flag image
Lake Geneva Chiropractic

Dave_Bretl
shadow
Bretl
February 01, 2012 | 07:26 AM
A recent county finance committee meeting provided the inspiration for this week's column on dealing with the unexpected. Despite careful budget planning, ever so often, our county is confronted with an unanticipated expense. Two such expenses were addressed at the meeting.

With the exception of the game of Monopoly, when you may be lucky enough to draw the "bank error in your favor" card, financial surprises are rarely good ones. As is the case in personal budgeting, few people plan for the water heater to fail or for the roof to spring a leak. Local government finances work the same way. In addition to these calamities, a host of other bad things can happen that were never envisioned when the budget was put together. Bridges get hit by trucks. A complicated criminal investigation may put a hole in the sheriff's budget.

With the cost of care at the Mendota Mental Health Institute running about $1,000 per day, just a few individuals requiring treatment at the facility can cost our Health and Human Services Department $1 million a year. The only good news in all of this, as far as taxpayers are concerned, is that the county has to deal with these surprises with the cash it has on hand. We can't mail out a second tax bill, say in June, to supplement the original property tax levy. Careful planning by our managers minimizes unbudgeted expenses. When they do occur, however, the county has several options.

• Departmental budgets. The first place I look for emergency cash is within a department's approved budget. With a little luck, some anticipated purchase may have been cheaper than expected. Public works, for example may have budgeted $50,000 to buy a new truck. When the bids are finally opened, for example, in July, the truck may have only cost $40,000. The difference would be available to apply to an emergency purchase in September. Alternatively, a department may choose to change its priorities when an emergency arises.

shadow
shadow
A personal budgeting analogy would be holding off on your plan for that new car purchase to pay for root canal surgery. Many taxpayers that I talk to prefer this option. I don't disagree with them, but in some cases, deferring a purchase can be counterproductive. Holding on to squad cars for an extra year to pay for an unexpected kidnapping investigation is one example. Increased maintenance costs, reduced trade-in value and decreased reliability are at least three costs associated with delaying fleet purchases. Requiring a department to scrap its plans in order to cover a cost that was completely out of its control can lead to budget "padding" over time.

If the county's contingency fund is perceived as being off-limits, some managers tend to inflate estimated costs at budget time under the theory that this will give them a little extra cash on hand to cover the unexpected. When each department does this, we end up levying far more than we would by simply establishing and using a reasonable contingency fund.

• Contingency fund. It may seem like a contradiction in terms, but each year we plan for unplanned expenses by putting money aside into a contingency fund. Our 2012 contingency fund started with an appropriation of $500,000. While this may seem like a large sum, it represents less than one-half of one percent of our $145.6 million expense budget. Taxpayers have had mixed emotions about contingency funds over the years.

It wasn't that long ago when they were out of favor in some circles. Since contingency funds are, by definition, funds in excess of the expected cost of providing services, it was argued that they represented excessive taxation. A few years later many of these same taxpayers criticized governments for not having the foresight to have sufficient "rainy day" funds on hand.

The proper solution, in my view, is somewhere in between these extreme positions. History proves that unexpected expenses are an expected part of the cost of running government. While they should be budgeted for, the fund itself should be carefully monitored. In the case of Walworth County, a two-thirds vote of the county board is required to spend contingency funds.

ad
click to see advertisement
• Fund balance. If all else fails, we do have other cash on hand. Excess funds from the previous year as well as unspent funds from capital projects lapse into the county's unassigned fund balance. County ordinances limit the unassigned fund balance to seven approved uses, including the pre-payment of debt, debt service and capital projects. One use that is not permitted is drawing down this reserve to pay on-going operating expenses.

Paying current expenses with "one-time" money merely defers, and does not solve, an underlying financial problem. Those following the county's bond rating take a dim view of such practices. The inability to pay current expenses with current dollars can lead to a credit downgrade which can cost taxpayers more in the long run through higher borrowing costs.

Assuming the County Board concurs with the finance committee at its February meeting, our $500,000 contingency fund will be $43,000 lighter. While this isn't a crisis, I always feel better about using contingency dollars in October, near the end of our budget year, rather than in February. The nature of contingencies, however, is that you never know when they will occur.

We'll trust that our fund, which was set on the basis of our past experience, will last through the rest of the year. In the meantime, we'll hope for a few surprise-free months.

The opinions expressed in this column are those of the author and not necessarily those of the Walworth County Board of Supervisors.

printPrint
emailEmail
CommentFeedback
shareShare
Comments ()
Walworth County Fair
LAKE GENEVA AREA REALTY
Regional News