Can a government have too much money in reserve?
Beaufort County Councilman Steve Baer thinks so if services such as libraries aren't fully funded when they could be.
Baer says nearly $741,000 in funds approved for the library system hasn't been spent over the past three budget years, even as branch hours were cut to 40 hours a week two years ago from as many as 66. Nearly half that amount is expected to go unspent in the current fiscal year.
Baer, who represents the mid-island area of Hilton Head Island, contends the under-spending is part of a concerted effort by county administrators to boost the county's cash reserve.
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Once in reserve funds, the money set aside for libraries is commingled with other unspent funds -- and sometimes later spent on unbudgeted items.
"This builds up our reserve," Baer said, but makes it "easier to raid for other purposes."
Last week, for instance, County Council voted to use $850,000 in reserve money to entice an unnamed business to the county. The council has released almost no information about the effort it calls Project Robot, claiming that doing so could hurt its chances of landing the company.
The council also appears ready to tap an additional $300,000 from the fund to fill financial gaps in the Beaufort County Public Defender's Office and the Daufuskie Island ferry budgets for the current year.
Not everyone on the council shares Baer's concerns, however.
Stu Rodman, who heads the Finance Committee, sees under-spending as a sign of prudent management. The last thing the council should do, he said, is mandate department heads spend every nickel in their budgets.
"Budgeting is a process where you do it once a year and take your best shot, and if a particular department is a couple percentage points under, I chalk it up to good management," he said.
If a department has a surplus, that's a good reason to reduce its budget allocation the next year, he said. Indeed, nearly half of the line items in the next year's proposed $99.3 million budget are lower than this year's allocations.
Libraries are one exception.
Based on current projections, this year's $3.9-million library budget will be under-spent by as much as 10 percent. The budget year ends June 30.
Despite that surplus, the county plans to increase the budget to $4.1 million next year, in part to increase hours by at least 10 a week at each branch.
WHY A RESERVE?
Reserves help local governments maintain high bond ratings, which lower borrowing costs.
In storm-prone areas such as Beaufort County, a healthy reserve also ensures government can function after a major disaster.
The county currently has about $22 million in reserves and the second-highest bond rating in the state.
But that $22 million is still about $3 million less than county administrator Gary Kubic would like -- 25 percent of the total budget.
Of Baer's concerns, Kubic says it's unrealistic to spend every penny allocated within each department.
Kubic described the budget process as fluid and affected by ever-changing data on income and expenditures.
"It just comes and goes based on hiring practices," he said. "We never know if four people are going to quit from one unit. That sort of variable is impossible to predict."
It's not clear how many vacancies there are in the library system now. No positions are posted on the couty's website.
Kubic also disputes the notion that library money has been diverted other uses.
Besides, he says, he has no choice in the matter: County Council policy calls for unspent funds to go directly to reserves at year's end -- a requirement likely to be amended later this year.
Baer believes most of the cost savings within the library budget are achieved by holding positions vacant for extended periods. He calls that move "silent budget clamps."
"If County Council had known of and voted on those clamps ... that would have been OK," Baer said. "The issue is that we never knew of the budget line changes and never voted on them."
Councilman Rick Caporale says Baer is making a philosophical point.
Although the end-of-year transfers into reserves are required, purposely under-spending these accounts to bolster reserves does not follow the spirit of the rule.
"Some folks on council may not agree that moving money into (reserves) is a transfer, but it is," Caporale said. "You took money from one place and you moved it to another."
The council is expected to begin debate at today's Finance Committee meeting on a policy governing transfers between accounts.
Although existing rules require council approval for any transfer of $50,000 or more, the same rules don't apply to the year-end transfers to the reserve.
Rodman expects to begin debating a new reserve policy in July, something Baer has pushed for months.
The new policy probably will set targets each year for exactly how much should move into reserve. Those targets could help the county hit Kubic's 25-percent goal.
If there is more than that target amount left over, it could be used to reduce taxes or for other purposes, Caporale said.
"We don't need to sit on $28 or $30 million," he said.
Follow reporter Casey Conley at twitter.com/IPBG_Casey.