County Finance Director weighs in on budget, tax rate debate

Published 5:14 pm Friday, July 20, 2018

As debate continues to surround the budget and tax increase approved by the Carter County Commission and facing a veto by the Carter County Mayor, the county’s Finance Director has weighed in supporting the decision made by the Commission not to tap into the county’s reserve funds.

On July 16, members of the Commission approved a budget for the 2018-19 fiscal year which included an 11-cent increase to the property tax rate — 9 cents to balance the expenditures in the budget and 2 cents to fund employee raises.

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Carter County Mayor Leon Humphrey held a press conference on Wednesday morning to announce his intention to veto the budget and tax increase. During his announcement, Humphrey stated the county has enough money in the fund balance reserve to cover the increased expenditures without raising taxes.

To support his position, Humphrey provided financial numbers he obtained from the Tennessee Comptroller’s Office which show that the county’s fund balance reserve has increased significantly in recent years despite what he described as misleading information being spread by the Budget Committee that the county budget was facing a deficit.

Commission Chairman Dr. Robert Acuff, Budget Committee Chairwoman Sonja Culler, and several of their colleagues on the Commission held a press conference on Thursday morning to respond to Humphrey’s statements and his intention to veto the budget and tax rate.

Acuff and Culler stated that while the county has money available in the unassigned fund balance, the county needs to maintain those funds at an appropriate level to secure financial stability for the county. While the fund balance has grown in recent years, both Culler and Acuff said that growth was needed in order to get the fund balance back to a “healthy” level after those funds were depleted in previous years to balance the budget.

Carter County Finance Director Brad Burke spoke with the Elizabethton Star to discuss the county’s fund balance and the budget approved by the Commission.

According to Burke, the fund balance numbers Humphrey provided to members of the media showing the county currently had $8,138,193 in the unassigned fund balance at the beginning of the 2017-18 fiscal year are correct. Because the Finance Department is still working to close out the 2017-18 fiscal year reports, Burke said he does not have a final number for what will be available in the fund balance at the beginning of the 2018-19 fiscal year, but he estimates it could be around $8 Million.

Burke said records show that the unassigned fund balance has grown in recent years, but he agreed with Acuff and Culler that the growth was necessary for sound financial practices for the county.

Currently, the unassigned fund balance is equal to roughly 50 percent of the county’s General Fund expenditures. The county’s General Fund does not include the school system budget, highway department budget, or debt service budget.

“I think 50 percent is a good, sound figure to have in fund balance,” Burke said, adding he would consider 50 percent to be a “conservative” fund balance.

According to records from the Tennessee Comptroller’s Office obtained by the Elizabethton Star, at the end of the 2016-17 fiscal year (the last year for which a completed audit is available) the county’s General Fund expenditures totaled $16,518,728. With an unassigned fund balance of $8,138,193, that equals approximately 49.26 percent of the General Fund expenditures.

For the past three years, the unassigned fund balance has hovered around that 50 percent mark, according to comptroller’s records, but in the years before that, the fund balance was not in as stable of a position.

During the 2009-2010 fiscal year, the unassigned fund balance was sitting at $3,993,917, about 34.85 percent of the General Fund operating expenditures. After taking significant hits for two consecutive years, at the end of the 2011-12 fiscal year, the fund balance had dropped to $2,44,087 which is just 18.3 percent of the General Fund operating expenditures.

Since that time, according to the Comptroller’s Office records, the fund balance was on an upward trend before leveling off for the past three fiscal years around the 50 percent mark.

“In 2013 when it started to increase that was a result of the improving economy,” Burke said.

With the fund balance now in a more stable and financially sound position, Burke said he would not recommend the county tap into that money in order to balance the budget this year.

“I would be for a balanced budget in accordance with the balanced budget policy,” Burke said.

One of the reasons Burke said he would recommend against tapping into the fund balance to cover budget expenditures comes from his experience working as an auditor with the Tennessee Comptroller’s Office for more than 15 years prior to accepting the position as Carter County Finance Director.

“I was around in 2008 when the economy took a downturn,” Burke said. “There was a lot of stress in the counties over funding.”

Having a healthy and stable fund balance can go a long way to helping a county ride out difficult financial times, according to Burke.

While Burke said he does not feel it is sound financial practice to get in the habit of funding recurring expenses with the non-recurring revenue of a fund balance, he said there are times when that might be the right move for a county.

“If a situation arose, and the fund balance was excessive, I could recommend funding a portion of the budget with fund balance,” Burke said. “I would consider anything above 65 percent to be excessive unless there were some major plans involved for those funds.”

When it comes to the appropriations for the various departments and offices in the budget approved by the Commission, Burke said he still stands by his statement to the Budget Committee that those budget do not have an excessive amount of funds that would allow further cuts.

“There doesn’t appear to be any,” Burke said. “The officeholders are in their offices and they know their offices.”

When Burke and his staff reviewed the budget requests by officeholders, Burke said they compare to the requests to the previous year’s funding as well as actual numbers from audit reports to see how expenses and revenues are trending. The Finance Department also reviews how much, if any, unused funds the different departments return back to the county at the end of the fiscal year. Burke offered praise to the officeholders for their stewardship of the money allocated to them.

“The officeholders do a good job conserving their funds, and not just spending them because they can,” he said.

With his review of the budgets, Burke said he believes the property tax increase proposed by the Budget Committee was needed in order to properly fund the budget and practice sound accounting for the county.

In addressing statements made regarding whether or not the county had a deficit in funding, Burke said the budgeting process showed a deficit during the setting of the budget but the county was able to avoid a shortfall.

“The budget is done on the front end using estimates,” Burke said.

According to Burke, conservative budgeting dictates that revenues are estimated low, and expenditures estimated high to allow room for unforeseen expenses.

During the last fiscal year, Burke said the county’s budget was set at a deficit.

“We had less revenue available than we had expenditures,” Burke said, adding the Commission approved taking about $430,000 from the fund balance to cover those expenditures. “There is a hole that was left from last year that was not funded. It’s going to keep getting bigger if you keep going into the fund balance.”

While some have argued that there is no deficit in the county’s budget, Burke said it was his position through his experience and review of the budget that there was indeed a deficit.