BUDGET, FINANCE & INVESTMENT COMMITTEE

May 23, 2002                                                 5:00 P.M.                                        Courthouse

MINUTES:

Members Present:                        Others Present:

Comm. Joyce Ealy                        Nancy Allen

Comm. Paul Johnson                   Comm. Bob Bullen

Comm. Tina Jones                        Jeff Sandvig

Comm. Robert Peay                      Joel Johnson

Comm. Steve Sandlin                    Bryan Brooks

Comm. Dwight Throneberry          Paul Long

Comm. Jimmy Evans, Chair.        Elaine Cawthon

Chairman Evans presided and reconvened the meeting from May 22, 2002 with all members being present.

REPORT FROM FINANCE DIRECTOR RELATIVE TO UTILIZING ENDING FUND BALANCE IN THE 2002-03 GENERAL FUND:

The Finance Director made a presentation relative to utilizing the General Fund ending fund balance to balance the 2002-03 fiscal year operating budget.

Mr. Long explained there are two reasons finance officials are concerned about such proposals.  He explained that any time the ending fund balance is drawn down, that signals the bond raters that there may be a problem or there may not be a reasonable fiscal plan.  He stated this might result in a reduction in the bond rating.

Mr. Long advised the other primary concern about utilizing surplus funds to fund part of a recurring operating budget are the prospects for the fiscal year beyond the 2002-03 fiscal year. 

Relative to the possible effect on the bond rating, Mr. Long advised he has spoken to the county’s fiscal advisor at Stephens, Inc., and decided it might be prudent to contact Moody’s Investors in New York.  He advised he contacted Tom O’Donnell at Moody’s and explained to him what the county was considering and why it was being considered.  Mr. Long advised Mr. O’Donnell that Rutherford County was experiencing some economic downturn impact, and that the interest earnings on investments were substantially below what was expected.

Mr. Long advised he also discussed with Mr. O’Donnell a plan on how the problem might be addressed in coming years.  He informed Mr. O’Donnell that Rutherford County would be reducing the reliance on that source of funding to balance the budget, so that eventually the county gets back to a balanced budget situation.

Mr. Long informed Mr. O’Donnell that a $12 million balance was expected coming into the upcoming fiscal year.  Mr. O’Donnell informed him the balance was very healthy and more than adequate for a Aa rated county, and that this type of proposal did not concern Moody’s.  Mr. O’Donnell advised Mr. Long that it would take a combination of three factors to cause Rutherford County to lose it’s current bond rating:  1)  a significant reduction in the fund balance below what Moody’s considers reasonable, which is about 15% or in Rutherford County’s case about $7 to $7.5 million; 2) there would have to be a prolonged reduction of estimated revenue or a prolonged shortfall in revenue; 3) there would have to be a significant increase in the debt burden, which Moody’s currently considers as being fairly moderate.

Mr. Long advised given the fact that the Budget Committee is only considering using a small portion of the fund balance, and the balance will still be well above the $7 to $7.5 million level at the end of the year, the bond rater was not concerned.

Mr. Long advised this was the opinion of only one bond rater, but based on his response he did not believe there was a need to contact Standard and Poor’s.

Budget Minutes                                                May 23, 2002                                              Page Two

Mr. Long advised he had done some research relative to Mecklenburg County, North Carolina, because they are a AAA rated county.  He stated they are one of the few AAA rated counties in the nation.  He reported they are also held out as a blue ribbon government in terms of management – both Mecklenburg County and the city of Charlotte.  He stated they have some very sound fiscal policy.  He advised this is a AAA rated county by all three rating agencies. 

Mr. Long provided copies of Mecklenburg County’s fund balance policy for the use and information of the committee.  Their policy states “…the fund balance should be maintained at a level sufficient to provide or permit orderly adjustment to changes resulting from fluctuations of revenue sources”. 

Mr. Long also provided a policy statement from the Government Finance Officer’s Association, which states “…it is essential that governments maintain adequate levels of fund balance to mitigate current and future risks (e.g., revenue shortfalls and unanticipated expenditures) and to ensure stable tax rates”.

Mr. Long addressed the impact on future years of utilizing the fund balance.  He provided a comparison of original budget amounts with actual revenue and expenditures for a 10-year period from 1993 to 2002.  He advised the actual revenue has exceeded the original budget estimates by a fairly substantial amount in every year.  He advised this indicated the revenue estimates are conservative. 

