State Officials Concerned With Carolina Beach's Fund Balance

State Officials Concerned With Carolina Beach's Fund Balance

State Officials Concerned With Carolina Beach's Fund Balance Featured

By / Local News / Wednesday, 28 November 2018 01:20

Managing Editor

CAROLINA BEACH -  The North Carolina Department of State Treasurer recently sent a letter to the Town of Carolina Beach regarding "areas of concern" with recent audit numbers and the amount of reserve funds the Town has in the General Fund for the year ending June 30th, 2018.

In a letter from Susan McCullen, CPA, Senior Accounting and Financial Management Advisor, McCullen wrote, "The State and Local Government Finance Division in its role as staff to the Local Government Commission has analyzed the audited financial statements of the Town of Carolina Beach for the fiscal year ended June 30th, 2018. The results of the analysis revealed areas of concern regarding your financial position and we wanted to convey our concerns to you and the Board."

McCullen explained in the letter, "We are concerned that the fund balance available for appropriation relative to expenditures in the General Fund is substantially less than comparable units and may be too low to provide the necessary resources you need."

According to the Town's website, "Cities and towns set aside money in separate “rainy day” accounts either for unforeseen needs or as designated for specific capital projects, such as building new schools or roads. Also included are profits from business-type activities, such as water charges, above forecasts that have yet to be appropriated to the budget. Cities and towns track the ratio of reserve funds balance to annual expenditures (known as the "reserve ratio") as a measure of financial preparedness."

For 2018, the Town's Fund Balance reserve for the $15.1 million dollar General Fund Budget was 31.24% which is a decrease from 54.18% in 2016.

According to McCullen, "The General Fund - Average Fund Balance Available for % for your population group" is 72.91% for 2018 and, "Please respond, explaining how you plan to increase the fund balance available for appropriation and provide the projected increase over the next three year years."

She explained, "If you are planning to issue debt that requires the approval of the Local Government Commission, we must have a complete and thorough response to this letter on file prior to the Commission's consideration of your debt application."

The Local Government Commission approves or denies requests from municipalities prior to financing purchases such as real estate or large infrastructure projects.

During the Town Council's November 27th, workshop meeting, Interim Town Manager Ed Parvin explained, "They have  noticed that we've had a drop in our General Fund fund balance. They compare us to like-communities and like to make sure that our community is staying in balance with those other communities. Since they've seen that drop they've asked for a detailed response from us outlining why we've allowed our Fund Balance to drop below what it typically is."

Parvin said Town staff are preparing a response to the Local Government Commission and, "It says what types of projects we have been working on and are continuing to work on. This would be signed by Council. We would be sending this out and then hopefully be able to circle back and meet with the LGC and say hey yes we are continuing these projects but we are also looking at ways to make the community work more efficiently, effectively and let them know we are scrutinizing our budget."

Council member Leann Pierce said, "I don't disagree at all with them. I think that was the fear you heard from us a couple of months ago with our increasing expenditures and the different things that we wanted to cut. I'm reading this at 31% where two years we were at 54%. I have concerns about that as well. I guess if we could talk about what a plan would be to increase that fund balance."

Pierce explained, "How did we get here is what we need to know. And how do we get back."

Councilman Tom Bridges explained, "If we focus on that it will help us to maybe scrutinize some of the projects we have and look at a different stream of funding rather than paying out of our Fund Balance."

Councilman Steve Shuttleworth explained, "If you could over the next couple of weeks just put together a list of all the things we've spent money on. A lot of those, we get reimbursed. We have at least a half a million coming back and I thought I saw here another $170,000 coming back, It has been a concern and that's one of the reasons why I asked... for a copy of what our Fund Balance is."

Pierce said, "I'd like to see the General Fund back at 50% and I don't know Debbie, you'll know this better than anybody, how much money do you have to save or not spend every year to get back there. It makes me very nervous at 31%."

Shuttleworth explained, "I asked for a spreadsheet showing the growth in cost and income and employee cost and percentages and you can see where we have out paced the revenue increase every year with the budget increase. Meaning that we are getting a gap there that we need to look at and ultimately that means we either cut services or we raise taxes. And we have not had a property tax increase in a number of years to generate more revenue for the Town. We've held off doing that. It's been a natural resistance for most everyone that's been on Council and in Town."

He said, "The gap is getting bigger. I mean we keep increasing pay scale and our revenue isn't going up as fast."

Bridges explained, "If we can outline those services we offer now and could offer in the future and then prioritize those and get feedback and educate the public in those services we need.

Get some feedback from them to see how much they are willing to give up those services or not. That will help guide us as we make those decisions."

According to the Town's fiscal year 2018-2019 budget, "At the end of the previous fiscal year, the unassigned fund balance for the General Fund was approximately $3,700,000 or 28% of the total General Fund expenditures for the fiscal year" and, "As of June 30, 2017 the total combined fund debt is $34.9 million. This $34.9 million total debt is compared to our debt limit of $152 million, or approximately 23% of the legal debt limit, which is 3% less than the previous year. The Town cannot issue more debt than 8% of its taxable appraised property."

Shuttleworth said, "If we're sitting at $3 million on reserves and you want 50% you have to be at six and a half. Do the math. You have to figure out how fast you want to make up $3.5 million bucks."

Pierce said, "When we do the budget this year I think we need to see a more detailed layout of each Department's budgets. Since I've been on Council it's been done one way which is a very general overview with bullet points and numbers and then I find out that inside that number there's ten other things. I would like to see more of a break down on what we are spending money on."


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