Kent to vote on key issue
Kent County commissioners will make an important decision this week that could influence how many county services will be funded in the coming years and what the county’s bond rating will be down the road. They will have to determine at what level the general operating budget’s fund balance, or reserve account, should be.
Members of the county’s Finance Committee recommended last week that the fund balance be set at 40 percent of the general fund’s expenditures and transfers. That spending figure was $167.8 million in last year’s budget and at the 40 percent level, the fund balance would have been a little over $66 million.
“I think 40 percent is where we need to be. I think we need to send a clear message to the bond rating agencies that we are serious about our fund balance. I think freeing up money to spend it is wrong,” said Commissioner Roger Morgan.
“We need to look at all the criteria to maintain our bond rating,” said Commissioner Carol Hennessy, who supported the 40 percent solution.
But Commissioner Jim Talen thought otherwise. He said if the county had set 40 percent as its mark in 2008, the general fund would have had a $142,000 deficit before it was adopted. The 2008 budget was adopted at $164 million. Talen said the county needs to provide services on an efficient basis, but setting the reserve that high would “tie their hands” on spending matters.
“We need to have some flexibility to provide services,” he said. “We’re been tightening our belt more than we ever have in the last four years. We’re going to be so tight that we will have to eliminate some un-mandated services.”
Talen was unsuccessful in making a motion to drop the minimum fund balance from 40 percent to 38 percent, which would have added about $2.3 million to last year’s general fund budget had the reserve policy been in place in 2010.
The entire matter revolves around an accounting change issued by the General Accounting Standards Board, a non-governmental, nonprofit organization that most states follow. GASB Rule 54 requires a reorganization of fund balances into five categories and stipulates that governments should maintain a minimum fund balance of 40 percent. That isn’t a requirement, as units can go as low as 35 percent. However, governments that drop the reserve to that level have to “repay” the balance within five years to get back to 40 percent.
“I’m willing to take (Fiscal Services’) advice and believe 40 percent is where it should be. If we find a year later that the number is too high, then we can change it,” said Commissioner Jim Saalfeld.
The Finance Committee approved the new 40 percent policy, along with a few other changes, by a 5-2 margin last week, with Talen and Commissioner Gary Rolls voting against it. Key to its passage was the committee’s concern about maintaining the county’s Triple-A bond rating, as having a strong fund balance is one of the key criteria on which rating agencies base their decisions.
“I just don’t want to lose sight of the fact that we need to invest in the county,” said Talen.
Talen asked County Administrator and Controller Daryl Delabbio if the county had any construction projects on the horizon that would require going to the bond market. Delabbio said there weren’t any. But he added that the county was looking into refinancing the DeVos Place construction bond, which was supposed to be paid with receipts from the Lodging Excise Tax.
Those receipts haven’t been large enough, though, to cover the roughly $5 million annual debt, and the county has subsidized that payment with more than $4 million from the general fund over the last three fiscal years. A top bond rating, of course, would lower the county’s cost to refinance. The bond matures in 2031 and the payment due that year is more than $11 million.
“Believe me, that is something that has kept me up at night,” said Delabbio.
Commissioners will vote Thursday on the new fund-balance policy.