It’s in our best interest

Maintaining a strong fund balance is a fiscally responsible move for counties

While the economic pundits debate whether or not the nation is in a recession, there is no doubt that these are challenging financial times for county governments in North Carolina. Recession or not, our population continues to grow while sales tax collections and other sources of revenue are slowing.

A projection of school capital needs reveals that counties are facing $10 billion in construction and renovation projects over the next five years. The population surge is also increasing demands for clean water and wastewater treatment capacity, which could cost counties an estimated $7 billion over the next five years.

County commissioners, managers and staff across the state are putting together their county budgets for 2008-09. As our economy slows and the pressures on our revenues increase, there is a heightened need to be moderate with our revenue projections. In other words, tough choices are in store for many county commissioners.

There is a direct correlation between a worsening economy and increased demand for government services. As the unemployment rate grows, more citizens need government services, and those citizens have fewer dollars to spend and generate sales tax revenue. As a result, counties have to be more determined than ever to continue taking the necessary steps to provide the needed services to our citizens.

It is times like these when a county’s fund balance is critical. A strong fund balance is crucial to any government’s long-term stability. Fund balances can help our counties weather a slow economy and continue to offer needed services to our citizens by providing an immediate cash infusion during tough economic times. The fund balance cannot be used to pay for ongoing costs, but the savings account can be used to weather temporary financial difficulties.

Fund balance is also a critical component considered by rating agencies such as Standard & Poor’s when assigning a rating to a county for the purposes of issuing bonds. As of January 2008, 48 counties in the nation had received Standard & Poor’s coveted AAA rating – the highest rating available. Incidentally, five of these counties are in North Carolina, more than in any other state except Virginia, which also had five.

A higher credit rating means that when these counties borrow money to build schools, expand water capacity or meet other crucial infrastructure needs, they receive the best interest rate available, thereby saving citizens hundreds of thousands of dollars in interest payments. It is interesting to note that the mean fund balance of the 48 AAA counties is 26.4 percent.

According to a report issued by Standard & Poor’s in January 2008, “financial flexibility in the form of additional reserves, taxing ability or budget options” is one of the “four essential” elements when it comes to determining a county’s credit worthiness.

The importance of maintaining a strong fund balance cannot be underestimated. This year, counties across the state will benefit from their sound financial planning as they face an uncertain economy.