I received an email this week from the office of Fulton County Commissioner Joan Garner, with lots of pretty graphs and some very high level information about the budget that was approved by Fulton County Commission last week. I had already heard the commission had not only approved a budget for 2011 that ate into the County’s healthy reserves but had done so with great gusto! Over $100 milion of the $156 million reserve had been dipped into to keep the ‘status quo’ and in fact to give raises to some (not all) Fulton County employees. This will leave, I am told, a reserve us just over 8.3%. The question I ask is; what is adequate reserves for a Municipality under today’s economic reality?
Financial institutions are now required by their regulators to be ‘adequately reserved’ at a level almost 300 bases points (3%) higher than was the base line just 5 years ago. If a financial institution fails to maintain such reserves then it is subject to extremely close scrutiny, more frequent on site visits by regulatory auditors, and is required to provide the regulator a detailed action plan on how the financial institution will immediately get reserves back up to required minimums. The reason for this increase in reserve requirements is complicated but the bottom line really is to reserve against increasing cost from loan and investment losses.
So who provides this kind of oversight and guidance to Municipalities? Who says 8.3% is ‘adequate’ for a Municipality in general or for Fulton County specifically? I was told by Commissioner Garner’s office that 78% of Fulton County general fund revenue is derived from property taxes and we all know property values have been going down. HHHMM…. again, is 8.3% enough? Is it EVER prudent to use almost 70% of your reserve for operating expenses in a single budget cycle, but particularly now? When MOST Municipalities are downsizing departments and not back filling vacant positions, should a Municipality give ANY raises to any employees?
I don’t have an answer but I think on the face of things Fulton County Commissioners are going to be hard pressed to answer these questions if property values don’t begin to go back up next year. How will the NEXT $100 million deficient by funded, because it’s NOT in the reserves now? I suppose one answer would be to raise the mill rate (again) and fines and fees (again), which puts the burden on the residents of Fulton County who are already suffering the ramifications of the worst economic burden in almost 70 years while the County keeps right on budgeting in the way to which it has become accustomed rather than to the reality that everyone else is facing.
Is 8.3% reserves enough? I guess we’ll find out soon enough.