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Get Ready for a Tax Increase in Beaufort County
At their January 11, 2010 regular monthly meeting the Beaufort County Board of Commissioners discussed fund balance. The issue was raised by Hood Richardson who made an impassioned plea for the development of a policy on how much fund balance should be accumulated and maintained over the course of a fiscal year.
For those not familiar with the terms, "fund balance" is the difference between what is received in revenue and what is actually spent. Over time it can build up or it can be depleted if more is spent than is being received in revenue. Counties and cities must maintain a certain level of fund balance to be sure the checks they write will clear the bank until revenue (deposits) exceed the expenditures. Business owners would call it "cash flow."
The state Local Government Commission mandates that counties have at least 8% of their budget in fund balance. But that amount is rather deceptive, as is how much actual fund balance a governmental unit has at any point in time.
Richardson pointed out that 8% is approximately $4 million for Beaufort County. So the question becomes "how low will the county allow the fund balance to fall before it takes steps to correct it?" Correcting a low fund balance can be done one of two ways: Reducing expenditures or increasing revenue, or a combination. Thus, when revenue declines (or does not grow as much as the budget projects) such as happens during economic downturns, either fund balance will fall or you have to cut expenditures.
Richardson's appeal was to consider the issue as a policy matter before the budget process begins in the spring.
What followed was a lengthy discussion which we have edited into shorter clips.
Clip 1 below is the beginning of the video clips of the discussion of spending and fund balance. Clip 1 is mostly Hood Richardson's introduction of the issue.
Clip 1b below is mostly former Commissioner chairman Jay McRoy's response. McRoy was chairman when much of what Mr. Richardson is complaining about took place.
Clip 2 below is mostly Al Klemm's comments followed by County Manager Paul Spruill's speaking to Mr. Richardson's "question" of 'whether it is good public policy for the county to spend $2 million a year of its fund balance if it draws the total below a 'certain." Spruill agreed "it is bad policy" but he never said how much fund balance should be allowed to be drawn down.
Clip 3 is mostly Ed Booth's comments followed again by County Manager Paul Spruill's speaking to Mr. Richardson's "question of 'whether it is good public policy to spend $2 million a year of its fund balance." Mr. Richardson closes out the discussion predicting a tax increase unless the "policy" is changed.
To see what they are talking about click here. The table shows how much fund balance the county had on June 30 of each fiscal year. It also shows how much the amount of fund balance varied from year to year during the octennial tax valuation cycle.
The picture can be simply explained. The county reached its healthiest financial status, as measured by its "savings" account, in FY 2006 when it held $16,654,407 in its fund balance on June 30. By FY 09 that had fallen to $10,662.549, a decrease of $5,991,858 or a 36% decline from 2006. Meanwhile the total General Fund spending increased by 17%. What Richardson is in essence pointing out is that increased spending and decreasing fund balance will eventually lead to the county being bankrupt. So the question becomes, at what point do you stop the spending increases?
Richardson argues that the point is when the fund balance reaches 8% of your spending at any point during the year, then you have spent too much. He argues that this minimum level of fund balance is essential to insure adequate cash flow to cover: 1. the lag in receipts of revenue, 2. to ameliorate for declines in revenue caused by weaker economic conditions and 3. to have sufficient contingency funds to cover emergencies, such as a catastrophic natural disaster. Or we would contend: To mitigate the impact on property tax rates concomitant with property re-valuation.
His numbers, he contends, say that with the $2 million of fund balance spent in FY 2009, and if the amount budgeted in FY 2010 is spent this year, that the county's available fund balance will be dangerously close to the minimum and unless spending is cut this next budget year, given the weak economic conditions, that the county will be forced to raise taxes in FY 2012 and possibly this next year, depending on revenue flows. And that would come on the heels of the increase in property values which everyone is dreading this spring.
And it would be on top of the largest state tax increase in history this year.
