Hilton Head officials defend cash reserves

Town of Hilton Head Island officials Thursday defended the practice of building cash reserves to help it weather tropical storms, while some residents and one county official decried the practice.

Beaufort County Councilman Rick Caporale criticized the town during a speech to a Republican group Monday on Hilton Head. When the issue of a now-proposed 6.67 percent tax increase for the island was brought up, Caporale said the town had more than $40 million in reserves, more than the county and school district combined. A town review of audited financial reports, however, shows that is not the case.

The town had about $43 million in cash reserves from its general operating budget and other accounts at the end of fiscal 2010. About $27.5 million of that, however, has been designated to pay for future improvement projects and debt, according to the town's most recent reports. That leaves about $15.8 million -- or about 48 percent -- in undesignated reserves.

That compares to about $80 million and $126 million the county and school district, respectively, had in reserves from similar accounts, according to their June 30, 2010, annual financial reports.

Although higher than the 17-percent general operating reserve the county had at the end of the 2010 fiscal year and the 18 percent available to the school district, town officials say Hilton Head needs greater reserves because it is a barrier island subject to tropical storms.

Hilton Head has adopted a policy of maintaining cash reserves annually at 30 percent of its operating budget.

Town manager Steve Riley said the higher number is also needed to maintain the town's bond rating, which allows it to borrow at low interest rates. Hilton Head has the highest bond rating of any municipality in the state.

Additionally, with the downturn in the economy, the town has recently used some of those funds to balance the budget. Projections indicate the town will have $14.2 million in reserve for the coming fiscal year, down from $15.8 million at the end of fiscal 2010."It is absolutely outrageous to say we're sitting on $40 million," Riley said. "Most of that money is committed or there is a reason why it's there. Also, (federal disaster aid) is a reimbursement. You've got to spend the money first after a storm."

Riley and Town Council members say a cushion might also be needed should the island's annual PGA Tour event be unable to find a title sponsor, which would create an estimated $1.2-million deficit in town revenue.

Riley reiterated the town continues to trim costs, but money will be needed to pay for expenses associated with expansion and renovation of the island's recreation and senior centers. Money will also be needed for new residential and commercial development in the Coligny area, and perhaps a new sailing center.

Caporale and others argue more needs to be done to cut spending.

The town's millage rate decreased from 31 in 2004 to 19 in 2006. It was raised to 19.36 in 2009 and dropped to 18.54 in 2010.

The rate would increase next fiscal year to about 19.35 or slightly lower, officials say.

A home valued at $350,000 would be taxed an additional $11.34 a year under that scenario.

Should the rate increase, the town would still have the lowest rate of local governments in the area.

The town has reduced its reliance on property taxes by adding tourism and real estate-based revenue. Property taxes are expected to drop from 67 percent of the budget in 1994 to 36 percent in 2012.

"We have an ambitious policy agenda, and I believe we need to honor that and remain committed to improving our island," Mayor Drew Laughlin said. "It's become fashionable to say the town has a bloated budget and inefficient staff. I don't believe that."

Councilman Bill Ferguson said at a council meeting Tuesday the increase would be a hardship for some on the island, particularly his Ward 1 constituents.

A public hearing and first reading of the budget is set for 6 p.m. June 14.