The Aiken County Council’s mid-year budget amendments are usually non-controversial. They primarily re-budget revenues and expenditures on contracts and purchases orders carried over from the prior fiscal year. Other small housekeeping measures are frequently included.
But this year’s budget amendment is different. While including the usual re-budgeting of contracts and purchase orders along with the typical housekeeping measures, it also implements increases in both employee pay and employee health benefits.
While these increases are laudable, and in the case of health benefits necessary, the problem is how they’re being financed. Instead of being met with new revenues, they’re being paid out of the county’s accumulated fund balance.
Recall that Aiken County’s general fund balance was severely depleted from the Winter Storm Pax cleanup nearly three years ago.
Thanks to reimbursements from the Federal Emergency Management Agency and the S.C. General Assembly, the general fund balance was restored over the last three years. At the end of fiscal year 2015-2016, it stood at a little more than $19 million.
But in the current fiscal year, Council allocated $1.2 million of this fund balance to meet its ongoing expenses in the general fund. This was in addition to the use of $1.1 million in other non-recurring revenues.
In other words, this year’s budget contains a $2.3 million gap between recurring revenues and recurring expenditures.
As I wrote last July: “Raiding the fund balance was the most unfortunate part of Council’s balancing act. Using fund balance is like consuming seed corn. Fund balance is the County’s financial reserve. It should only be used for emergencies and never for routine expenses.”
So how much general fund balance is being “raided” in this year’s budget amendment?
Approximately $575,000 (or $685,000 across all funds) will cover a 3 percent cost of living increase for county employees for the last half of the year.
Employees earning less than $50,000 per year received a $1,500 annualized increase, so the actual increase to the payroll was 3.7 percent.
Health benefits increased by $206,000 (or $247,900 across all funds).
Lastly, Council will return $165,100 of payment in lieu of taxes revenues from the Department of Energy back to the Aiken County school board.
This reverses the budgeted 50-50 revenue share between the County and the school board back to the traditional 60-40 split in the school board’s favor. This revenue loss will be made up from the fund balance.
In total, the budget amendment will eat up nearly $1 million of the accumulated general fund balance.
What’s the impact on next year’s budget?
The six-month increase for salaries and health benefits must be doubled in calculating the hit to next year’s budget. This represents a $1.5 million impact next year.
And per above, add to this the use of $1.2 million in fund balance and $1.1 million in other non-recurring revenues in this year’s budget.
The total gap in the general fund, assuming no other increases next year, is almost $4 million. That’s a bad place from which to start the budget process.
Council could raise taxes. But given the statutory millage rate cap, it’s unlikely to raise much more than $1 million. In addition, Council is emphatically unwilling to pursue this economically damaging route.
Council could cut spending, though its record on this front is disappointing.
Council has demonstrated a willingness to freeze spending and starve programs. But it rarely has the stomach to actually cancel programs with constituencies – no matter how small – among the voters.
The only spending Council will likely cut is subsidies for outside organizations, and that’s not enough to fully close the gap.
Council could hope for enough economic growth, growth in the property tax digest, and non-recurring revenues to fall from the sky to cover the gap. But assuming non-recurring revenues will magically appear next year because they appeared in prior years is poor planning. Hope isn’t a strategy.
Lastly, Council could go back to the well and draw out more of its reserves. It shouldn’t, but the temptation may be too great to resist.
Using fund balance to meet current expenses is like a drug. Though less damaging than deficit spending financed through borrowing, it gives Council a political “high” by putting off the difficult choices of either raising taxes or cutting spending. But in the long run it weakens Aiken County, leaving it exposed when the next unexpected crisis hits.
How Council chooses to square this budgetary circle in the upcoming 2017-2018 budget will demonstrate its fiscal priorities.
Gary Bunker is a former member of Aiken County Council.