We will have another more detailed report of county expenditures in a later article. What it will show is that the major reason for the decline in the county's fund balance is school spending. The Board of Commissioners (by a series of 5-2 votes) allowed the School Board to spend $39.4 million on the projects approved in a $33 million bond issue. That $6.4 over-run on the bond projects more than accounts for the shortfall the county is now facing. Added to that, as the table shows, the "Chickengate Agreement" locked the county into automatic spending increases. (If you search this site for "Chickengate" you will find a number of other articles on that issue.) But essentially what the agreement did was lock the county into a legally binding "minimum level" of funding for the schools in return for the School Board not sueing the county or commissioners. That is what Note 2 in the table is referring to.
Another point of information related to the clips above, and particularly the comments of Commissioner Booth in Clip 3 is the impact of the school bond debt. The "debt service" they are referring to is the payments on the $33 million school bond issue. At the time the bonds were voted on the School Board contended that the bond issue would not result in a tax increase. They based this on the fact that previous bonds were being retired and the debt service that had been going to pay those obligations could/should be applied to pay for the $33 million bonds, and that along with the natural growth of the tax base would be sufficient to service the school bond debt. Their ad campaign proclaimed such.
At the end of the third clip above you will see the discussion simply come to a stop. That is because no motion was made and therefore no decision was made.
Commentary
We would suggest that this discussion is the most important issue Beaufort County has faced in many years. We are faced with what everyone agrees is the most unusual octennial property tax re-valuation perhaps since the Great Depression. Many residents of Beaufort County are going to see a very significant increase in the property taxes they have to pay. And those increases will come in the midst of one of the worst economic crises in our life times. Unemployment is at record heights and there does not appear to be any relief in sight. People and businesses are hurting. Now is when we need a "cushion" in county coffers to hold down taxes.
Many people simply will not be able to pay the higher property tax bills on property they can't sell. This is simply not the time for the Beaufort County Commissioners to be raising taxes on people, particularly on small businesses that are struggling to continue to employ Beaufort County folk. We think it is absolutely unconscionable to do that.
And for those who choose to parse words like "revenue neutral" we would say: We call it a tax increase when you have to write the check for more money than you did the year before.
And make no mistake about it. The reason the county is faced with this dilemma can also be simply stated: We have spent too much in the last four-five years. When economic times were good, rather than putting away a "cushion" to keep the re-valuation from hurting so many people so badly the county continued to spend money like it grows on trees.
Some will say "well, this is the worst economic downturn we've ever seen...we didn't anticipate revenue falling off a cliff." Duh, the economy always goes in cycles. They may not have known how much revenue would suffer but they knew it was coming. We told them so, so we know they should have known.
The chickens are coming home to roost. But the commissioners who voted to spend $6.4 million more than the people voted for on the school bonds and then entered into a five year "guarantee" of a prescribed annual increase in school current expense funding were simply irresponsible. That's over eight million dollars. If that eight million was invested right now then the impact of property re-valuation could be held to revenue neutral for every individual taxpayer.
And speaking of "revenue neutral" we'll have more to say about that play on words later, but suffice it to say here that nobody in Beaufort County should misunderstand. "Revenue neutral" means "tax increase." We'll explain that in more detail later. But don't be fooled by these same commissioners who voted to spend us into this mess telling you they're not raising your taxes when they talk about "revenue neutral." Wait until you get your tax bill and you'll see what we mean.
Five of our seven county commissioners have done in Beaufort County exactly what the Democrats did in Raleigh with their $1 BILLION tax increase and what George Bush, Barack Obama and Congress have done in Washington. They have spent us into a bind.
When times were good they failed to save for the rainy day. They have eaten our "seed corn." These five commissioners have been just as irresponsible as Congress has been. Now we, the Beaufort County taxpayers, will have to bail them out. Get ready. It is coming. Unless...they do as Hood is urging them to do: Tighten up rather than expecting the people to tighten up and pay more taxes.
Don't let them try to tell you it is "re-valuation." Re-valuation could be handled without an actual tax increase for many of us if they had reserved our fund balance for the last four years. They spent it and that is the problem. And that is precisely why most of us will pay more taxes next year unless they cut spending.
And as Paul Harvey would say, "now you know the rest of the story."
Delma Blinson writes the "Teacher's Desk" column for our friend in the local publishing business: The Beaufort Observer. His concentration is in the area of his expertise - the education of our youth. He is a former teacher, principal, superintendent and university professor.