Mr. Long’s comparison also addressed the actual expenditures and encumbrances compared to the original budget.  He reported in the earlier years, the actual expenditures and encumbrances exceeded the original budget quite frequently.  He stated this was because of various programs that might come up throughout the year or additional grants.  However, in the last four years, with the exception of the current year where there was a problem with the Health Insurance Fund, the actual expenditures and encumbrances have not exceeded the original budget. 

Mr. Long advised if the budget is adopted utilizing $1.5 million of the ending fund balance, all of the county committees needed to be notified that the county would not be in a position to approve amendments or significant increases to the appropriations without looking at other areas in the budget to find extra dollars. 

Mr. Long also advised the comparison demonstrated how much additional funding or extra revenue the county had each year to add to the fund balance.  He stated each year substantial additions to the fund balance have been made as a result of the conservative estimate in revenue and the frugal utilization of appropriations by all county department heads. 

Mr. Long reported in the 1999-2000 fiscal year, the estimated revenue for the General Fund was $34.3 million.  It was being proposed to fund capital items with a $1.7 million capital outlay note.  Before the budget was approved, the Budget Committee decided to utilize the ending fund balance to fund the capital and draw the balance down.  He explained the County Commission actually adopted a budget that was $2.2 million under-funded.  He stated $2.2 million of the ending fund balance was utilized that year to fund General Fund operations, primarily capital.  However, when the books were closed at the end of the year, the fund balance was not drawn down at all, and in fact it was increased by $800,000. 

Mr. Long stated he believes the comparison demonstrates the county is conservative in the fiscal projections, and circumstances occur where departments are not able to spend all of their money. 

Mr. Long provided Long Range Budget Projections for the use and information of the committee.  He advised that about $1 million more revenue was being projected.  However, the current proposed budget is about $1.5 million above that.  He stated there is a larger problem than was earlier projected, but it is at the certified property tax rate, and not at the current tax rate. 

Mr. Long advised with the changes the committee has made thus far in the budget process, the General Fund is out of balance by $1,458,478.  He advised this included one new employee for a

Budget Minutes                                                May 23, 2002                                              Page Three

half year for the Animal Control Department.  He stated of the projected new personnel in the following year’s budget some would have to be allotted to Animal Control.  It also does not reflect any new personnel related to the Sheriff’s grants, which might amount to $140,000 county match.

Mr. Long also advised the budget does not reflect any new personnel or other cost in relation to the drainage study.

Mr. Long advised last year and this year, some of the Development Tax had been utilized to address some of the capital issues in the General Fund.  He stated this has been projected to continue throughout the next four years.  He also advised the projection is not too optimistic about recovery in the economy relative to interest earnings.  He explained the $1.35 million to $1.4 million projected shortfall in revenue is being used to justify the utilization of the surplus.  If the economy recovers, some of the problem will be resolved. 

Comm. Peay stated he believed it would be prudent to establish a policy such as Mecklenburg County that sets a minimum ending fund balance such as 15%. 

The Finance Director agreed.  He stated when he discussed the situation with Moody’s, they suggested setting a minimum fund balance to strive to maintain. 

Mr. Long stated the Government Finance Officer’s Association suggested that for a Aa rated county 15% would be adequate.  He explained GFOA stated this could be accomplished by incorporating some language into the budget resolution to indicate the county plans to maintain a certain percentage fund balance in the General Fund.  Mr. Long suggested a minimum fund balance be maintained in the General Debt Service Fund, as well.

The Finance Director advised relative to Mecklenburg County, when they close the books, if they exceed their floor on fund balance, they take the excess and roll it into a separate account and invest that at interest so that it is available whenever they need it. 

Comm. P. Johnson stated when the State approves the change in the Private Act allowing the Highway Department to perform maintenance, he did not believe it would mean a large expenditure right away.  He stated this would be done in increments.  He advised the major expenditure would be for equipment to get started.

RECESS:

Chairman Evans recessed the meeting at 5:55 P.M. so that the Property Management Committee could meet.

RECONVENE MEETING:   

Chairman Evans reconvened the meeting at 7:00 P.M. with all members being present.

DEBT SERVICE 2002-2003 BUDGET:

The Finance Director provided a copy of the long-range projections for the General Debt Service Fund.  He advised when the budget was originally estimated, a $30 million bond issue was being projected.  He explained that bond issue would be $23,610,000.  He stated that was all of the debt that has been approved to be issued, with the exception of the Siegel High School Stadium of $1.6 million. 

