Some day, we’d love to be a “fly on the wall” at the conferences that local government officials go to, in order to confirm our suspicions about what transpires there.
This year, for instance, there appears to be a common theme that which must have emerged from one or more of these bureaucratic conclaves.
It appears that the favorite “warning” – dutifully intoned by each of the local town and city managers and the county manager – is a strict caution about “using” any of their jurisdiction’s “fund balance,” or savings account, in order to balance their budgets.
Now the use of “fund balance appropriated” is largely a paper exercise, by which managers typically pencil in an amount from their savings that – if all else fails – they would draw from the town, city, or county’s fund balance to cover their costs. But rarely, if ever, do they actually find themselves in this worst-case scenario.
Fund balances: the result of overtaxation
First, a word about fund balances.
The theory is that governments should have a “rainy day fund” set aside for natural disasters – think snow storms, hurricanes, or tropical storm Chantal from last year, for instance – or that they can draw upon for special, one-time capital expenditures (a new fire or police station, a library, etc.).
State guidelines have long encouraged each jurisdiction to keep at least the equivalent of 8 percent of its budget (i.e., about one month’s worth of their annual budgets) in these fund balances.
Most local jurisdictions have gone far, far beyond those guidelines – often keeping the equivalent of half a year or more worth of their annual budgets set aside in savings. Indeed, a few years ago, the town of Elon actually had more than a full year’s worth of money in its savings account. (They’ve subsequently used some of it for large capital purchases, including a new fire engine, and most recently, a building to serve as a future town hall.)
The way these savings accounts grow, in our judgment, is from the accumulated overtaxation within each jurisdiction. Property tax collections or revenues come in above the levels projected in the proposed budget, or perhaps sales taxes are higher than expected. The excess is plowed back into the savings, and the cycle is allowed to continue.
A common budgetary gimmick in each jurisdiction’s budget is to underestimate the revenue from property taxes, sales taxes, or both, in order to guarantee that there’s something extra left over to add to the piggybank.
While we appreciate cautious, conservative government budgeting, we suspect that these lowball revenue estimates are often deliberately understated.
In our view, part of the motivation for this chicanery is to make way for future additions to the savings account. Because that’s where the “excess revenues” will be diverted.
Another derivative impact of understating sales tax projections, by the way, is force a local government to put extra emphasis on property taxes.
The net result is, as usual, to put an increasing burden on property-owning taxpayers.
This year, for instance, the town manager of Elon assumes absolutely no growth in sales tax revenues over the next year – which he’s used to he’s used to justify his proposed 5-cent property tax increase.
In fact, the projected increases in sales tax revenues among the county and local municipalities vary from Elon’s zero change to 5.5 percent in Mebane. [See separate story in this edition].
Yet, the League of Municipalities has estimated the sale tax growth, on a statewide basis, at 3.1 percent.
Back to “fund balance appropriated”
As noted, most local governments put in a line item into their budgets that’s entitled “fund balance appropriated.” This is, ostensibly, the amount the government thinks may be needed during the year to keep its budget in balance.
But, in reality, most times, this money is not drawn on at all.
Instead, for reasons outlined above (underestimated sales and property taxes), the fund balance kitty actually grows.
For instance, the city of Mebane hasn’t actually “used” any of its appropriated fund balance for the past seven fiscal years, although it has frequently penciled in as much as $1 million to $2 million to balance each year’s budget.
The same had been true in the city of Graham for many years, although that may have changed more recently.
Elected officials and the people they represent should approach with caution the supposed worries of government bureaucrats who don’t want to use much, or any, of a jurisdiction’s fund balance.
It’s probably just another ploy to boost overall taxes, rather than use the money taxpayers have already paid into their coffers.
