citadel funding is similar to that relating to the College request. Both institutions are sufficiently well-heeled to finance their own stadiums without drawing on the Accommodation Fee funds. There are other projects far more deserving that will help draw tourists. We'd also note that neither institution pays City or County property taxes.

Adding the College request for Accommodation Fee funds to that allocated to the Citadel, makes a total of $650,000. The Council has set aside $1.8 million for fiscal 2009. Take out the Citadel and C of C allocations and about $1.15 million is left. Now take out the $540,000 additional funding that the CVB wants and only $610,000 is left for the really deserving entities like SEWE, Spoleto, the Museums, the Aquarium and others.

Seeming hypocrisy of some Council members
We can’t help being struck by the seeming hypocrisy of some of Council members as Accommodation Fund allocations are determined. At the close of last night’s meeting, Council members sucked wind as the tightness of the County’s financial position became evident and a tax increase became a likelihood. But at the same time Council contemplated the distribution of a substantial part of Accommodation Fee funds to causes that are less-than-worthy. We would suggest that if Council can bend its views to allow the College of Charleston and the Citadel to qualify for the funding their stadiums, even when funding was already in place, it should not be difficult to justify repairs to footpaths and roads over which tourists walk and ride respectively.

There are probably other items in the General Fund that can be financed from Accommodation Fee funds. These items may not meet the spirit of the state legislation that sought to define the use of these funds. In our view, neither of the Citadel of College of Charleston projects do. But at least roads and footpath repair would benefit tourists, and those who should ultimately benefit – the tax payers.