Counties slashed spending for 09-10

NCACC survey shows schools, personnel and capital projects bear brunt of budget rollbacks

• 2009-10 budget and tax survey (Excel)

By Rebecca Troutman
Intergovernmental Relations Director

Counties carved out nearly $350 million in budgeted expenditures for 2009-10 and set county spending back to 2007-08 levels, according to the Association's annual budget and tax survey. All told, 88 counties reported a decrease in their adopted 2009-10 budgets compared with budgets from the previous fiscal year.

The widespread decreases are unprecedented in the NCACC's 20 years of tracking county budget trends. Counties – and the agencies supported by county budgets – responded to historic declines in revenues by cutting services, positions and expenditures.

The state's assumption of Medicaid costs may partially explain the decrease, but it is important to note that the state assumed similar Medicaid costs from counties during the 2008-09 fiscal year without an attendant drop in county budgets.

Reduced expenditures included school appropriations for current and capital expenses; personnel, salaries and benefits; and capital projects.

Of the 93 respondents who answered specific questions on what actions their counties took to curtail spending, 50 counties combined to eliminate nearly 1,000 positions, with 20 counties laying off 220 active employees. While many of the positions that were eliminated reflected the collapse of the housing construction market – planners, building inspectors and sanitarians – counties also made cuts in agencies with rising workloads, such as health and social services.

Sixteen counties implemented employee furloughs ranging from five to 12 days of unpaid leave. Not surprisingly, 73 counties reported a hiring freeze for vacant positions, while several counties cited other measures for reducing salary and benefits costs, including suspending 401(k) contributions, offering early retirement incentives, and shifting rising healthcare costs to employees.

Of the 92 counties that responded to the question, 58 reported delaying or eliminating capital projects – commonly jails and courthouses but including county government facilities and school renovations in general.

Other noteworthy items from the survey:

• Counties set specific budget reduction targets, ranging from 1 percent to 10 percent.
• Counties drew upon their fund balances to stave off tax increases and/or additional cuts. One county reported using as much as 25 percent of its available fund balance. All told, county fund balances will be depleted by nearly $125 million this fiscal year. Counties also drew upon their capital reserve funds to help manage budget shortfalls.

Largely driving the reductions and fund balance depletions was a drop in county sales tax collections – nearly 10 percent from the 2008-09 fiscal year and another projected 4 percent for 2009-10. Sales taxes represent counties' second largest source of revenue, reflecting 16 percent of all general fund sources.

The revenue outlook isn't yet improving. While economists largely agree that the recession is officially over, job losses and employment worries continue to dampen consumer spending. Local government sales tax distributions credited to the 2009-10 fiscal year are roughly 10 percent below last year's distributions, which in turn were 3 percent below that of 2007-08.

While two months of reporting is not sufficient to establish a trend, the decline tracks closely with what is being reported by state fiscal analysts. In his most recent economic outlook, Barry Boardman, chief economist for the N.C. General Assembly, said the expected 4 percent decline in baseline sales tax growth year over year is closer to a 6 percent decline. Overall, the state is seeing an 11.7 percent decline in baseline sales tax collections for July through October.

Given the unexpected decline in sales tax collections, the state's budget projections are 1.5 percent below targeted revenues – or $95 million below expectations. While the state's budgeted revenue forecast was predicated on continued revenue declines through 2009, the budget relies on gradual economic improvement in the first quarter of 2010 to maintain revenue projections.

The 2009-10 annual county budget and tax survey, along with surveys from as far back as 1998-99, is available online at www.ncacc.org/budtax.htm.