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County sits on huge reserves while imposing budget cuts

STORY BY STEVEN M. THOMAS, (Week of July 21, 2011)
Photo of County Administrator Joe Baird

At a time when many agencies and programs are struggling to make ends meet, Indian River County is sitting on more than $53 million in unspent money in its six sales and property tax funds, and the reason county leaders give most often for stockpiling so much cash doesn’t add up.

Time and again, when asked why the county has such large reserves, which are three to four times greater in percentage terms than those held by neighboring counties, Budget Director Jason Brown and County Administrator Joe Baird cite the danger of hurricanes as a justification.

“We need that money in reserve because you never know when a hurricane will hit and cause all kinds of clean-up and repair expenses,” says Baird.

County commissioners who generally support Baird’s reserve policy are quick to play the hurricane card too when asked why the government should have so much taxpayer money drawing interest in its investment account.

“It is always guessing game,” says Commissioner Peter O’Bryan of the county’s fiscal strategy. “As soon as you reduce your fund balance, you get hit with a hurricane. What if we get two hurricanes right off like we did in 2004?”

Administrators and elected officials alike seem to consider that argument ingenious and sufficient, but it doesn’t hold much water.

Vero Beach suffered its worst hurricane damage in September 2004 when it was hit by the double whammy of two category three storms in the same month.

Weather Channel Meteorologist Stu Ostro told National Geographic at the time that the 2004 storms “were likely to be the costliest on record” for the area.

How deep did Indian River County have to dip into its reserves to meet that unprecedented weather disaster?

“We spent about $13 million out of reserves before we began to get reimbursement,” says Baird. “I think that was about 20 per cent.”

If the county had to part with only 20 per cent of reserves in its six tax funds before state and federal reimbursement began to flow in after the worst storm scenario on record, then the threat of hurricane expenses doesn’t seem to justify keeping three times as much taxpayer money in the cookie jar as other counties do.

The general fund, one of the county’s six taxing funds, is used for a majority of daily operating expenses and makes a good point of comparison between counties.

According to current projections, Indian River County will have $23,197,375 left over in its general fund at the end of the current fiscal year on Sept. 30. That is 33 per cent of the $70,453,557 operating budget.

By comparison, St. Lucie County Budget Director Marie Gouin says her general fund budget for the current fiscal year is $158 million and that she expects to carry forward a 10-per cent, $15.8-million reserve, as required by county statute.

Martin County is comfortable with a similar cushion for unanticipated expenses according to Budget Manager Jennifer Manning. “We are required to maintain a 10 per cent reserve,” she says. “Our general fund operating budget for 2010/11 is $103 million and our reserve is $10.3 million.”

Brevard County’s reserve is similar. According to its current budget book, the county’s general fund revenue for the current fiscal year is projected to be $212 million while its year-end reserve is projected at $24 million, or 11.5 per cent.

In other words, Brevard County with 550,000 residents to provide for has the same general fund reserve as Indian River County, which has one quarter as many residents.

Baird, Brown and several commissioners dismiss the county comparison by saying that neighboring governments have been profligate and “incontinent” in their use of reserves.

In reality, all three counties operate within the guidelines offered by the Florida Government Finance Officers Association, which Brown cites as the main source of standards for county reserves.

In an e-mail, Executive Director Jeannie Garner said the association recommends a reserve “ranging from 7 to 20 per cent” of the operating budget as a prudent cushion.

While the Board of County Commissioners generally supports Baird’s reserve policies, there is a limit to how much they want the county to keep in its piggy bank.

At the budget workshops last week, Commissioner Wesley Davis said he thought the 38 per cent reserve held recently in the Emergency Services District Fund that pays for firefighting was excessive.

When Baird proposed and the board tentatively approved using $4 million of the overall projected $53 million tax fund reserve to help balance this year’s budget, Board Chairman Bob Solari said he was willing to dip into the reserve because the lingering financial downturn amounts to an emergency of sorts.

At the same time, Solari refused to join Commissioners Joseph Flescher and O’Bryan in restoring $34,000 cut from the Children’s Services’ budget, despite a passionate plea from O’Bryan to his fellow board members.

“I think we are going to have to tap our reserve next year and the year after that and maybe the year after that,” Solari says, defending his support of Baird’s insistence on keeping a comparatively huge reserve even as he recommends $60 million in budget cuts for the upcoming fiscal year.

Solari’s reasoning makes more sense than the hurricane threat, but it still leaves something out of the equation.

Sure, times are tough. County revenue has fallen four straight years, including a 6.4 per cent decline this year. Baird and Brown are smart capable money managers who have risen to the challenge and made county government leaner and more effective per dollar spent.

But there is such a thing as pennywise and pound foolish. By cutting mental health, Medicaid, Emergency Management, Youth Guidance and other preventative programs, the county may end up with more expenses in the long run.

“If you ask the sheriff, I think he will agree that his jail would be fuller if it wasn’t for us,” a representative of New Horizons of the Treasure Coast Inc. told commissioners as part of a successful request to have funding restored. Treasure Coast is a mental health and substance abuse nonprofit that serves troubled people in Indian River and adjacent counties.

In an interview in his office before the workshops, Brown portrayed the idea of using reserve funds as an either/or proposition. “If you burn through all of your reserve this year, then next year you will have to raise taxes,” he said. “That is the one thing we know people do not want.”

But, of course, it is not an all or nothing proposition.

As an example, the county could eliminate budget cuts for libraries, emergency management, youth guidance, the Division of Juvenile Justice, Children’s Services, the Cultural Council, Parks, Recreation, Ocean Rescue and Code Enforcement for a grand total of $1.25 million and still carry forward a reserve far larger than any comparable government has that could handle half a dozen hurricanes.