He stated Debt Service expenditures for 2002-03 are now projected at $31,025,688.  Revenue is estimated at $30,094,980 at the current property tax rate of 72 cents.

Mr. Long also provided long range projections at the certified property tax rate of 65 cents for the Debt Service Fund.

Budget Minutes                                                May 23, 2002                                              Page Four

Mr. Long advised at the 72 cent property tax rate, $930,708 of the Debt Service ending fund balance would be spent.  He advised during the last half of the next fiscal year, about $5 million of new debt could be issued without creating any reduction in the fund balance in the following year.  He stated that five million could fund the Siegel High School stadium and the Siegel Road Improvement Project, as well as some other small things. 

Mr. Long stated the projection also demonstrates there would not be any significant additional debt capacity without drawing down balances further until 2003-04, at which point about half of a new school could be funded. 

Mr. Long advised at the current property tax level, the county will be faced with increasing the debt burden to the point of drawing down the surplus further, or not issuing the debt. 

Mr. Long discussed the projections at the certified property tax rate for the Debt Service Fund of 65 cents.  He advised in the next three years there would be reductions in the ending fund balance, or the appropriations would exceed the estimated revenue by approximately $6 million. 

Mr. Long advised there is a $32 million balance in the Debt Service Fund.  He reported he discussed this with Moody’s, and they suggested the county try to retain about a 75% balance in the Debt Service Fund in order to keep the Aa rating.  He stated this would be 75% of the projected expenditures.  At $32.8 million in 2006-07, there would need to be a balance of 75% of that amount. 

Mr. Long advised at the certified property tax rate of 65 cents, there would be no ability to service new debt until 2005-06.  He stated the county could issue the debt and draw the balance down further, but it would limit the county’s ability to address new projects.  He stated if the county deviates too substantially from the capital plan with the cities, at some point the cities may request the county return their share of the ½ cent sales tax increase they are allocating to the school construction program. 

A discussion was held regarding the projected revenue in the Development Tax.  If the revenue continues to grow or increases more than anticipated, half of that revenue automatically goes to the Debt Service Fund.  Likewise, if the revenue increases, a portion could continue to be utilized for recurring capital expenses. 

Chairman Evans stated there is a possibility of a re-bound in the economy.  He stated the county has built up a sizeable reserve in the Debt Service Fund.

Mr. Long advised as of June 30 the total outstanding principal on the county’s debt would be almost $269,000,000.

Chairman Evans stated in the agreement the county has with the cities relative to the aggressive school building program, there was a certain number of schools and a certain number of projects the county would undertake.  He stated the plan did not say that in those years, the county would be able to complete all of the projects.  He stated that is next to impossible due to the time constraints it takes to build the schools.  He stated with the worst case scenario, there is still ample opportunity to fund the schools without having to issue the debt immediately at the time of funding and recommending the schools.  He asked the Finance Director if the county could still accomplish the agreement without violating it if the 65-cent property tax rate was adopted?

The Finance Director advised the county could authorize funding on a school and in turn give the School Board the authority to begin their planning and design.  He stated a project could be approved and funded in multiple emissions.  Mr. Long advised the county had an aggressive re-payment schedule on the debt.  He stated there are ways to be creative in structuring the debt.  He stated he would not recommend any Capital Appreciation Bonds or any heavily end-loaded debt issuance. 

Budget Minutes                                                May 23, 2002                                              Page Five

The Finance Director stated if it was decided to address some of the new projects without utilizing the fund balance more than necessary, some of the early maturities could be moved further down and still have the same total cost for that debt issuance. 

The Finance Director advised if the certified property tax rate is adopted for the General Debt Service Fund, there is the potential to draw down the ending fund balance by approximately $6 million over a three-year period.  He stated that would still keep the balance well within the 75% range.

A discussion was held regarding the time of the Public Hearing on June 11.  In the past the Public Hearing has been held at 6:00 P.M., but it was discussed this might be too early for some people to attend. 

Following discussion, Comm. Throneberry moved, seconded by Comm. P. Johnson to change the time of the Public Hearing on Tuesday, June 11 from 6:00 P.M. to 7:00 P.M.

The motion passed unanimously by roll call vote.

Relative to the Debt Service Fund, Comm. Sandlin stated he did not have a problem with waiting until the meeting on May 30 to make a decision.  He stated he would like to have some time to study the information.

