Jeff Branscome writes about Spotsylvania County.
Dipping into reserve funds
The county has a reserve fund that is 10 percent of its General Fund budget, about $35 million now.
The supervisors just heard from Davenport and Company that if they want to tap into that money to balance the budget, it should be a last resort. The financial guru didn’t talk very highly of using reserve money and said it is possible the county could have a bond rating downgrade from its current Double-A rating. The county has been dipping into that money already, but when it was at a higher percentage than 10 percent. In 2004, the county had 13.6 percent in the fund. Now it has 10.1 percent. Some of the reserve funds were used to balance the past budget.
"If you were to go down even marginally from where you are now, it is not inconceivable that you would have to do some sort of special short-term tax anticipation note, and that would really look bad," the analyst said.
Fairfax has the best Triple-A bond rating in the state. Its reserves are at 5 percent, but that’s several hundred million. That county has chipped away at its reserve fund just because of the sheer size of its government.
"If you are at 10 percent, given where you are and the size of your government, that is acceptable to keep you in good standing."
If they do tap into that fund, and it dips below 10 percent, he warned they better have a plan to pay it back. He also warned that if the economy worsens, it doesn’t make it any easier to use the reserve funds to balance the budget. It becomes even more important to keep that fund balance. Usually, the fund balance dips below the guidelines if there is a catastrophic event, such as a tornado, terrorist attack or hurricane.
"It is a last-resort strategy," he said.