When the county commission was laying out its 2010-11 budget back in June of last year, they took the status quo budget for the year and then asked every department in the county to cut 10 percent. It was a grueling process that took numerous work sessions and discussions with department heads to hammer out. In the end, they were successful, but the county was still uncertain what would happen with revenues that have been dropping consistently since 2008.
At a mid-year work session last weekend, the board of commissioners heard from County Finance Officer Evelyn Southard that the county was right on track, and if projections held true, would finish out the fiscal year short only $34,283, equivalent to a budget deficit of less than 1/10 of one percent.
“That’s pretty good,” said Commissioner Bob Kuppers. “I can remember looking at this thing two years ago, and it looked a lot different. I think that’s a tribute to better budgeting and limited spending.”
In the annual budget, the county estimated revenues of $41,704,868 for the fiscal year ending June 30. Projected expenditures for the year are estimated at $41,739,151.
Southard said she was also happy with the estimated revenue projections but added that the projections were conservative and by the end of the year the picture may look even better. The projections are based on the actual revenue received in the first six months of Fiscal Year 2010-11 as recorded on Dec. 31, 2010.
In the case of sales tax, projections were based on revenues from the first four months only, since revenue distributions are delayed by the state. According to Southard, if the fifth month is included and annualized, sales tax revenue could exceed the budgeted amount by as much as $400,000. She added, however, that it in recent years it has been extremely difficult to project sales tax revenues.
“When the economy was doing real well, we didn’t even have to worry about revenues because they always came in above what we estimated ... because of the growth in the economy,” noted County Manager Jack Horton. He added that with the dramatic drops in revenue of recent years, the situation has been quite different. “That’s something to celebrate,” said Horton.
That’s the good news.
The bad news
The State of North Carolina is forecasting a $3.7 billion deficit, a shortfall of nearly 19 percent. Although the county’s financials are in good shape, including a fund balance of $13.3 million or 31.1 percent of the budget, commissioners are nervously eyeing the state budget situation.
At Saturday’s work session, County Manager Jack Horton outlined the schedule for planning the budget for Fiscal Year 2011-12. “I feel pretty confident with our budget process and what we’re doing,” Horton told the commissioners. “The only thing that I don’t feel confident about is what effect the state might have on the county budget.”
He noted that while the county is required by law to have a budget in place by July 1, the state can delay a vote on a final budget for months, putting counties in a very difficult situation.
When the state goes to deal with its shortfall, it has only three options, said Commissioner Ronnie Beale. It is unlikely the state will raise taxes in the current economy, leaving only the options of cutting services and laying more cost burdens on counties and local governments, both of which Beale said were likely.
Beale noted that the state is already threatening to cut education by as much as 15 percent. In November, Gov. Purdue asked schools to prepare for three different budget scenarios: 5 percent, 10 percent, or 15 percent cuts. In Macon County, 5 percent cuts would be equivalent to a loss of $2.3 million for the school system, an amount that would be added to the $2.4 million that will be lost when federal stimulus funds expire at the end of the year.
“If those cuts come, this board will have to be prepared,” said Commissioner Kevin Corbin of the situation.
Beale, who is the county’s liaison to the N.C. Association of County Commissioners, reviewed the 2011 legislative goals that the association intends to press this session. In its lobbying efforts this year, the association has decided to focus on five priority goals: 1. Oppose shift of state transportation responsibilities to counties; 2. Reinstate ADM and lottery funds for school construction; 3. Ensure adequate mental health funding; 4. Preserve the existing local revenue base; 5. Authorize local revenue options.
Beale noted that the watch word of recent NCACC meetings has been “to maintain” as county commissions hope to preserve their current revenue base by resisting the state's efforts to “redistribute” responsibilities.
Fund balance: Leverage or rainy day fund?
At the work session, Southard also reviewed the current fund balance for the county. The fund balance, which currently totals $13.3 million, was built during the years when the revenues collected were greater than expenditures, Southard explained. “This becomes our savings which we call our ‘fund balance.’”
All excess unreserved revenue is funneled into the fund balance from which the county may appropriate funds. Southard noted that several years ago the board of commissioners approved a policy of keeping the unreserved fund balance at at least 25 percent of the budget for the new fiscal year. “It’s worked very well for us,” she said. “That’s why you don’t have the worries today that a lot of counties have.”
The state Local Government Commission only requires that the counties maintain at least an 8 percent fund balance.
“A lot of counties in North Carolina are struggling to meet 8 percent right now,” said Horton.
According to Southard, keeping a healthy fund balance has given the county opportunities, for example with projects where the county was able to use local dollars as opposed to borrowing money. Also, in fronting projects where investments will be refunded, the county is in a better position to leverage discounts. Southard noted that this has been the case at several points in the process of the Little Tennessee/Cartoogechaye and Riverbend projects currently under way.
Kuppers commented that though the fund balance may be used as a rainy day fund, there are many benefits with maintaining it at the 25 percent level. “The fund balance often times is the basis for whether we can start a capital project or not,” he said. “Because we are financially solvent, we can get a good interest rate and get the local government commission to start projects like that. I think we are reaping the benefits right now at Iotla School because of that.”
The county is currently over its 25 percent required unreserved fund balance by $2.6 million. The adjusted unreserved fund balance total of $13.3 million is equivalent to 31.1 percent of the current year’s budget. Beale noted that part of the reason for the $2.6 million overage was that the budget itself has shrunk by nearly 10 percent in recent years. Horton explained that when the budget was $49 million [as recently as 2008], the same fund balance would have been a much smaller percentage and closer to the board’s policy of 25 percent.
Beale noted that in an extreme situation, the fund balance could maintain the county for up to three months. Unplanned emergencies, such as were seen after Hurricane Ivan, is another reason to keep a substantial fund balance. Horton noted that when interest rates start to rise again, the county will be earning interest on the unreserved funds, which can be used to keep tax rates down.
With a balanced budget and a healthy fund balance, the county appears to be in good shape, but Southard reminded the board that this year's budget was streamlined, with no fat to cut and almost no capital outlay expenses. “Until people go back to work, that’s not going to change significantly,” she said.
Macon County 2011-12 Budget Calendar
January 29 BOCC receives FY 11/12 budget calendar.
February 25 Preliminary Budget Meeting with Department Heads.
March 18 Departments complete line item budget input and return hard copy requests.
March 23 Print line item budget report for County Manager review.
March 28 - April 8 Manager meets with department heads as needed.
April 15 Macon County School and outside agencies submit budget requests.
May 10 Manager's recommended budget presented to BOCC with message; distributed to department heads, and posted on County webpage.
May 11-until Work sessions with Board.
June 7, 6 p.m. Public hearing on the budget.
June 21, 6 p.m. Board adopts budget.
Macon County Fund Balance as of Dec. 31, 2010
County budget (12/31/2011): $42,818,145
Minimum required unreserved fund balance: $10,704,536 (25%)
Actual fund balance (6/30/2010): $14,162,233
Appropriation for (2010-11): ($833,695)
Adjusted unreserved fund balance: $13,328,538 (31.1%)
Amount of current unreserved funds over 25%: $ 2,624,002