To borrow or not to borrow, that's the question facing Oneida County's administration committee, and they came to no conclusion at a meeting this past week, setting up another session next week.
Here's the dilemma. All the members of the county's capital improvement projects subcommittee and the administration committee believe the county needs to spend about $6.3 million in 2020 on capital projects, but the county board approved spending only a little more than $4 million for three projects, with all the money to come from the county's general fund.
The bulk of the funding was for a $3.5 million project to replace existing public safety radio infrastructure located at each tower site and the E911 Center/Minocqua dispatch. The public safety radio system was installed in 2008, runs continuously 24 hours a day every day of the year, and has reached "end of life" stage.
But that left 10 projects, many considered immediately necessary, unfunded. Among those projects were a body scanner for the jail, new Tasers, and $710,000 for county highway reconstruction.
The Tasers currently used by the sheriff's department are so old that sheriff Grady Hartman says he will likely shelve them all if new Tasers aren't bought. A body scanner for the jail is considered increasingly necessary, too, because of the trend toward smuggling drugs into the jail via body cavities, creating a potentially huge liability for the county.
And the county wants to bulk up spending on road construction to keep from falling ever further behind in maintaining roads, a high public priority.
So the question before the committee this week was not whether the list of projects next year should be trimmed, but how to pay for them, given the county board's decision last month.
Bundle and borrow, take two
There are two options if the county is to fully fund those projects. More than likely, the committee will recommend - again - some form of borrowing. That could involve bonding, or a bank loan, a line of credit, or a loan from the state.
But some supervisors have questioned why the county has to borrow any money when it is sitting on an estimated year-end general fund excess balance of about $6.3 million, just about what the county needs to fund the 2020 projects completely.
Actually, the undesignated balance is about $16 million. But, following accounting recommendations, the county sets aside an amount equal to 3.5 months of operating expenditures to make sure the county has enough operating cash on hand. After that deduction, as of the end of 2018, the county had $8.5 million in unrestricted reserves left.
But some of those monies were applied during the 2019 budget process for 2019 capital improvement projects and some operating expenses. Along with estimated returns to the general fund, county finance director Darcy Smith estimated that the real excess fund balance at the end of 2019 will be close to $6.4 million.
Subtracting the $4 million that the county board approved in November for three capital improvement projects would leave almost $2.35 million in undesignated funds.
The total project list that the committee wants to pursue totals $2.3 million more than the $4 million approved. However, the county board also voted to spend $376,000 from the general fund to fund operations next year, reducing the fund balance to $1,978,479.
In other words, the county could fund the proposed 2020 capital improvement projects without borrowing if it pared $319,000 from the proposed list. That would still maintain an amount equaling 3.5 months of operating expenditures as a cushion. It also does not include perhaps a million dollars to be returned to the general fund from various sources, such excess state inmate revenue.
The starting line
But that's where the debate starts.
Smith, for one, cautions against depleting that extra $2.35 million. She has argued through the course of the county's budget deliberations that she wants about $2 million left for unanticipated expenses during the course of the year.
Those expenses, she told the committee, have ranged between $250,000 and $700,000. Then, too, Smith says, the county's auditors also recommend setting aside 3.5 months of social services expenditures, which would be another $1.1 million. The county currently does not do that.
"I do not have that in the fund balance, but it's something you need to take into consideration when you look at the remaining fund balance," Smith said.
Other supervisors, such as Robb Jensen, say the question is not if the county borrows but when, even if the general fund is taken to a bare minimum next year. Identified capital improvement projects through 2024 already total more than $8 million, and new projects that are not yet known will surely crop up.
Thus, borrowing now might make sense, given that interest rates are low. Then, too, advocates for borrowing argue, depleting the general fund now could jeopardize the county's bond rating, which would mean even higher interest rates when the county does have to borrow.
Yet, other supervisors look at the $16 million pile of unrestricted cash the county has on hand and wonder if it's too much. Supervisor Billy Fried expressed that viewpoint at the committee meeting, though he himself did not necessarily endorse it.
"What I heard from the other supervisors, I don't think they had any problem with the projects that were being presented," Fried said. "I believe a majority of them feel we have the money to pay for what you're suggesting we do."
Those supervisors said the county should not care about the bond rating because the county was not bonding, Fried said.
"They say, 'Why would we go and borrow money when we've got the money right here,' and I understand that," he said. "So to me the debate before the county board is to take more money from the general fund to pay for projects or to sell them that that's not a good idea, and if we do that, I believe a majority of them would be open to borrowing."
