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Fear seems operative word as county sits on huge surplus, but few object to budget cuts

STORY BY STEVEN M. THOMAS, (Week of July 28, 2011)

Indian River County currently has an extra $53 million in taxpayer dollars – nearly four times more than neighboring counties – sitting in its piggy bank collecting interest, but not funding needed services and programs.

Top county staffers offer four different fears to justify what some consider the hoarding of taxpayer money. The “fear about hurricanes” explanation was their first try last week. The other three explanations aren’t much better.

The “fear over our bond rating slipping” argument makes sense up to a point, according to Michael Rinaldi, a senior director at Fitch Ratings, one of three bond-rating firms that evaluate Indian River County’s debt issues.

Rinaldi did not say the county would lose Fitch’s coveted AAA bond rating if its fund balance was reduced to more normal levels, but he said the fund balance was a plus in the eyes of his analysts.

“When you look at the county and what we have said about them, the very strong rating we have given is largely supported by the county’s financial management, including its robust reserve policy.”

However, other counties have maintained AAA bond ratings with reserves of less than 10 per cent, and Indian River County’s rating is irrelevant to county finances at the present time.

The higher that bonds, or debt obligations, are rated, the less interest the county has to pay on them.

Less interest is good for the balance sheet. But a change in rating would not affect interest rates the county pays for outstanding bonds and there are no plans to take on any new debt.

“As far as I know, there are no bond issues on the horizon,” says County Finance Director Diane Bernardo.

So a downgrade, if it were to occur, would not increase county expenses.

Next there’s the “slippery slope” argument that, even in severe economic down times, the county should not fund recurring expenses with reserve funds.

Why? Because they might have to fund them next year, too.

Baird is particularly adamant about what he sees as the danger of paying ongoing expenses out of reserve funds.

“I don’t like to get into fund balances [for operating expenses],” he says. “They should be for one-time expenses; otherwise you are digging a hole you can’t get out of.”

Baird’s metaphor seems to make sense at first glance. There is a limited amount of money in the piggy bank.

If the county spent $10 million a year in reserves every year to serve the citizens of Indian River County, the fund balance would shrink and eventually be consumed, putting the county in a fiscally dangerous position.

But the county could stop depleting the fund at any point, for instance when it was reduced to the 10 per cent surplus other counties maintain, simply by making budget cuts.

That is the worst thing that could happen: budget cuts in the future instead of the present.

There is no possibility of actually going in the hole because state law prohibits counties from deficit spending.

In the meantime, the economy is in recovery and several county revenue streams are increasing, so it may not be necessary to draw from reserves to balance the budget in upcoming years.

“There is some positive news,” Baird says.

“We have bottomed. Our ½ cent sales tax is up 5 per cent or $347,000; state revenue sharing is up 5.4 per cent or $137, 000; tourist tax is up substantially; so we are starting to see signs of recovery. This is the first year our sales tax, gas tax and state revenue sharing have gone up since the downturn.”

Even as the board of county commissioners moves ahead with a budget that cuts funding for police, firefighters, seniors and children, the county has much more money stockpiled than recommended by the Florida Association of Government Finance Officers, or the county’s own guidelines.

 “I am very proud of our reserves,” says Baird. “I don’t think it is a disgrace. I think our fund reserves show that we have been successful in these tough times in making the difficult decisions.”

To Baird and Brown’s credit, the county maintains one of the lowest county tax rates in Florida despite a 34 percent drop in revenues since 2007.

Finally, there’s the “fear of bankruptcy” argument which kicks in if all else fails.

Baird and Brown tend to portray the idea of tapping reserves as an all-or-nothing deal.

“When people criticize our high fund balance – what do they want me to do, bankrupt the county?” Baird asked a group of reporters recently.

But there is a wide spectrum between bankrupting the county and using some of the reserve.

Despite revenue increases cited by Baird, both he and County Commission Chairman Bob Solari say they think the county has another year or two of tough times ahead. If that is correct, it would be foolish to cut too deeply into reserves. But some of the stashed cash could be used without coming close to bankruptcy.

Baird’s own 2011/12 budget proposal calls for using $4.1 million of reserve funds next year – though he doesn’t actually plan to spend that much of the county savings account. Instead, he and Brown say they hope to offset much of that amount by increased efficiency.

If the county commission, which has the power to approve or amend Baird’s budget, wanted to spend a few million more of the reserve, it could prevent further cuts to departments, programs and agencies that have already been slashed to the bone and increase services to taxpayers in essential areas.

Kip Jacobi, a member of the Children’s Services Advisory Committee, says this year’s cuts are problematic because the need for social services increases in tough economic times.

“It is difficult to meet those needs when the budget is continually reduced,” he says.

County money allotted to children’s services goes to fund more than a dozen programs, including Substance Abuse Council, Daisy Hope Center, Healthy Start of Indian River County, Boys and Girls Club, Mental Health Association and Early Learning Coalition.

Children’s services funds have been cut from $1.2 million in 2005 to less than $700,000 last year. By cutting further this year, the county may be risking higher costs in the future, according to Jacobi.

“Dollars spent for prevention are much less expensive than dollars spent on remediation,” he says. “There is no doubt about that.”

Jacobi and other child advocates would like to see $34,000 restored to Children’s Services.

With a balanced budget and $53 million in the bank, the Commission said no.

Jacobi, a CPA, said he admires the county’s fiscal discipline and supports the idea of maintaining adequate reserves but fears the county may be “buying trouble in the future” by making still more cuts to children’s services at a time when the county’s children need more help than ever before.

Dan Stump, president of the Indian River County Taxpayers Association is similarly conflicted.

“I can see both sides of the issue,” he says. “A reserve is good because they don’t know what county revenues will be in the future, but if it is more than they need, the question becomes why do they have so much?”