Fund balance: Friend or foe?
By Steve Herring
Published in News on March 22, 2015 1:50 AM
Wayne County's $70 million fund balance has been a target of critics, including some county officials as well.
Most recently, county commissioners Joe Daughtery and Ed Cromartie questioned how much the county has in its rainy day fund and pointed out how confusing the issue is to the public.
Daughtery said he had no problem with a large reserve, but just wanted the county to properly disclose it -- something that he said he does not think has been done in the past.
"The question is where should the money stay?" Cromartie said. "Should it sit in our savings account? Or should that money be used by citizens by lowering the fees they pay?"
Without a strong fund balance, the county would have had to borrow $17 million as it proceeds with plans for a new jail that will cost $10 million, all coming from fund balance; a new agriculture/convention center, for which $4 million was set aside for a $14 million project; and loaning $3 million to Goldsboro for its proposed multi-sports complex.
Wayne County commissioners have used the fund balance for other projects and to help balance the budget as well.
They also are expected to make use of those funds again as they address space issues for the Department of Social Services and the Health Department.
"See, if you hadn't had (the fund balance) your taxes probably would have been lower," County Manager George Wood said. "But then they would have to be higher going forward because you would have to borrow the money. It is one of those things that people argue about in different ways.
"Fund balance, it's good to have a reasonable amount of fund balance because then if an emergency comes up, you've got it. So it is cash flow, because property taxes really don't start coming in good until December. That is the fifth month of the fiscal year (which starts July 1)."
Property taxes account for 54 percent of the county's revenue so the fund balance helps from a cash flow standpoint, Wood said.
There are "all sorts of restrictions" on the fund balance and that is where it gets a little bit confusing, he said.
"Unassigned" means that money can be spent -- all of the rest is committed in some way, Wood said.
As of June 30, 2014 , an audit reflected that the county budget had a fund balance of $70,352,145 -- $50,861,545 of which is either restricted, committed or assigned for a specific use.
For example, $2.1 million is restricted for repayment of the bonds that were used to build new middle schools at Grantham and Spring Creek and another $12.5 million is being used for renovation projects at several other schools.
The assigned amount includes $5.5 million used to balance the budget.
State law requires that the county set aside 8 percent of its budget in fund balance. That amounts to $5.4 million in the current budget. The use of that money is restricted.
The numbers are confusing because the state's definition of fund balance is different than the Government Accounting Standards Board, Wood said.
The state's formula is much tighter and does not allow the inclusion of accounts receivable in calculating the fund balance, he said.
Adding to the confusion is that commissioners for years have operated under a county policy of setting aside 14 percent for a working fund balance -- $10.3 million this year.
The 8 percent required by the state and an additional 6 percent set aside by the county policy add up to the 14 percent -- about $15.4 million, according to the audit.
Once all of the restricted, committed and assigned monies are removed from the fund balance, the county is left with a working fund balance of $29.7 million, which includes the extra 6 percent ($10.3 million) set aside by the county, according to the audit.
"What our policy has been is that anything over the 14 percent could be used for capital," Wood said. "Now, we are not going use that all of the way down, obviously. But it's available for the things we need to do with it."
The question becomes, in some people's minds, is when is enough too much, Wood said.
If the money is being aside for capital projects then that makes sense, Wood said.
"There is also the theory though that some people think you ought to debt finance (borrow for) projects because then the citizens who are going to use it are the ones who pay for it over that 20-year (financing) period," he said.
Wood said he and county finance officer Pam Holt looked at the fund balance closely while thinking about debt financing the new jail.
"The more I looked at this, I said, 'We don't need to (borrow),'" Wood said. "The thing about debt service is that you have got to have budgeted money to pay the debt service.
"Well, it doesn't make sense to be paying debt service if we've got this money in the bank. It is not like we are making a lot of invested income on (the fund balance) because the Federal Reserve has killed the interest rate environment to where you aren't making it."
In "normal times" that $29 million would have been making between 3 and 5 percent in interest annually, Wood said.
"Then you have to think about that because I can borrow money cheaper than that," he said. "So it is almost like you want to keep the money invested and then go out and borrow and use the invested earnings to pay it. But that is not the case we are in.
"We are getting like 10 basis points (0.1 percent) on our investments because unlike a private business we can't invest in the stock market and things like that. We are limited to very conservative investments, which is as it should be. This is taxpayer money."
Wood said that is why he recommended to Wayne County commissioners that the county "pay down" or use some of the fund balance for the projects.
Even then, the county will still be in good shape going forward, he said.
But, the county still has needs -- particularly space for the Department of Social Services and the Health Department, Wood said.
"Some of (the fund balance) will probably go into that as well," he said. "Obviously we don't want to spend it all down. We've got enough, we think, to do what we need to. That is a good thing for taxpayers because these are legitimate needs.
"We felt like we needed to do them and it's good that we have the money on hand to do them."