The recession has finally caught up with Swain County.
While other counties began bracing for declining revenues in late 2008, Swain County has only just begun to tackle a $1 million shortfall eating its way through the county budget. Swain County is working to plug the hole, but failure to take action sooner has caused the county’s fund balance to dip below the state’s benchmark for sound fiscal footing.
The Local Government Commission recommends counties maintain a cushion of 8 percent of their annual budget — essentially one month’s operating expenses to guard against a cash flow crisis. Swain County has dipped to less than 7 percent, however, according to preliminary audit figures for the 2008-2009 fiscal year ending June 30.
This will trigger budget oversight by the N.C. Department of Revenue until the situation is corrected.
County Manager Kevin King said the county has already figured out how to make up the shortfall and implemented a plan.
“In my opinion, there is not going to be any problem in turning this thing around,” King said. “It is not as dire as everybody is painting.”
King said he wasn’t oblivious to the mounting shortfall and has known since the spring that the county would dip below the 8 percent benchmark.
“We looked at doing furloughs in February and decided not to,” King said. “At that time the economy was getting ready to turn around, or so they said.”
Commissioners were reluctant to cut pay for county employees, who haven’t seen a raise in three years, he said.
“We just didn’t feel like we wanted to do a furlough to employees. They wanted to wait it out and see what would actually happen,” King said.
King emphasized that the county is not facing a deficit. It is merely a matter of its savings account being too low.
“It means you have less cash flow,” King said.
King points to several factors playing into the shortfall, blaming the sheriff’s office and jail as the primary culprits (see related article).
Property tax collections were down by about $195,000 over last year, as the recession made it more difficult for residents to pay their tax bills.
Another cause of the shortfall is a convoluted state formula that swapped out the county’s Medicaid costs for sales tax revenue. The state agreed two years ago to take the burden of Medicaid off the county, but along with it, the state would keep some of the sales tax revenue that previously went to counties. While Swain will eventually be better off divesting itself of Medicaid even if it means losing a sliver of sales tax revenue in exchange, the switch was only partially phased in this year and the result was a net loss to the budget.
“There are all kinds of weird things in that formula,” King said. “We didn’t come out on the good side of it.”
Making up the difference
The county has already cut half a million from its budget compared to the previous fiscal year. The cost saving measures went into effect with passage of the new budget July 1.
The county cut eight jobs: five in the sheriff’s office and jail and three from other departments. The county also froze overtime.
With half a million in savings already penciled in, that leaves another half million the county needs to come up with. King recommended a five-day furlough without pay for the county’s nearly 200 employees, netting $100,000 in savings. County government will shut down on Oct. 30, Nov. 10, Dec. 23, Dec. 31 and Jan. 19. Offices that can’t simply shut down for a whole day will work out the furloughs amongst the staff. Emergency workers who can’t take off at all will simply see a pay cut. The sheriff’s office is exempt and will see neither furloughs nor pay cuts.
King is going to take another $100,000 out of a capital reserve account used for school maintenance and construction. The reserve account has accumulated a surplus, thanks to a little being squirreled away every year to pay for future school construction.
In a lucky break, the county will be getting an extra $150,000 in taxes this year from Tennessee Valley Authority for Fontana Dam, which King factored in to help cover the shortfall.
That still leaves $150,000 to finish plugging the hole. King doesn’t have a specific plan to get there other than across-the-board penny pinching.
“We are basically going to stop spending as much as possible,” King said. A hiring freeze on vacant positions is also in effect.
Day late and dollar short
Other counties anticipated fallout from the recession and began taking steps much sooner.
In Haywood County, leaders implemented a hiring freeze in the late summer of 2008. By fall, department heads were asked to trim 1 percent off the top of their budgets. By spring, department heads were searching for a 7 percent cut, a move that spawned furloughs and 36-hour work weeks. Haywood County also cut all contributions to nonprofits over the winter, a suspension in funding that has continued into the current fiscal year. Finally, the county increased property taxes and permanently eliminated 35 positions, many of which were already vacant due to attrition, however.
In Macon County, leaders began grappling with a projected $1.4 million budget shortfall over the winter as well. County commissioners put the onus on department heads to trim their own budgets in hopes of avoiding cuts to employees. A hiring freeze was enacted, but the lion’s share of savings came from suspending purchases and delaying maintenance.