Rush for larger reserve fund lacks basic underpinning

newsroom@islandpacket.comFebruary 23, 2014 

STOCK

Beaufort County Council should shelve its sudden push to increase its reserve fund because it has yet to make a solid case for it.

For a decade, the council has done just fine building its reserves to an acceptable level of about 25 percent of the total budget, or $24 million.

Now, there is a push to increase the fund by passing an ordinance demanding it, even if that were to require a tax increase or cuts to county department budgets. At first, it was suggested the reserve should be a whopping 42 percent of annual budget. Now, the council's Finance Committee has unanimously approved a proposed policy calling for a reserve of 30 percent of budget, or $30 million.

We have seen no warnings from credit-rating agencies saying the county has a problem with its reserve level. Credit agencies consider the level of reserve funds when assigning their credit ratings, which in turn can affect interest rates when the county borrows money, as it does when it sells bonds.

An alarm was sounded 10 years ago, when the county's reserve dipped under $4 million. Moody's issued the county a financial warning for having too small a reserve fund.

The county responded appropriately. Without any help from the proposed new policy, the county increased its reserve by $20 million in 10 years.

That is a credit to the county staff and County Council. But it makes one wonder: What is the problem that we're trying to solve?

Remember that the first public discussions of the new policy included the argument that the county needed extra money on hand to attract more businesses.

County administrator Gary Kubic said the larger reserve would give the county flexibility, and it could create bigger, more lucrative incentives to attract business.

It appears, then, that County Council is aiming for a larger reserve than it needs for its primary purpose: cash on hand that would be needed after a hurricane strikes.

At some point, a reserve fund becomes a slush fund.

We're not anxious to see potential tax hikes going for an oversized reserve fund that serves as a slush fund.

County Council would have to approve expenditures from the reserve fund, and county leaders are now downplaying the industrial-recruitment aspect of the reserve fund. But that should remain a public concern.

If County Council wants to spend more to attract business and industry, it should say so and debate that sum with the rest of the publicly-vetted budget.

An unusual push is on for an increased reserve fund, but the reason for it has yet to be made clear.

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