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County Council, February 24

County in good financial shape
With a surplus in some Fund balances, better than we thought
Warwick Jones

We won’t pretend that we fully understood the staff presentation at last night’s Finance Committee meeting. But we understood enough to see that the County is in relatively good financial shape, and indeed better than we thought.

Staff told the Committee that revenue in the current fiscal year (FY 2011) was running $4.4 million above the level projected in the budget of $160.4 million for the full year. The increase reflected higher than anticipated property tax, and charges and fees. Staff recommended that this projected surplus be used to replace aging capital equipment.. In support of the request, it noted that because of tight budgetary condition over recent years, replacement and refurbishment had lagged, particularly in relation to the fleet of vehicles.

As for next year (FY 2012), revenues and costs were expected to be close to those of this year but because of a legislative quirk, a gap of $2-$3 million existed between likely costs and revenue. The quirk related to state legislation tied to property reassessment values. Staff did not attempt to fully explain the quirk, as the majority of Council already knows about the situation, but said it was complicated and the result unintended by the State. It seems that the application of the new valuations and the application of the allowed millage will cause property tax revenue to fall by the $2-3 million. Normally, following a county-wide property reassessment, the County can impose a millage rate that allows it to recover the same amount or revenue as the previous year though adjusted marginally to allow for inflation and population growth.

Staff suggested that the state might be asked to adjust the rollback formula. If this request fails, then Council might increase the millage rate to bring in the same amount of property tax revenues as the prior year. Understandably, the latter did not sit well with Committee members even though the approximate 2% increase would be justified on the practice of the past. Any mention of a millage increase, however justified, is likely to rouse citizens’ ire.

Now for the part we don’t fully understand. Staff noted the significant balances in some of the Funds. Press Download file to see a table with the balances). Our first reaction was amazement at the totals such as $52 million for the General Fund and $82 million for the Enterprise Funds. Didn’t we have a financial squeeze in recent years? Staff explained that these totals could not be taken at face value. They included amounts in accord with County policy to keep balances to equivalent to 2 months of operation. For example, the General Fund with a budget of about $160 million a year would require a provision of about $26 million. And then there was also the “rainy day” provision. And then there were other things that had been set aside and for which there were commitments.

But taking into account all of the provisions and commitments, it seemed there was still a hefty surplus in the Fund balances totaling $59.3 million according to staff calculations (Column 2) Take out recent commitments ($10 million out of the Special Revenue Fund for the Greenbelt Program) and there is a balance left of $49.3 million.

So does the County really have $49.3 million to spend at will? Definitely not, staff tells us. Governmental fund accounting mandates placing monies in different types of funds because there are restrictions—federal, state, or local—on how the money can be spent. For example, $27.4 million of the $49.3 million balance was generated by the Solid Waste and Recycling User Fee and, by Council ordinance and bond covenants, can only be spent on those purposes. Another $4.7 million was generated by the Transportation Sales Tax and, by state law, can only be spent on road projects, greenbelts, and public transit. These funds are not available for use in the General Fund.

Notwithstanding these provisions and restrictions, modest surpluses are available for distribution. In accordance with Council policy, staff has recommended that the balances of the funds “not obligated” be used for a series of “one time costs”.

The $9.7 million “not obligated” balance on the General Fund is recommended to be split with $5.3 million to the CIP, $2.3 million for equipment replacement, $1 million for higher than anticipated Workers Compensation Costs and $1.1 million for the cost of the Voluntary Retirement Incentive Program II recently implemented.

The $31.7 million “not obligated” balance on Enterprise Funds is proposed to be used largely for Environment Management CIP, taking $28.9 million.

The $2.2 million “not obligated” balance on Debt Service would be used to pay debt service in FY 12 and FY 13. Also, because the Trident Tech nursing school project is beginning to incur expenses now but the County won’t borrow the $18 million for this project until the summer, Council authorized paying those expenses from other capital funds on hand and then paying those funds back when the borrowed funds are received.

We have no issue with any of the staff suggestions as to how the “surplus” fund balances should be applied. And the magnitude of the surpluses and limitations of their application should have been well known to Council members. Council is provided this information every year in the audit and for the past three years staff has been making detailed fund balance presentations such as the one yesterday.

The surpluses may have been modest but they sure came in handy in these tough times.

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