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January 26, 2020

12/5/2019 7:30:00 AM
Our View
Oneida County should not borrow any money this year

Oneida County has a big decision to make, and taxpayers should look closely at what they choose to do.

It's a straightforward choice: Does the county take the approximately $6.3 million in excess general fund dollars that it will have on hand at the end of the year and fully fund a list of capital projects that virtually everybody thinks are needed, including us, or does it borrow for a substantial portion of it?

As we observe, the projects really are needed. They include a body scanner for the jail, a law enforcement video surveillance upgrade, additional monies for badly needed road construction, required facility upgrades to the highway department, and a brine building and storage building, among other things.

They are all directly related to core government functions.

But, while they are all important, we do not believe the county should borrow a dime to get them.

For one thing, no supervisor should vote to borrow money so long as the county refuses to cut unneeded and low ranking programs and services. Once that is done, and only then, should borrowing be considered.

After all, as we have noted before, borrowing money is simply a new tax kicked down the road for future taxpayers to pay. The government will spend all that it is allowed to borrow, and taxpayers will have to pay it back, with interest to boot.

To approve such a spending scheme while continuing wasteful spending is simply irresponsible.

How irresponsible, you ask?

Well, we are sitting here in December, trying to figure out how to fund critical law enforcement and road needs, but guess what? The UW-Extension and its gardeners already have their money. They are cozied up next to the fire, sipping taxpayer eggnog, warming themselves with government blankets, while the sheriff's department is outside begging in the snow for the tools they need to keep the public safe.

That fact alone should be enough to say no and to cause taxpayers in the next election to fire anyone who votes to tax them more. That's especially so because the county has enough money to pay for everything that's now proposed.

According to an estimate by finance director Darcy Smith, the county will have almost $6.4 million on hand at the end of this year, while the total project list is just about that much. To be sure, as Ms. Smith points out, that amount will be reduced by $376,000 that the county will use from the general fund next year to fund ongoing operations.

More precisely, with that deduction, the county's excess fund balance will be about $319,000 shy of funding the entire project list. But wait. If the county had a policy restricting the use of excess general fund revenues for annual operating expenditures like many counties do, and which most supervisors understand is a "no-no," as supervisor Billy Fried put it, there would be no shortfall. And there would be no shortfall if the county eliminated its wasteful spending on the North Central Regional Planning Commission, the UW-Extension, and on other special-interest vanity projects.

But wait again. We also know that at the end of the year some excess monies are going to be returned to the general fund from state inmate excess revenue and other revenues that exceeded what the county budgeted for. Ms. Smith did not put those in the calculation because she is unsure of what the county will really net.

That's estimated to be about a million dollars, though, and it could be more, enough to cover the remaining project list, with hundreds of thousands of dollars to spare.

But, to be safe, let's assume that once the 2020 project list is covered, the general fund excess balance that is now estimated to be $6.3 million is zero, or even a little in deficit. Is that bad?

Ms. Smith thinks so. She wants about $2 million or so left in the bank to cover unanticipated expenses and emergencies, and she points to years when the county has indeed had such expenses, ranging from one-quarter of a million dollars to three-quarters of a million dollars.

Who knows when out-of-home placements in social services will explode in number, as they have before? Who knows when a storm might seriously damage the courthouse?

Catastrophes happen, though we certainly hope and pray they won't.

What's important to remember is that the $6.3 million excess is a buffer on top of a very big buffer. To the point, that's what remains after the county has already set aside $7.8 million in unrestricted cash for a rainy day, an amount that equals 3.5 months of operating expenditures, or 29 percent of the year's expenditures, which is what county auditors recommend.

We appreciate the concern that Ms. Smith expresses, that she doesn't want to dip into the formal reserve for unexpected expenses, but, quite frankly, that's exactly what reserve funds are for. It's a rainy day fund, as county board chairman Dave Hintz called it at the November board meeting.

This is how the Government Finance Officers Association (GFOA) defines it: "It is essential that governments maintain adequate levels of fund balance to mitigate current and future risks (e.g., revenue shortfalls and unanticipated expenditures) and to ensure stable tax rates."

