Reserve fund tapped until usual revenues start coming in
By Marcy Stamper
Okanogan County department heads have been asked to hold off on large purchases and avoid unnecessary expenditures to be sure the county can pay staff and other bills.
The county’s finance committee informed the commissioners on Tuesday (April 12) that they had to move $500,000 from the county’s reserve fund to the current expense account, largely because of cash-flow problems, according to county treasurer Leah Mc Cormack.
Revenue always lags during the first few months of the year, since property taxes aren’t due until the end of April and there is generally less economic activity during the winter, but other factors have also contributed to this year’s shortfall, said Mc Cormack.
The county is still awaiting reimbursement from the Federal Emergency Management Agency (FEMA) for $90,000 spent during last summer’s wildfire, sales-tax revenues are $86,000 below last year and — most significantly — the county started the year with $250,000 less than expected.
“I think it’s good to throw up this caution flag. Fund transfers may not be needed, but it’s good to notify people,” said Mc Cormack. “Everyone should be given an honest assessment of what’s going on.”
“We’re going to come out of this — we’re going to get through it one way or the other,” said Mc Cormack.
Although Mc Cormack said she expects the problem to be resolved once property taxes — $5.3 million — and other revenue start coming in, the commissioners took the warning seriously enough to cancel all regular business on Monday (April 18) for a full day of budget meetings with department heads that their agenda called “urgent.”
By the end of the day, the commissioners and finance committee — Mc Cormack, auditor Laurie Thomas and financial manager Cari Hall — put in motion several contingency plans. One would be authorization to use the $280,000 that remains in the county’s reserve fund and to transfer $76,000 from the vehicle-reserve fund.
The other solution — for a worst-case scenario — is an interfund loan of up to $750,000 from the solid-waste closure fund to current expense. The loan would be repaid at 3.5-percent interest, a benefit to the solid-waste fund but a hit to current expense, said Mc Cormack.
The commissioners said the two options — which require legal notice to the public before they can consider a resolution — would provide a cushion, a necessary evil that nevertheless left the commissioners and financial committee uncomfortable.
“We’re just making sure we don’t end up in a crisis situation. We can’t rely on borrowed money to keep the county running,” said County Commissioner Ray Campbell after the meetings with department heads on Monday.
If the interfund loan becomes necessary, County Commissioner Sheilah Kennedy said they would have to take other measures to cut costs, such as a 2-percent pay cut for all staff, layoffs, or a 32-hour work week. “We have zero reserves — it’s pretty scary,” she said.
Reevaluating the situation in June should provide a clearer picture of the county’s financial situation, said Thomas. Furlough days or layoffs would directly affect the public, since the county would have to curtail services accordingly, she said.
The county needs $1.2 million every month for payroll, said Kennedy. Payroll and benefits have increased about $90,000 per month over last year, largely because of increases for seniority and medical benefits, according to Thomas.
Mc Cormack was confident that the county won’t have to borrow money to meet payroll. She said they primarily wanted to head off any large purchases.
The county typically starts each year with a carryover of the money left over from the previous year, which was projected at $1.7 million for 2016. Thomas said she would have been comfortable even with $1.5 million but, by the start of 2016, there was only $1.45 million left, she said. “So we were immediately in a somewhat precarious position,” she said.
The treasurer, auditor and commissioners all agreed that no one had overspent. “Everyone is within or under budget—it’s not everyone being extravagant and spending left and right,” said Thomas.
Instead, the shortfall is the result of a multiplicity of factors. Last year at this time, the county had already received the FEMA reimbursement for the 2014 fire, but this year the administrative process has been slower, according to the county’s emergency manager, Maurice Goodall.
The bulk of the FEMA reimbursement will go to Public Works, a separate fund that is not a factor in the current shortfall, said County Commissioner Jim DeTro.
Other expenses connected with the Okanogan Complex Fire will also be covered by FEMA, but the county won’t have to pay those bills until after they receive the FEMA money, said Goodall.
Trickle-down effects from other economic sectors have also reached the county, said Campbell. A Longshoremen’s strike last year affected the county’s apple and cherry growers, who had to dump fruit that could not be shipped, he said. As a result, orchardists are now spending less on equipment and employees.
Ranchers who lost grazing range in the fire had to sell their cattle in a depressed market, said Campbell.
Two summers of wildfires have reduced spending, said Kennedy. “I don’t know if we’ll ever get an accurate figure of the total loss from 2014 and ’15. There are so many ramifications,” she said.
“I think it’s a combination of quite a few things,” said Thomas. “It’s a sad situation — the majority of county employees have had no cost-of-living increase for about three years,” although there have been increases for seniority.
In June, in addition to expecting $5.3 million in property taxes, the county will receive $2.2 million from the federal government, known as Payments in Lieu of Taxes (PILT), which compensates the county for nontaxable federal lands. The county also receives PILT money from the state, but in recent years Washington has paid less than a quarter of the $565,000 the county bills, according to DeTro.
“Our projected revenue was short by $250,000, so we have been brainstorming to get everyone on the same page so the rumor-control module can be turned way down,” said DeTro. “We’re being proactive, and making sure we’re making prudent financial decisions. Everyone is on notice that we have cash-flow problems,” he said.
With a total budget of about $20 million, the county should have $2 million — 10 percent — in reserve, said DeTro, although they have never managed to put aside that much.
The budget crisis has prompted the commissioners and finance staff to consider shifting to a zero-based budget, where any money left over at the end of the year is put into a reserve fund instead of being used to balance the next year’s budget, said DeTro.
A zero-based budget would make it more apparent if the county was overspending, but many counties carry over any unspent money to help start the following year, said Thomas.