Swain plods toward fund balance recovery

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Swain plods toward fund balance recovery

Despite cutting corners across the board, Swain County still isn’t sure it has achieved a healthy level of savings.

Nevertheless, County Manager Kevin King is guessing the county will pull out of its financial crisis by early spring.

“That’s not saying we’re out of the woods yet,” said King.

In 2009, the Local Government Commission identified Swain as one of only a few counties in the state to have “serious financial and budgetary problems” and recommended that the county develop a financial plan of attack to submit to the commission.

There is no specific timeline for progress, as long as the county is consistently taking positive steps, according to the LGC.

For now, Swain is required to send monthly financial statements to the state commission. The state sees no need for a higher level of oversight at this point, according to a spokesperson for the Local Government Commission.

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“They’re not even communicating with us,” said King. “If they foresee a problem, they’ll give us a call.”

The county is in the process of plugging a $1 million shortfall to meet the state’s mandate of an 8 percent fund balance, akin to the county’s savings account. At 8 percent, the county would have enough cash on hand to cover one month of operating expenses.

Since Swain falls below that benchmark, the N.C. Department of Revenue began overseeing the county’s budget and will continue to do so until the situation is corrected.

The LGC’s recommendations only become mandatory if the county repeatedly violates a statute or is in danger of defaulting on a loan.

Shifting the blame

King and Finance Officer Vida Cody said it is difficult to determine whether the county would meet the 8 percent benchmark until the end of the 2009-2010 fiscal year.

“We have a small finance department,” said King. “Most of our time is just making sure all the bills are paid, all the money is collected.”

Part of the uncertainty also results from a complication that has delayed counties from receiving revenues from sales tax, King said.

After sales tax increased by 1 percent in September, scores of merchants incorrectly filled out tax forms. The state Department of Revenue rejected 15 percent of the receipts.

While that is corrected, Swain and other counties will just have to wait for an inflow of sales tax revenues from September and October.

In mid-December, the state informed Swain County that it would not be reimbursing the county for taking on the child support enforcement program until after July.

That program was handed to the county as part of an unfunded mandate in 2009.

Also in 2010, counties will have to contribute 1.35 percent more to the North Carolina retirement system. This translates to an additional $75,000 coming out of Swain’s budget.

The county also faced more than the estimated $20,000 in expenses to repair a sinkhole that cropped up near its jail at the end of 2009. The hole is now stabilized, though more gravel was necessary than originally estimated.

“There should be no more expenses,” said King.

Swain County is working with the original contractor to determine the cause of the slide. The county will pursue reimbursement from the contractor if it is determined there was a problem with the initial work, according to King.

Details of a financial disaster

As of June 30, 2009, the county had a fund balance of 6.67 percent, compared the state’s recommended minimum of 8 percent.

According to the LGC, the average fund balance available for comparably sized counties was 20.16 percent.

In June 2008, Swain was close to that figure, with 18.62 percent of its budget in cash reserves.

While every county faced severe budget shortfalls during the recession, most began trimming costs in fall of 2008. Swain County waited until the summer of 2009 — more than a year into the recession. By the time Swain was tackling its problem, most other counties in the region had already improved their situation.

In 2008, only four counties in the state dipped below the 8 percent benchmark. The LGC was aware that these counties were struggling, whereas Swain did not notify the commission that they might not meet the benchmark last year.

Swain’s cost-cutting measures so far have included laying off 8 full-time positions and reducing all salaries by 2 percent. Swain continues to hire on an as-needed basis, leaving positions not related to public safety empty.

County employees have taken five days in furloughs so far, as part of the pay cut.

Swain also expects $157,000 from the Tennessee Valley Authority, which will begin payments this month, King said.

County employees have begun using purchase orders before buying supplies with county money. LGC and Swain County’s auditor both recommended improving control over purchases made by county departments.

“They’re doing better, much better,” Cody said. “By the end of the fiscal year, we should have met every one of the recommendations of the auditors.”

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