Board members start focusing on the need to replenish their ‘rainy day fund’
Many times during budget workshops over recent years, Sarasota County commissioners have praised their predecessors for the wisdom of setting aside excess revenue in the boom time of this century, as that money has enabled them to balance post-recession budgets.
On May 26, as they debated how best to deal with more shortfalls expected over the coming five fiscal years, the board members discussed at greater length their own need to replenish the “rainy day fund” for the commissioners who will follow them.
Commissioner Mike Moran referenced that “flashing red [item],” adding that the board has to be conscious of “putting money back into the piggy bank.”
Two speakers who addressed the board during that workshop also pointed to the need to get rid of the deficits: Sean Snaith, director of the University of Central Florida’s Institute for Economic Competitiveness, and Jay Glover, managing director of Public Financial Management Inc. in Orlando. Glover is the county’s financial advisor, County Administrator Tom Harmer explained. Snaith was a guest of the commission.
In offering his views about the national and county economies, Snaith at one point discussed the need for the commissioners to focus on how their economic stabilization fund has been drawn down. What happens when the next economic downtown occurs, or a hurricane wreaks significant damage in the community? he asked.
“I would expect that gap to be sort of closing as the economy improved. But looking at that chart,” he continued, referring to the county staff projection that revenue will not be able to cover expenditures until the 2026 fiscal year, “I was surprised by the fact that [the gap] still remains.”
Glover told the board that representatives of the national rating agencies — such as Fitch and Moody’s — have explained to him that if the county continues to draw down its economic stabilization fund and does not take steps to start building it back up, the agencies could consider lowering the county’s coveted AAA rating on bonds linked to its General Fund.
Glover acknowledged that the “rainy day reserve” was established for the purpose of bridging budget gaps, and the commissioners have been using it “to keep your millage rate flat for a number of years.” He stressed, however, “One thing above all else” that potentially could lead to the lowering of that AAA rating would be a failure to get back to what the agencies call “structural balance,” in which expenditures do not exceed revenue.
Yet, one very important, positive factor weighted in the county’s favor with the rating agencies, he pointed out, is its strong financial management.
Glover read parts of the latest report from Standard & Poor’s regarding the county’s bond ratings. Dating to July 2016, he noted, it cited the county’s strong economy “with access to a broad and diverse [Metropolitan Service Area]”; its strong financial policies; its strong liquidity; its very low debt levels; and the fact that its pensions are part of the Florida Retirement System.
“The one weakness,” the report said, “is weak budgetary performance,” and, Glover noted, “that directly relates to the deficit spending.”
In a related matter, Glover also cautioned that while a standard accounting practice suggests that the county need not keep more than a 60-day emergency operating reserve — separate from the economic stabilization fund — the rating agencies prefer the 75-day reserve mandated by county policy.
Glover pointed out that the board had a 90-day reserve until 2013. Then-Commissioner Joe Barbetta proposed the reduction to 75 days to free up about $8 million that could be used for infrastructure to bring in additional revenue through tourism, for example. However, the change went into effect on a 3-2 vote, and board members since then have kept the $8 million in reserve. Former Commissioner Christine Robinson won her colleagues’ agreement in December 2015 not to spend the money until after the World Rowing Championships concluded late this summer, in the event expenses exceeded revenue for that event.
Referring to the rating agencies on May 26, Glover noted, “They see 75 days as being sufficient at that AAA [bond] level.”
The GASB 54 worries
During their March budget workshop, the commissioners also talked about concerns regarding the county’s bond ratings, especially given the potential need to borrow more money to pay for critically important projects to which they have committed themselves.
At the time, the board was focused on a national accounting standard being implemented called GASB 54, which requires the annual comprehensive audit of the county’s budget to assume that the county has spent all the economic stabilization money built into the fiscal year plan, even though staff typically has used far less of that rainy day money than it forecasts to balance the budget.
GASB 54 refers to Statement No. 54 of the Governmental Accounting Standards Board.
“I can assure you that the rating agencies are used to these accounting things,” Glover pointed out, “and will look at you from a cash-flow perspective.”
On one other positive note, Glover told the board, “Your actual [bond] rating is one notch higher than the federal government’s rating is. … That’s commendable to you, but maybe that’s almost an embarrassment to the United States Government.”