Such unanticipated jolts are precisely what the reserve is for, in other words; another reserve on top of it is going overboard.

Ms. Smith worries that dipping into that fund could jeopardize the county's bond rating. That's a legitimate concern, but it's quite unlikely that would happen, especially if the county established a formal policy to replenish the reserve to an adequate level once some of it is used for something.

All of which brings us to another important reason the county should not borrow money this year. At this past week's administration committee meeting, supervisors raised some excellent questions, but there weren't any real answers, and those questions need to be publicly discussed, debated, and answered before the county jumps to any conclusions and rushes to borrow money.

First, one issue that was raised was whether the county really needs to set aside 3.5 months of expenditures (plus another million for social services, as our auditors apparently recommend).

GFOA best practices, for example, put the need at two months: "GFOA recommends, at a minimum, that general-purpose governments, regardless of size, maintain unrestricted budgetary fund balance in their general fund of no less than two months of regular general fund operating revenues or regular general fund operating expenditures."

Now "at a minimum" are key words, to be sure, and the GFOA observes that governments that may be vulnerable to natural disasters, or more dependent on a volatile revenue source, or potentially subject to cuts in state aid and/or federal grants may need to maintain a higher level in the unrestricted fund balance.

Maybe a case can be made for three-and-a-half months, but our auditors need to make it publicly. Off hand, it does not seem that Oneida County needs such a hefty set aside. The county does not have volatile revenues or expenditures, at least not significantly uncontrollable ones, it is not in an area given to significant natural disasters, such as a sea coast prone to hurricanes or an earthquake area.

The GFOA does say that the impact of the reserve on bond ratings should be considered, and Ms. Smith is researching that, but that should be to determine the appropriate level of the reserve, not whether tapping any of the $7.8 million would hurt the rating.

It won't, if the appropriate reserve is replenished by policy or ordinance. According to the GFOA, governments should establish how they are going to re-nourish the reserve when it is used, and Oneida County should do likewise, using those unanticipated revenues at year's end first and then requiring subsequent budgets to replenish them otherwise. That would maintain a good credit rating, limit wasteful spending, and allow the fund to be tapped for emergencies, all the while maintaining adequate operating capital.

Here's how the GFOA puts it: "Revenue sources that would typically be looked to for replenishment of a fund balance include nonrecurring revenues, budget surpluses, and excess resources in other funds (if legally permissible and there is a defensible rationale). Year-end surpluses are an appropriate source for replenishing fund balance."

Bingo, and neither should the county have a large excess over the reserve target, according to the GFOA: "In some cases, governments can find themselves in a position with an amount of unrestricted fund balance in the general fund over their formal policy reserve requirement even after taking into account potential financial risks in the foreseeable future. Amounts over the formal policy may reflect a structural trend, in which case governments should consider a policy as to how this would be addressed."

That's what is going on in Oneida County right now.

We have three-and-half months of cash set aside in a reserve, which may itself be too much, and on top of that we have $6.3 million and maybe a million more at year's end. That is definitely too much.

Certainly capital improvement projects are a legitimate way to spend those dollars, and certainly there are many capital improvement projects in future years, but that's the point: Any excess should be completely spent before any money is borrowed, before any more taxing the people.

As for all those capital needs planned for future years, supervisors have proven themselves absolutely incapable of even seeing one year down the road. To place any faith on any of those numbers is pie in the sky.

So the county should spend down to its 3.5 month reserve before borrowing, and then consider what it reasonably needs to borrow, if any, at that time. In the meantime, the county should make the auditors explain to everyone why so much cash needs to be idled, when many governments set aside a lot less.

Finally, reining in the amount of county excess dollars would be a double win for taxpayers, for it would finally force supervisors to seriously vet proposed capital improvement projects (if we borrow now for future years, we are likely borrowing for wish lists rather than real needs, and giving bureaucrats an early Santa).

And it would force the vetting of ongoing wasteful spending that we mentioned above. It would finally set the county on a sound fiscal course that serves the needs of the core functions of government and equally the needs of taxpayers.

We have no idea what the administration committee will take to the county board, but, until these questions are answered, supervisors should not vote to borrow any money.





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