Commission approves new fund balance policy

Gary B. Gray • Nov 27, 2013 at 8:40 AM

A resolution shot down Monday, but later revived and approved by a majority of Washington County commissioners could be crucial in keeping the county’s credit rating on solid ground.

The measure, which eventually passed after some debate, created a two-part policy requiring the county to begin each fiscal year with a minimum fund balance in the General Fund of four months’ budgeted average expenses for that year.

For example, this year’s general fund is about $36 million. That means the budget would require not less than $12 million of that be available when the new year kicked off. Also, the policy requires that the county cannot allow the amount to fall below 15 percent of all budgeted within the year. Using this year as an example, that would be about $5 million.

“It’s conservative, and it’s what the state comptroller has recommended,” said County Mayor Dan Eldridge.

The second part of the policy requires the county to begin each fiscal year with 40 percent of its debt service obligation — the money it owes — in its reserves. For example, the county’s financial obligation this year is about $11 million, meaning it would have had to begun the year with about $4.4 million in the debt service fund. This amount also can be equal to debt obligations for the first six months of the year, or whichever is greater.

The fact commissioners rethought this move likely will help bolster the county’s bond rating, which in turn means if large amounts of debt need to be issued in the future for school buildings and other costly needs, commissioners will have a better chance of being in a position to do so.

Eldridge introduced a resolution to refinance about $8 million remaining from $16 million to $18 million in debt originally issued in the 1990s.

“We would see a net savings of roughly $500,000 over the next five years,” he said.

The bonds were refinanced in 2004, but the interest rate on that money was about 5 percent. If acted on now, the county can pay off the remaining principal by taking advantage of a 1.4 percent interest rate.

The refinancing resolution sprang up Monday with the companion resolution to initiate the fund balance policy.

Commissioner Mark Ferguson pointed out that he and some other commissioners had not received the information in time to thoroughly review it. While the policy itself had been included in the agenda packet, the resolution had not.

A call came to suspend the rules and vote on whether to accept the resolution. Needing a two-thirds majority to keep the resolution alive, the resolution was nixed by a 9-16 count with nine commissioners voting against it.

Ferguson and Commissioners Alpha Bridger, Phyllis Corso, Gearld Sparks, Roger Nave, Ben Bowman, Steve Light, Sam Humphreys and David Shanks voted against the resolution.

“Bad timing,” Eldridge said while backing away from the podium.

That’s when he told commissioners the policy would have improved the county’s bond rating and ability to borrow. It also happens that Eldridge and the county’s bond counsel are heading to New York to talk with bond-rating agencies in an effort to improve the county’s credit rating and the possibility of getting lower interest rates when further debt is issued.

The saying goes: “You can’t get a loan unless you can prove to the bank you don’t need one.”

But commissioners did a “360” later in the evening. After additional conversation about the potential damage that could occur because of the policy not being in place, Commissioner Pat Wolfe suggested a “do-over.”

The rules were suspended once more and a vote on whether to consider the policy again passed in a 19-6 vote. The next vote, on the policy itself, won the favor of a majority of commissioners.

Ferguson was not among the majority.

“I’m against freezing it at that level,” he said Tuesday about the fund balance. “The Budget Committee thinks it will make the bond rating higher. But you don’t borrow money until it’s absolutely necessary. It’s good to have money on hand. But look at how we got it — by borrowing.”

The county’s fund balance has been hovering around $18 million — an all-time high. But there are ebbs and flows to the county’s bank account, and it could be that in February, when all the tax revenues for this year are tallied, there could be as much as $23 million in that account.

Ferguson also said the new policy will not affect savings from the bond refinancing.

“Almost all our revenue is property tax,” said Joe Grandy, a commissioner and Budget Committee member. “Most of that comes in from the end of October to February. The goal is not to fall below a certain minimum, especially when revenues typically are at their lowest. Most counties in good financial shape do have policies like this in place.”

Grandy said committee members looked at several county policies from across the state that have good financial ratings, as well as other information from the County Technical Assistance Service, which provides technical assistance to Tennessee’s 95 counties.

“Commissioners had a change of heart,” he said.

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