Counties hold savings for one-time needs

Shenandoah County has millions of dollars in savings after years of raising taxes to balance budgets. But using its unassigned fund balance in lieu of increasing tax rates to cover recurring costs isn’t good fiscal policy, county officials and financial experts say.

The Board of Supervisors’ own policy calls for the county to maintain a certain amount in savings and to not use that money for ongoing expenses.

Finance Director Mandy Belyea explained Friday that the county has good reason to keep savings for one-time expenses.

“It’s like if you have a savings account, sure you can use that to pay your mortgage,” Belyea said. “But at some point that savings account runs out and how are you going to pay your mortgage when it does?”

“It was a non-recurring resource and so it just makes sense that you would apply it to non-recurring type of costs,” Belyea said.

The Board of Supervisors adopted a policy in 2011 that calls for the county to maintain a minimum, unassigned fund balance that equals 12.5 percent of total operating expenditures, including school spending. In the past several years, the board opted to increase the real estate tax rate to balance the county budget. For this fiscal year, supervisors increased the rate to cover the School Board’s funding request.

Davenport and Company conducted a comprehensive financial review and presented its findings to supervisors in February 2014. The previous reviews showed the county relied heavily on one-time money from the unassigned fund balance and that created a structural imbalance in the budget. Since fiscal 2012, the plan to not use the fund balance except for one-time costs helped resolve the imbalance, the firm found.

But Belyea acknowledged that citizens might feel the county sits on savings that it could use to balance the budget rather than raise tax rates.

Data provided by Belyea shows the county has maintained a fund balance well above the 12.5 percent since at least fiscal 2004. The total fund balance reached a peak of $23.79 million in fiscal 2008 or 26.2 percent of its revenues. In that period the county had $15.79 million in its unassigned fund balance.

The county had $12.77 million in its unassigned fund balance for its general fund for fiscal 2014. The total fund balance of $21.19 million represents 21.2 percent of the $99.94 million, which is the total general fund revenue and the school operating revenue for fiscal 2014.

However, the county needs to reserve $12.49 million of the $21.19 million to maintain its target for “fiscal liquidity.” This leaves $8.69 million available for capital or one-time use. The county already has earmarked $3.49 million for capital projects, most of which will be used to expand the landfill. According to the data, $5.2 million or 5.2 percent of the unassigned fund balance remains.

Belyea stated in an email “The obvious and biggest benefit to using the unassigned fund balance is the ability to balance the budget without increasing property tax rates. However, this benefit does not come without several significant negative consequences.”

Using savings without a strategy to recoup those funds can create a more severe situation when reserves run out, Belyea explained. Depleted savings can effect the county’s credit-worthiness and its ability to borrow money at low interest rates, Belyea added.

A governing body might opt to use savings to balance a budget under certain circumstances, Belyea said. Such action remains a decision of the board, she noted.

The Warren County Board of Supervisors’ policy also has been to reserve savings for capital needs. The board agreed last spring to increase the real estate tax rate in the county. The county has $16.69 million in unassigned fund balance in the general fund or 26 percent of general fund expenses as of June 30, according to information from Finance Director Carolyn Stimmel.

County Administrator Doug Stanley said Thursday they try to keep 15 percent of the total budget in reserves and use savings only for one-time expenses. The county is using money from savings to cover the cost to renovate the former middle school on 15th Street into the future Health and Human Services Complex, Stanley noted.

“Part of our strategy is to pay as you go, use cash for capital improvement projects,” Stanley said. “But we also need to maintain the appropriate level of fund balance to maintain our credit rating, credit worthiness and all those other things.”

Warren County recently went through its bond-rating process.

“We got an upgrade but one of the warnings was if the county’s fund balance decreases, there’s the potential for us to have a drop in our bond rating,” Stanley said.

Contact staff writer Alex Bridges at 540-465-5137 ext. 125, or abridges@nvdaily.com