Go Back
For those not familiar with the terms, "fund balance" is the difference between what is received in revenue and what is actually spent. Over time it can build up or it can be depleted if more is spent than is being received in revenue. Counties and cities must maintain a certain level of fund balance to be sure the checks they write will clear the bank until revenue (deposits) exceed the expenditures. Business owners would call it "cash flow."
The state Local Government Commission mandates that counties have at least 8% of their budget in fund balance. But that amount is rather deceptive, as is how much actual fund balance a governmental unit has at any point in time.
Richardson pointed out that 8% is approximately $4 million for Beaufort County. So the question becomes "how low will the county allow the fund balance to fall before it takes steps to correct it?" Correcting a low fund balance can be done one of two ways: Reducing expenditures or increasing revenue, or a combination. Thus, when revenue declines (or does not grow as much as the budget projects) such as happens during economic downturns, either fund balance will fall or you have to cut expenditures.
Richardson's appeal was to consider the issue as a policy matter before the budget process begins in the spring.
What followed was a lengthy discussion which we have edited into shorter clips.
Clip 1 below is the beginning of the video clips of the discussion of spending and fund balance. Clip 1 is mostly Hood Richardson's introduction of the issue.
Clip 1b below is mostly former Commissioner chairman Jay McRoy's response. McRoy was chairman when much of what Mr. Richardson is complaining about took place.
Clip 2 below is mostly Al Klemm's comments followed by County Manager Paul Spruill's speaking to Mr. Richardson's "question" of 'whether it is good public policy for the county to spend $2 million a year of its fund balance if it draws the total below a 'certain." Spruill agreed "it is bad policy" but he never said how much fund balance should be allowed to be drawn down.
Clip 3 is mostly Ed Booth's comments followed again by County Manager Paul Spruill's speaking to Mr. Richardson's "question of 'whether it is good public policy to spend $2 million a year of its fund balance." Mr. Richardson closes out the discussion predicting a tax increase unless the "policy" is changed.
To see what they are talking about click here. The table shows how much fund balance the county had on June 30 of each fiscal year. It also shows how much the amount of fund balance varied from year to year during the octennial tax valuation cycle.
The picture can be simply explained. The county reached its healthiest financial status, as measured by its "savings" account, in FY 2006 when it held $16,654,407 in its fund balance on June 30. By FY 09 that had fallen to $10,662.549, a decrease of $5,991,858 or a 36% decline from 2006. Meanwhile the total General Fund spending increased by 17%. What Richardson is in essence pointing out is that increased spending and decreasing fund balance will eventually lead to the county being bankrupt. So the question becomes, at what point do you stop the spending increases?
Richardson argues that the point is when the fund balance reaches 8% of your spending at any point during the year, then you have spent too much. He argues that this minimum level of fund balance is essential to insure adequate cash flow to cover: 1. the lag in receipts of revenue, 2. to ameliorate for declines in revenue caused by weaker economic conditions and 3. to have sufficient contingency funds to cover emergencies, such as a catastrophic natural disaster. Or we would contend: To mitigate the impact on property tax rates concomitant with property re-valuation.
His numbers, he contends, say that with the $2 million of fund balance spent in FY 2009, and if the amount budgeted in FY 2010 is spent this year, that the county's available fund balance will be dangerously close to the minimum and unless spending is cut this next budget year, given the weak economic conditions, that the county will be forced to raise taxes in FY 2012 and possibly this next year, depending on revenue flows. And that would come on the heels of the increase in property values which everyone is dreading this spring.
And it would be on top of the largest state tax increase in history this year.
We will have another more detailed report of county expenditures in a later article. What it will show is that the major reason for the decline in the county's fund balance is school spending. The Board of Commissioners (by a series of 5-2 votes) allowed the School Board to spend $39.4 million on the projects approved in a $33 million bond issue. That $6.4 over-run on the bond projects more than accounts for the shortfall the county is now facing. Added to that, as the table shows, the "Chickengate Agreement" locked the county into automatic spending increases. (If you search this site for "Chickengate" you will find a number of other articles on that issue.) But essentially what the agreement did was lock the county into a legally binding "minimum level" of funding for the schools in return for the School Board not sueing the county or commissioners. That is what Note 2 in the table is referring to.
