Commission takes a look at potential budget scenarios if new recession arrives
In coping with the Great Recession, the Sarasota County Commission has spent about $60 million out of a reserve fund prior boards had established to help maintain services in the event of a downturn, County Administrator Jonathan Lewis says.
The Economic Uncertainty Reserve Fund balance was at its highest level — $57 million — in the 2010 fiscal year, Kim Radtke, director of the county’s Office of Financial Management (OFM), pointed out on Aug. 21.
“You’ve been able to avoid radical decreases in service [or] crazy things with people’s property tax rates,” Lewis told the commissioners as they conducted their final workshop in preparation of the 2020 fiscal year budget.
Thanks to the paring of $5.6 million in recurring expenses, which the commissioners voted on in late January 2018, Lewis continued on Aug. 21, the county’s Economic Uncertainty Reserve Fund was able to climb to the $17-million mark by the end of the 2018 fiscal year.
Although $13 million is estimated to be the amount in that fund by the end of this fiscal year, staff of Sarasota County Clerk of the Circuit Court and County Comptroller Karen Rushing will determine the exact amount through an audit.
The public hearings on the FY20 county budget are set for Sept. 11 at the County Administration Center in downtown Sarasota and on Sept. 26 at the R.L. Anderson Administration Center in Venice.
Overall, the proposed budget stood at $1,312,422,165 as the commission held its workshop last week. The operating portion adds up to $776,986,203, a slide showed.
The proposal also calls for the county to have 3,646 full-time employees.
Taking a look at recession scenarios
Even though indicators point to a positive budget outlook over the next five fiscal years, Radtke of the county’s Office of Financial Management and her staff showed the commission a couple of scenarios that took into account another economic downturn.
Economists say a recession is likely to hit soon, based on a recent situation involving U.S. Treasury bonds: On Aug. 14, the yield on the 10-year Treasury note was lower than that of the 2-year note. Economists point out that such an “inverted yield curve” always has proven a reliable predictor of an upcoming recession. The last inverted yield curve occurred in June 2007.
In the first scenario Radtke showed the board on Aug. 21, staff adjusted state projections for property tax values for the 2022 and 2023 fiscal years. Instead of climbs of 5.9% and 6.2%, respectively, staff plugged in declines of 5% for each year, Radtke said. (The scenarios applied only to the county’s General Fund, into which property tax revenue flows. That fund pays for the operations of many departments, including those of most of the county’s constitutional officers, such as the clerk of court and the sheriff.)
As a result of the new model run with the decreases, the commission would be looking at a General Fund shortfall of $4,795,173 in FY22 and a far bigger gap, $35,888,329, in FY23.
As staff has noted over the past years, Radtke indicated on Aug. 21 that less dramatic steps than millage rate increases or major cuts in services generally can be taken to reduce a shortfall that is under $5 million.
“Before we bring you things to look at [in that situation],” County Administrator Lewis said, staff members consider all potential ways to save money.
The slide showing the results of the Scenario 1 projections also pointed out that the board could eliminate $4.8 million in recurring expenses for FY22 and $30.5 million for FY23 to plug the gaps. Alternatively, the commission could increase the millage rate by 0.42 mills in FY22, which would add about $84 to the ad valorem tax bill for the owner of a house valued at $200,000.
The millage rate the board maintained for a number of years, in response to the Great Recession, was 3.3912. It will rise by 0.0419 mills in the 2020 fiscal year because of voters’ approval in November 2018 of $65 million in bonds to extend The Legacy Trail to Payne Park in downtown Sarasota and to North Port through Venice. The total millage the commissioners have committed to for the next fiscal year, which will begin on Oct. 1, is 3.4331.
In Scenario 2, Radtke continued, staff used a 10% drop in property values for both FY22 and FY23. That model produced a shortfall of $13,963,188 in FY22 and gaps of $53 million in FY23 and $52.7 million in FY24, as noted in another slide.
In response to that scenario, Radtke said, the commission could cut ongoing expenditures by $14 million for FY22 and another $37.3 million for FY23. Alternatively, it could raise the millage rate by 0.73 mills in FY22, which would add $146 to the tax bill of the person owning a house valued at $200,000.
“These are scenarios,” Lewis stressed. “She could have come up with 100 different scenarios to run.”
“How much reserves in this budget?” Commissioner Alan Maio asked, referring to the FY20 plan.
“We’re doing OK at this point in time,” Radtke responded, with “almost $170 million” altogether in county reserve funds. That includes a projected $53 million in the Disaster Reserve for FY22, which will be set aside to cover 75 days of county operations in the event of a major emergency, such as a hurricane strike.
In response to a question from Commissioner Michael Moran, Radtke explained that the best practice, as advised by the Government Finance Officers Association (GFOA), is 60 days’ worth of disaster reserve funding.
“It’s nice to try to plan for the future,” Commissioner Nancy Detert said. Yet, she continued, “Everyone who knows anything about the future knows we’ve had 10 years of good times.” That unusually long period of growth, economists have been telling the board, is bound to end at some point.
“I think that that recession was kind of an aberration” because of issues related to the housing market, Detert said of the last economic downturn.
“It’s no time to raise people’s taxes in anticipation of something that may or may not happen,” she continued. “I think we’re being very conservative in our budgeting.”
Commissioner Charles Hines also noted that since he became chair of the board in January, county staff has completed the refinancing of about five sets of bonds, including one the previous day, to take advantage of lower interest rates. That will save the county money over a period of years, he stressed.
An additional budget request
Before closing out its budget discussions for FY20, the commission did approve one new request on Aug. 21. To cover the expense of the transition from use of desktop computers to laptops — plus new recurring cellular access charges — Toni Latortue, director of the Guardian Ad Litem Program of the 12th Judicial Circuit, asked for an additional $23,550.
On a motion by Commissioner Detert, seconded by Commission Moran, the board approved that unanimously.
As its website explains, the program “recruits, trains, supports and supervises court-appointed volunteers to represent the most vulnerable children,” those who have been removed from their homes as a result of allegations of abuse, neglect or abandonment.
Detert pointed out that, in early 2018, as the commissioners were grappling with ways to trim expenses to plug gaps in the proposed FY19 and subsequent budgets, county administrative staff asked the leaders of programs outside the board’s control — such as the clerk of court and the sheriff — to cut their FY19 budgets by 5%. The Guardian Ad Litem program was one of the very few that complied with that request, Detert added. Therefore, she said, “I’m happy to support [the increase for which Latortue asked on Aug. 21].”