Following discussion, Comm. Throneberry moved, seconded by Comm. P. Johnson to adopt the certified property tax rate of 65 cents for the General Debt Service Fund with projected revenue of $27,963,767 and estimated expenditures of $31,025,688.

Chairman Evans reminded the committee there would still be the opportunity to make an amendment or request an adjustment to any budget before the final adoption.

Comm. Peay stated he agreed with Comm. Sandlin and stated he would like more time to digest the information, as well. 

Following discussion, the motion to adopt the certified property tax rate of 65 cents for the 2002-03 General Debt Service Fund with projected revenue of $27,963,767 and estimated expenditures of $31,025,688 passed by roll call vote with Commissioners Ealy, P. Johnson, Jones, Throneberry and Evans voting “yes”, and Commissioners Peay and Sandlin voting “no”.

OTHER BUSINESS

HUMAN RESOURCE DEPARTMENT:

Comm. Jones introduced a proposal that she stated could not be ignored any more.  She stated to do so would be irresponsible.  She requested every member of the committee step forward and endorse the position of a Human Resource Director.  She gave several reasons for the need for the position such as employees’ salaries, benefits and raises.  She stated they had been given a recommendation of a 3% salary increase for employees across the board, but over and above this increase, pay improvements for some, but not all, were recommended.  She stated she believed there was inconsistency that was unfair.  She stated she believed it was important to have a Human Resource position available in the county so that department heads and constitutional officers can go to Human Resources to discuss salaries, benefits and raises with that person and provide recommendations for the increases in salaries based on job performance and job description.

Comm. Jones also noted the lawsuits that have been lodged against Rutherford County.  She stated she believed it was important to have a safeguard mechanism in place, so that they can be sure that the appropriate documentation and the appropriate procedures have been followed.  She stated she did not believe they could continue without the Human Resource position available.

Budget Minutes                                                May 23, 2002                                              Page Six

Chairman Evans asked for clarification that the county would not be looking for someone to require the department heads and constitutional officers to hire someone or fire someone but to provide them a resource and a tool to make sure they do it properly?

The Finance Director advised there were a lot of areas that a human resource person could perform some services that are currently performed in the Finance Department that might or might not be financial related.  He stated the Finance Department has performed approximately 10 – 12 responses to surveys for other counties when going through a salary plan update.  He advised a H.R. person could perform these services. 

The Finance Director advised the City of Murfreesboro’s Human Resource Director is heavily involved in their pay plan and helping the City Manager determine pay increase policies.  He stated she also is currently dealing with revisions to the health insurance plan, raising deductibles, etc.  He stated a H.R. person would be very welcomed from his perspective.

The County Executive advised last year’s original budget included a H.R. position, as well as an administrative assistant.  She stated the total budget was approximately $110,000 also including office equipment, supplies, etc.  She stated there was no doubt the General Fund departments would benefit from the position.  She advised the constitutional officers have always indicated a willingness to use the position as a resource. 

Chairman Evans asked if funding could be provided for the Human Resource individual only without an assistant was there a possibility that between the County Executive’s Office and the Finance Department adequate assistance could be given?  He asked if the pay scale for the Human Resource position would be approximately $60,000? 

The County Executive advised it would probably be a minimum of $60,000.  She stated in order to hire someone with the expertise, credentials and experience it would probably require that salary range. 

The Finance Director stated he would be glad to offer any assistance he could to help the county step into the program.  He stated if the position is funded, it would probably take six to eight weeks to find someone.  He stated it would take the individual time to become familiar with the situation.  He said the person might really be effective for one-half a year.  He said he believed during the first year, the Finance Department would have to share a lot of information. 

Comm. Sandlin discussed the list of recommended pay improvements.  He stated the county could get a H.R. person one year and revisit the list of pay improvements the next year.  He suggested the salary improvements not be given this year, and to give the 3% increases across the board for everyone.  He stated he was not saying it was gone, but it could be looked at later. 

A discussion was held regarding the publication of the budget.  The Finance Director advised it had been suggested to expand the publication of the proposed budget in “The Murfreesboro Sun” this year.  He reported the cost proposal for publishing the budget in “The Sun” is approximately $1,700.  He stated to publish in “The Daily News Journal” and “The Courier” has cost about $2,700. 

Following discussion, Comm. Jones moved, seconded by Comm. Ealy to include the Human Resource Officer in the 2002-03 General Fund budget thereby amending the 2002-03 General Fund budget as necessary.