However, Fried said, he also needed to be sold more on why the general fund couldn't be used to pay for the 2020 projects.
"I'm an optimist and believe there will be more than a million dollars coming back to the general fund at the end of the year," he said, referring to various revenues that exceed budgeted estimates.
Fried said he was just looking at the 2020 projects, and the county board has said it doesn't want to borrow money.
"So I see there's $16 million in undesignated funds," he said, "I've been on boards, and it's always a debate, do you hold 10 percent in reserve? Do you hold 50 percent in reserve? You're here today telling us it's 3.5 months of expenditures, plus another million for social services, and I understand that."
Using the general fund could affect the bond rating, too, but Fried said the county board said it didn't want to bond.
Just eggs, hold the hash
"We keep rehashing this, but someone needs to tell me why we shouldn't just move ahead with these projects," Fried said. "We've got the money and a red flag goes up, but when we sit down to budget next year, we won't be able to take that $376,000 for operations. That's a no-no. It's going to cause us to try and combine some services and maybe eliminate some."
The bottom line was, Fried said, the 2020 projects are good and the money is there.
But Jensen said the county should look ahead.
"Oneida County has an extreme difficulty looking beyond one year," Jensen said. "Our plan is determined every year at the budget process. It's one year at a time."
If you look at the numbers for identified capital improvement projects through 2024, Jensen said, the county is going to have to bundle and borrow at some point.
What's more, Jensen said, the 2020 budget is built on some things that might not be there in the future. Will state prison inmate revenues be there? Will the county be able to tap the general fund for operating expenditures?
What's more, Jensen added, no one talks about how the county can reduce expenses.
"We're still having a hard time looking at where we can save money," he said. "We really are. I haven't heard a word on it."
Jensen said he was OK with getting the general fund down, with the understanding that the county needs to look down the road.
"Are we going to go to referendum?" he asked. "... I'm OK with getting it down, but we have to plan on how we are going to take care of things in 2021."
Committee chairman and county board chairman Dave Hintz agreed that the projects themselves were not the problem, and he said education was needed.
"There are supervisors, even Billy (Fried) himself, who believe we can pay for these projects out of the general fund," Hintz said. "He's willing to listen to the story of why we can't do that and that analysis, but right now he's still thinking in his mind that we can pay for them out of the general fund. There's that perspective on the county board."
It's a reality that has to be faced, Hintz said.
"If that perspective is not true, we need to convince them that it's just not workable," he said. "It's our job to come up with that plan. And maybe we can take our general fund down to that level. It's not obvious that we can't. But if we want to borrow money, we have to sell that story better."
Supervisor Bob Mott focused on the need to reserve 3.5 months of operating expenditures and what happens if the county doesn't.
"Has any county ever had to use that 3.5 months of operating because they had operating difficulties that you know of?" he asked Smith.
Smith didn't know offhand and Mott acknowledged that it was generally accepted accounting practices to have that amount on hand.
"My question is, if we don't have that 3.5 months, what are the impacts on the county?" he asked.
One impact would be the bond rating, Smith said.
Smith did point out that the county could spend $6.3 million without dipping into the 3.5-month reserve, while fully funding the 2020 projects would take some of the reserve, a little more than $300,000.
But, she cautioned, any other expenses that needed to be incurred in 2020 would also eat into that reserve. In 2018, the county took $721,000 for register of deeds software, as well as land purchases and over-budgets. In 2017, the county took $251,000 after the budget was approved and, in 2016, the county took more than $476,000.
"Those are projects we were doing along the way after the regular budget was approved," she said. "So there is a history of using anywhere from $251,000 to $730,000 of the general fund throughout the year."
Of course, as Mott pointed out, typically there are monies returned to the general fund at the end of the year - timber revenue, interest and sales tax revenues that exceed budgeted amounts, and well as excess inmate revenue.
That total amount was $1.2 million last year, and $2.6 million the year before, Smith said. Before that, though, she said there weren't great returns because the county did not have the state inmate revenue.
Nothing was resolved at the committee meeting except a consensus that the proposed projects were all needed, and the committee will meet next week to continue to explore funding options.
What Hintz said he didn't want to do was present every option to the county board, but to agree to one and then convince the board to support it.
"If we need to borrow money, we have to convince them we need to borrow money, and then we have to have a plan about how we are going to borrow that money," he said.
However, Hintz said he wasn't yet convinced that borrowing was needed.
Mott said the money was there now, but he advised looking at the bigger picture, at 2021 and 2022, as well as at how much the county take before its bond rating was hurt.
The committee will revisit the funding question next week.
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