Finance director explains county fund balances

Oct. 19, 2013 @ 03:44 PM

During the court battle between Union County Public Schools and the Union County Board of Commissioners, a lot of testimony centered around one number — $230 million.

UCPS attorney Richard Schwartz argued that the county has $230 million in available fund balance it could use for UCPS capital needs. This week, county officials said that only $26 million is available, while the rest has been spent or committed elsewhere. That statement caused an outcry from school supporters.

“To say that $230 million is available is inaccurate,” Union County Finance Director Jeff Yates said.

The $230 million number came from adding totals of the general fund, general capital fund and utility enterprise funds, Yates said. Those totals ignore specific assignments for most of that money for a variety of uses.

More than $91 million is in the enterprise fund. That is the money generated by utility user fees like water and solid waste payments. The collected fees go back into operating those services — paying employees, repairing equipment and upgrading the system.

A planned system upgrade was passed by the commission last year, Yates said. Capacity has lagged behind population growth. To amend that, the county increased water and sewer rates for all users and planned to use the extra revenue for added capacity. It resulted in an agreement with the town of Norwood to build a water treatment plant and supply line to Lake Tillery. The county’s $426 million 20-year master plan called for improvements to the current lines in the western part of the county and new lines installed in the east.

There is $73 million in the county’s general capital projects fund. At the end of the last fiscal year, all of it was tied to about 20 projects a past county commission approved. Among the projects are improvements to the county’s data systems, roof replacements, improvements to the county jail, county building renovations, “energy savings” projects, a building bought for the community college, schools capital projects, $20 million spent for restructuring the county’s debt, the sheriff’s firing range and social services department automation.

More than $79 million is in the county’s general fund. A government’s fund balance is a sign of its financial stability, Yates said. Of that amount, the Local Government Commission requires all local governments to keep 8 percent of their fund balance in reserve. Go below that and the LGC will take action. Atop that, most local governments in North Carolina adopted policy to keep an additional 8 percent in the fund. To dip even slightly below the combined 16 percent would negatively impact the county’s credit rating, Yates said.

“As we sit last week, we’ve spent out more than $25 million than we’ve received in revenue,” Yates said. “So the reason you keep that 16 percent there is so that we can continue operating because we don’t collect all of our taxes at one time.”

It is similar to a household where the wage earners are paid every two to four weeks. Sometimes people dip into their savings to pay regular bills but know they can put money back once they get a paycheck.

“With that 16 percent that’s there, if there’s an economic crisis or an emergency, we have that money in case something catastrophic happens and we have to dip into that,” he said.

Most rating agencies understand that emergencies happen. Sometimes spending down under the 16 percent mark is unavoidable after a natural disaster, for example.

But those agencies also notice when governments spend large amounts of their fund balances when there is not an emergency.

Minus the 16 percent — or $35 million — and the total remaining in the general fund is more than $65 million. About $13 million of that is restricted, meaning there are reasons the county is not able to spent it elsewhere.

“They’re encumbrances,” he said. “They’re bills that are outstanding that we know of that we’ve not paid yet or have not yet received the invoices for, or have committed contractually and legally.”

These are “a lot of little things that add up to big totals over time,” Yates said.

“Then you have non-spendible money, which is assets, cash that’s tied up and pre-pays,” Yates said.

There is “un-spendable fund balance” of $279,914, the current $3 million allocated to UCPS for capital, $761,390 tied to the 2014 fiscal year budget and however much is needed for trial-related expenses.

“That’s really and truly uncommitted, unassigned and designated once you take out for those other things,” Yates said.

A release from BOCC Chairman Jerry Simpson said a tax increase of 27.7 cents is the only way to pay the $91 million. The county’s 2013-2014 budget does not project enough revenue to cover the total verdict amount.

During the trial, Schwartz argued that the county underestimates how much money it will get in total revenue at the beginning of each fiscal year. But the county follows state code that requires governments to calculate revenue based on audited collection rates from the previous year.

“Say we estimate $150 million in ad valorem taxes. If our last year’s collection rate was 97 percent, we can only estimate our budget at 97 percent of the $150 million,” he said. “That’s not up to us. That’s what the state code says.”

If the collection rate is higher than 97 percent, gross revenue will be higher. But there is no way to predict if the actual collection rate will be higher or lower than estimated.