Comm. Jones also stated she wanted to discuss the procedure for hiring the Human Resource Officer.  She suggested the hiring procedure be patterned from the way the Finance Director was hired.  The Budget Committee would accept applications and interview and make a recommendation to the County Commission upon hiring that person.

Comm. Peay stated he agreed with the position wholeheartedly.  He stated he wondered if they were being fiscally responsible by hiring the individual this year.  He stated having the resource

Budget Minutes                                                May 23, 2002                                              Page Seven

is a good thing.  He stated there were other priorities that he had, such as the drainage study and changing the Private Act.  He stated he would like to be able to hire three people to do something

with that and appropriate that money.  He stated he wanted to make it plain there are other priorities that are important to other constituencies who live outside the city limits.  He stated they needed to take care of all of them.  He stated he believed the Human Resource individual would be important to everyone.  He stated he questioned the way the person would be appointed.  He stated he believed the County Executive has done an excellent job in hiring people.  He stated he did not have a problem with the County Executive hiring the Human Resource Director.

The committee discussed the list of pay grade improvements.  Comm. P. Johnson stated the list totaled $146,575 and that would more than fund a human resource officer.  He stated he believed the pay grade improvements should be addressed on an individual basis. 

Comm. Jones clarified her motion, seconded by Comm. Ealy to include a Human Resource Officer only in the 2002-03 General Fund budget with the County Executive’s Office, Finance Department and Insurance Department to assist in phasing in the position utilizing other clerical positions with the understanding a secretarial position or assistant position would be funded at a later time.

The motion passed unanimously by roll call vote.

Comm. Sandlin moved, seconded by Comm. P. Johnson to defer the pay grade and equity improvements until after a Human Resource position is hired to be reviewed on an individual basis and to approve a 3% salary increase across the board for all employees.

The Finance Director advised the pay improvements would be deleted from each department’s budget, which would also affect the benefits.

Following discussion, the motion passed unanimously by roll call vote.

Comm. Jones stated she believed the procedure for hiring the Human Resource Officer should be addressed.  She stated she felt strongly that it was important that the position had independence. 

Comm. Jones moved, seconded by Comm. Throneberry to hire the Human Resource Officer using the same procedure for hiring the Finance Director with the position reporting to the County Commission the same as the Finance Director. 

Comm. Jones advised the Budget Committee accepts the applications, interviews the candidates and makes a recommendation to the County Commission. 

A discussion was held as to whether or not the Steering Committee should be involved in the hiring procedure.  Comm. Sandlin stated he would like for the Steering Committee to be involved.  The committee discussed a joint procedure with both the Budget Committee and the Steering Committee. 

Comm. Jones changed her motion to hire the Human Resource Director using the same procedure as hiring the Finance Director, except that both the Budget Committee and the Steering Committee would be involved and make a recommendation to the County Commission.

The Finance Director explained it is pretty overwhelming to be interviewed by seven people.  He stated he could not imagine what it would be like to be interviewed by 14 people. 

The committee discussed using the Chairman and the Vice-Chairman from both the Budget Committee and the Steering Committee along with three members.  The committee also discussed having the County Executive and the Finance Director as members of the selection committee. 

Budget Minutes                                                May 23, 2002                                              Page Eight

Following discussion, Comm. Jones changed her motion, seconded by Comm. Throneberry that the Human Resource Officer be hired using the same procedure as hiring the Finance Director with the selection committee to consist of the Chairman and Vice-Chairman of the Budget Committee and the Steering Committee, Finance Director, and the County Executive as a non-voting member.

The motion passed unanimously by roll call vote.

2002-03 BUDGET PUBLICATION:

The Finance Director noted if the 2002-03 budget is published in “The Daily News Journal”, “The Courier” and “The Sun”, there would not be enough money available in the County Executive’s Legal Notices Account.  He advised the account would probably need an additional $2,000.

Comm. Sandlin moved, seconded by Comm. Jones to approve the following amendment to publish the 2002-03 budget in the three newspapers:

            From:        101-39000 – Undesignated Fund Balance -             $2,000

            To:            101-51300-332 – Legal Notices -                         $2,000

The motion passed unanimously by roll call vote.

ADJOURNMENT:

There being no further business to be presented at this time, Chairman Evans declared the meeting adjourned at 8:40 P.M.

___________________________________

Elaine Cawthon, Secretary