Avoid being overzealous with reserve fund increase

Beaufort County should consider a realistic and modest increase to its reserve fund that doesn't hurt residents' wallets.

info@islandpacket.comFebruary 12, 2014 

An adequate reserve fund is important for any local government to have. It not only ensures ready cash if natural disasters or other emergencies strike but also plays a key role in keeping a local government in good financial standing, allowing it to lock in lower interest rates for building projects.

Thus, we're pleased to see Beaufort County's ongoing discussion about increasing its reserve fund. It's particularly important for a county that, just 10 years ago, was issued a warning by credit-rating agencies for having too small of a reserve -- just under $4 million or 5 percent of that year's budget.

The county has come a long way since then, growing its reserve nearly every year to the current level of $24 million, almost 25 percent of the county budget. As a result, its credit rating is now stable and better than or equal to most of the counties in the state, according to financial adviser Amy Vitner of FirstSouthwest.

We encourage county leaders to proceed cautiously as they consider increasing the reserve fund to an even higher level. At first blush, we believe county staff's proposal to raise it to 42 percent of the county's annual budget by 2020 is unnecessary and problematic.

First, an overly large reserve fund without rules on how it can be used can easily become a slush fund, providing quick and easy money for whatever projects pop up on the fly. Economic development projects, land buys and other county expenditures could suddenly become possible if a large, easily accessible pot of money exists. To pay for such ventures, county leaders should be willing to make hard and politically unpopular decisions, such as cutting county services that residents depend on or raising residents' taxes.

We worry county leaders could be tempted to take risks that they would not otherwise, and projects may not be as carefully vetted.

This is a particular concern for Beaufort County, which increasingly wants to get into the development game. The county recently spent more than $1 million for nearly eight acres next to its government center on Bluffton Parkway. The plan is to attract a call center, information-technology office or other back-office professional services operations to the site -- but no such business has yet been identified. Now armed with a new marketing plan that encourages the county to recruit businesses in Germany and eastern Canada, the temptation to serve as a developer -- and find money to pay for its development efforts -- is likely growing.

Secondly, a larger reserve fund only makes sense if increasing taxes and curbing county services are a last resort to maintaining the fund. Residents should not have to pay more in taxes or see services cut so the county can boast of a large savings pot. Therefore, a reserve fund smaller than the proposed 42 percent is likely necessary.

We're pleased that several County Council members, including Councilmen Rick Caporale and Bill McBride, recently raised this concern and suggested lowering the amount held in reserve to around 33 percent of the county's budget, splitting the difference between the 42 percent suggested by county staff and the 25 percent currently in the fund. And council members Brian Flewelling and Jerry Stewart agreed the lower percentage is more realistic and that a tax increase should be a last resort to maintain the reserve fund.

The 33 percent would also put Beaufort County in line with neighboring Colleton and Charleston counties, which both have 31 percent of their budgets in reserve.

A county committee plans to further discuss the issue before making a recommendation to the full council. Sending a realistic proposal that protects the taxpayers' wallets and requires the fund be used for savings, not for pet projects, should be the goal.

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