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Wednesday, 17 October 2012 13:28

Swain fund balance once again teetering on the brink

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Swain County might have to raise taxes or make budget cuts to keep its cash reserves from falling into unhealthy territory.

Swain County’s cash reserves are hovering around $1.6 million, barely above the state-recommended minimum. Independent auditor Eric Bowman recently warned the county that one capital project or one hiccup could quickly drop Swain County’s fund balance too low.

“It doesn’t take anything,” Bowman said.

The Local Government Commission in North Carolina suggests counties maintain a cash reserve equal to 8 percent of its annual budget — enough money to cover one month of operating expenses in case of a cash flow crunch. Swain County’s fund balance hovers around 8.8 percent, according to its latest annual audit.

Although it is just a recommendation, dipping below that benchmark triggers financial oversight by the N.C. Department of Revenue until the problem is remedied.

That’s exactly what happened to Swain County three years ago when its fund balance dropped to 6.7 percent, triggering layoffs and furloughs for county workers.

Bowman told county commissioners at a meeting last week that next year’s budget, if similar to this year’s budget, is going to be tight and advised the county that it might need to raise property taxes or make cuts in the future.

“It is going to get awfully tight,” Bowman said.

Property taxes are the only stream of revenue the county has any control over and thus is the only option at its disposal other than budget cuts to right the county’s financial course.

County Manager Kevin King in part blamed the county’s financial situation on state budget cuts that trickled down or the county being forced to pick up the tab for programs.

“You are where the rubber meets the road,” King said about county services. “They (the state) just see numbers on the page.”

Counties are working with less money to provide more services — some of which could suffer in Swain County if it can’t up its revenue.

Commissioner David Monteith immediately spoke out against a property tax increase.

“We are going to have to look at getting money another way,” Monteith said.

However, if the county cuts services and employees, that won’t look good either, he said.

“We look like the bad guy,” Monteith said.

Commissioner Steve Moon did not throw his support behind either cuts or a tax increase but said the county needs to take action.

“It’s got to come from somewhere, and if David (Monteith) opposes a tax increase, then the best solution is to cut jobs,” Moon pointed out.

Monteith replied that he doesn’t want county employees to lose their jobs.

Commissioner Robert White said a tax increase might be necessary in that case.

“We don’t need to cut off our nose to spite our face,” White said. “If it comes to that, it comes to that.”

Property taxes have not increased in Swain County for more than a decade. The county’s tax rate is 33 cents per $100 of property value — which is higher than only six other counties in North Carolina. Macon and Jackson counties have two of the lowest at 27.9 cents and 28 cents, respectively.

Even in 2009 when the county’s fund balance dropped to 6.7 percent, Swain County leaders did not raise taxes — going against their auditor’s recommendation to do that. Instead, county leaders cut the budget.

“We had a lot of savings that year. We basically pinched pennies,” King said. “We were very fortunate” not to have to raise taxes.

That year the county cut eight jobs — five in the sheriff’s office and jail and three from other departments. It also froze overtime and mandated that its nearly 200 employees take five furlough days.

All in all, Swain County had to cut $1 million from its budget that year to get its fund balance up. Meanwhile, it was required to send monthly financial statements to the Local Government Commission until its fund balance got back over the 8 percent mark. King drew some criticism for not sounding the alarm earlier in 2009 and allowing the county’s fund balance to drop below 8 percent before taking action.

Although Swain County is barely above the recommended 8 percent mark now, King said he is not concerned, adding that the auditor has told the county for years that something will need to change in the future — and eventually it will.

“I think we are going to be fine,” King said. “Just some point in the future, they are going to have to look for a more sustainable revenue source.”

 

Balancing its funds

The Local Government Commission recommends that counties across the state maintain a minimum cash reserve, known as a fund balance, equal to 8 percent of its annual budget. The 8 percent level ensures enough cash on hand to pay all its operating expenses for at least one month in the event of a cash flow crunch.

During the past four fiscal years, Swain County’s fund balances have varied greatly.

2012 8.8%

2011 11.8%

2010 13.5%

2009 6.7%

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