Another point of information related to the clips above, and particularly the comments of Commissioner Booth in Clip 3 is the impact of the school bond debt. The "debt service" they are referring to is the payments on the $33 million school bond issue. At the time the bonds were voted on the School Board contended that the bond issue would not result in a tax increase. They based this on the fact that previous bonds were being retired and the debt service that had been going to pay those obligations could/should be applied to pay for the $33 million bonds, and that along with the natural growth of the tax base would be sufficient to service the school bond debt. Their ad campaign proclaimed such.
At the end of the third clip above you will see the discussion simply come to a stop. That is because no motion was made and therefore no decision was made.
Commentary
We would suggest that this discussion is the most important issue Beaufort County has faced in many years. We are faced with what everyone agrees is the most unusual octennial property tax re-valuation perhaps since the Great Depression. Many residents of Beaufort County are going to see a very significant increase in the property taxes they have to pay. And those increases will come in the midst of one of the worst economic crises in our life times. Unemployment is at record heights and there does not appear to be any relief in sight. People and businesses are hurting. Now is when we need a "cushion" in county coffers to hold down taxes.
Many people simply will not be able to pay the higher property tax bills on property they can't sell. This is simply not the time for the Beaufort County Commissioners to be raising taxes on people, particularly on small businesses that are struggling to continue to employ Beaufort County folk. We think it is absolutely unconscionable to do that.
And for those who choose to parse words like "revenue neutral" we would say: We call it a tax increase when you have to write the check for more money than you did the year before.
And make no mistake about it. The reason the county is faced with this dilemma can also be simply stated: We have spent too much in the last four-five years. When economic times were good, rather than putting away a "cushion" to keep the re-valuation from hurting so many people so badly the county continued to spend money like it grows on trees.
Some will say "well, this is the worst economic downturn we've ever seen...we didn't anticipate revenue falling off a cliff." Duh, the economy always goes in cycles. They may not have known how much revenue would suffer but they knew it was coming. We told them so, so we know they should have known.
The chickens are coming home to roost. But the commissioners who voted to spend $6.4 million more than the people voted for on the school bonds and then entered into a five year "guarantee" of a prescribed annual increase in school current expense funding were simply irresponsible. That's over eight million dollars. If that eight million was invested right now then the impact of property re-valuation could be held to revenue neutral for every individual taxpayer.
And speaking of "revenue neutral" we'll have more to say about that play on words later, but suffice it to say here that nobody in Beaufort County should misunderstand. "Revenue neutral" means "tax increase." We'll explain that in more detail later. But don't be fooled by these same commissioners who voted to spend us into this mess telling you they're not raising your taxes when they talk about "revenue neutral." Wait until you get your tax bill and you'll see what we mean.
Five of our seven county commissioners have done in Beaufort County exactly what the Democrats did in Raleigh with their $1 BILLION tax increase and what George Bush, Barack Obama and Congress have done in Washington. They have spent us into a bind.
When times were good they failed to save for the rainy day. They have eaten our "seed corn." These five commissioners have been just as irresponsible as Congress has been. Now we, the Beaufort County taxpayers, will have to bail them out. Get ready. It is coming. Unless...they do as Hood is urging them to do: Tighten up rather than expecting the people to tighten up and pay more taxes.
Don't let them try to tell you it is "re-valuation." Re-valuation could be handled without an actual tax increase for many of us if they had reserved our fund balance for the last four years. They spent it and that is the problem. And that is precisely why most of us will pay more taxes next year unless they cut spending.
And as Paul Harvey would say, "now you know the rest of the story."
Delma Blinson writes the "Teacher's Desk" column for our friend in the local publishing business: The Beaufort Observer. His concentration is in the area of his expertise - the education of our youth. He is a former teacher, principal, superintendent and university professor.
| Beaufort County Commissioners Pass Resolution | County Commissioners, Government, Governing Beaufort County | Beaufort County Government's General Meeting Agenda: Monday, February 1, 2010 |
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