Setting reserve policy right step for county

info@islandpacket.comFebruary 28, 2012 

Beaufort County should have a stated policy about how much money to hold in reserve.

That was one of County Council's top goals for the coming year, and it should be among the first to get done. The council also has set a goal of prioritizing where it spends money, especially with an anticipated drop in real property values of 10 percent to 20 percent following the next reassessment, which is scheduled for 2013. Knowing how much money to bank will be a critical component of that.

Maintaining adequate reserves is necessary for a good bond rating, which helps save on borrowing costs, as well as paying the bills after a major disaster, important in an area potentially vulnerable to hurricanes.

At the end of fiscal year 2011, county reserves stood at $18.7 million, an increase of about $479,000, according to the county's annual financial report. The report shows revenue of $95.5 million and expenses of $93.1 million.

Based on $93.1 million in spending, the $18.7 million in reserve represents more than two months in operating expenses. County officials say they want a reserve of about four months in operating expenses.

Last year, county staff came up with a draft reserve policy that called for a reserve fund of about two months in spending, with a goal of building it to three months, or about $25 million, by 2016.

We should note that the reserve fund stood at $20.9 million at the end of fiscal year 2009 and had dropped to $18.2 million at the end of fiscal year 2011.

The fact that it grew by nearly $500,000 this past fiscal year was due to some very realistic revenue budgeting and aggressive cost-cutting.

Getting to four months in reserves would be difficult to do in a single year. Achieving it in several steps seems more reasonable. It almost certainly will probably be a gradual process, absent a tax rate increase or big cut in spending.

At their annual retreat earlier this month, County Council members got a list of about 75 services provided by the county. The list was put together to prompt a discussion about how much and where to spend, with a goal of no tax rate increase.

Thirty-seven of the services are required by the state or county. County staff says another 13 would be cheaper to provide in-house rather than outsource. They include engineering, finance and emergency management services.

That leaves another 25 to consider.

Setting spending priorities will be very important in the next few years as we adjust to the downturn in real estate values. How much to hold in reserve is an important piece of that financial puzzle, as is the property tax rate and the fees the county charges for various programs. One affects the other.

County officials are smart to get all of the elements out on the table for discussion and to put the goal for the reserve fund in writing.

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