One of the new ideas that Chairman Nick Picerno laid on the table during the Moore County Board of Commissioners' September 19 Critical Issues Summit was creating a County capital fund designated specifically for future school construction.
Every year, the County takes in more in tax dollars than it has budgeted — and often spends less than budgeted, as well. That produces an end of year surplus that is added to the fund balance. If the fund balance rises above fifteen precent of the total budget, then the excess must, according the the County' s financial policy, be placed in capital reserve funds.
The County currently maintains two such funds: one for capital projects, and one for debt service. The capital projects fund currently totals $6.5 million, and Chief Financial Officer Carrie Neal told the Commissioners, "If we end this year like last year, we will easily have $2 million that will transfer back into capital reserves, bringing the total up to $8.5 million."
Saving money for schools
Picerno suggested creating a third capital fund specifically for school construction projects.
"It might be prudent for the Board to set aside a piece of our capital reserve for future school construction," he said. "If we could say that thirty-five to forty percent of every dollar that we save would go into a capital reserve for future school construction, and start building a construction fund for schools, that the School Board could actually see building, then they could plan, like we do for our courthouse."
"If they need to build a school, they could look at that fund and see three or four million dollars, and see by the trends that in a couple of years it would be $6 million or $7 million. Then they could say "Hey, we don't really need a bond.' And they could see that they have a footing that, right now, they don't have."
The Board of Education is in the midst of developing a new long-term facilities plan, with public meetings expected in October, that is expected to lead to a school bond referendum on the ballot in November 2014. The amount has yet to be set, but is commonly expected to top $50 million.
The Commissioners, while acknowledging both the need for new and upgraded school facilities, appear united in their determination not to raise property taxes, which might be inevitable, if voters approve a sizable school bond.
Two pots of taxpayer money
A second issue that has been a continuing source of concern for the Commissioners -- and for Picerno in particular -- is the fact that Moore County Schools [MCS] has built a substantial fund balance of its own over the past few years. Beginning with a fund balance of $2.4 million in 2007, MCS built that to $12.4 million in 2012, before beginning to spend down the balance last year, as extra federal funding from the American Recovery and Reinvestment Act -- commonly called the "stimulus" -- evaporated and state financing rules took away some spending flexibility.
MCS also used some of its fund balance to pay for Phase 1 of its Digital Learning Initiative, and ended the 2012-2013 school year with $10 million in the bank. This year's budget calls for spending an additional $4 million of the fund balance; but the school budget, like the county budget, often underestimates revenue and overestimates expenditures.
"If they had a fund that they could get to," Picerno said, "that was there, set aside, visible; and it grew because the Board of Commissioners and the staff of the County was making sure that we were prudent with taxpayer money, I think it would give them a little more comfort, to not be having to worry about having a big fund balance at the school level and then the County having to keep a fund balance at the County level. What we're doing is taking taxpayers' money and putting it in two big pots of money. I don't like that, and I don't think it's right."
"The schools need a safety net," Picerno told The Times. "This gives them a safety net without them thinking about keeping $9 million, $10 million, $12 million in their bank account."
Commissioner Saunders supported the concept, saying "We have been open with the schools about, if you have a need, come to us." Having a visible County capital fund dedicated to the schools would be useful in the case of emergency needs -- a boiler replacement or the need for a new roof -- he said. But it could also provide MCS with a fund that could be used for larger projects, like new school construction.
Picerno said the new fund would give MCS a planning tool that they don't have now, as well as create visible evidence of the County's commitment to education. He noted that school funding consumes forty-five cents of every dollar the County spends, and also accounts for the bulk of the County's debt service obligations.
Timing is key to avoiding a tax increase
Commissioner Larry Caddell noted that "what has always helped us" in the past has been spacing out school bonds over enough years that most of the debt from one set of bonds is paid by the time new bonds are issued.
"When you shorten up that time period, that's when you really put the hurt on us," Caddell said.
Picerno said that establishing a capital fund dedicated to schools might reduce the need for a bond referendum. "If you have $6 million in the fund, and you need to replace a school, you might be able to borrow the rest from a bank, and get a better interest rate than on a bond," he said. "Right now, a bond is all you've got."
Over the past few years, the County has typically generated $1.5 million to $2 million in excess funds each year that have been transferred into its capital funds. If forty percent of that were allocated to school construction, that would amount to $600,000 to $800,000 per year. Reaching a balance of $6 million could take a decade.
Asked about that after the meeting, Saunders said, in his discussions with School Board members, he had not gotten the impression that the first thing on their agenda for facilities is building a new school. So there might be time to begin to accumulate a balance in the new capital fund before the schools need it.
"It's a phase in," he told The Times. "It's not like they are going to take $80 million [of a bond issue] in the first year . . . if they can buy us two or three years to get the current [bond] debt down before they do a new issue, then that buys us some time" -- and might allow the Commissioners to avoid a tax increase.
"The question I am asking them," Saunders said, "is how can we push that date, without hampering what they are trying to accomplish."
Too much money in the bank
Commissioner Jimmy Melton cautioned his fellow Commissioners that there can be danger in accumulating too much in reserves, "because this Board isn't going to be around forever, and too much money in the bank, that just tickles some politicians to death." He warned that "another set of politicians" might replace the current Commissioners and have other plans for using the money.
"When this Board leaves, we need to have this fund balance pretty well designated for a particular purpose," Melton said.
"We should lay it out where all the money would be going," Picerno agreed. "Then a future Board would be forced, in public, to change the policy."
If the Board does decide to create a school construction fund, and allocate some percentage of each year's surplus to it, that process will likely be written into the County's formal financial policies.