BY FLORENCE GILKESON

Senior Writer

When the first bill for major county building projects reaches Lisa Hughes' desk, the county financial services director will have almost $9 million on hand to make the payment.

The capital reserve fund climbed almost a million dollars last week with a decision by the Moore County Board of Commissioners to make a direct transfer from the county's fund balance.

"You'll not feel a negative impact," said Ted Cole, a finance specialist with Davenport & Co., in a report to the commissioners at the Jan. 4 meeting.

Cole was reporting on a fund balance analysis prepared by the firm following the board's planning mini-retreat in early December. At that time, the board asked for recommendations in making a change in the county's fiscal policy.

Under the policy revision approved by the board, the finance office is authorized to transfer all funds exceeding 15 percent from the fund balance into the capital reserve fund.

Hughes reported that the latest transfer will total $921,803. That amount will be added to the $8 million transferred to the capital reserve fund last year. She said the $8 million was transferred through regular budget appropriations in accordance with implementation of the fiscal policy.

The policy, as amended in February 2009, called for monies in excess of 20 percent available fund balance to be available for appropriation by the Board of Commissioners for capital improvements.

The policy provides that the transferred funds may be appropriated for one-time capital expenditures, economic development-related expenditures, or set aside in a capital reserve fund for future use for a specific purpose within a specified time frame or a tax-rate adjustment.

The major revision changes the percentage available for transfer from 20 percent to 15 percent.

By establishing a capital reserve fund, the commissioners are providing a source of funding to get started on at least two major capital improvements already in the design stages. One is the public safety-detention center complex, the other a county government office building, the two projects are expected to cost more than $45 million.

In applying fund balance toward these costs, the county is reducing the prospect of a tax rate increase in the future.

Hughes says the latest transfer will leave the county with a fund balance in excess of $16 million. The fund balance includes surplus funds available in county coffers along with money designated for specific purposes but not yet disbursed, thus unavailable for appropriation for other purposes.

The Local Government Commission recommends that local governments retain a minimum of 8 percent of their General Fund as fund balance as security against a financial crisis. This percentage is regarded as sufficient to assure that it can cover immediate expenses, such as payroll and utilities.

However, for a number of years, Moore County has maintained a balance above 20 percent. For the 2009 fiscal year, the fund balance represented 20.4 percent of the budget.

The new policy requires retention of at least 15 percent in the fund balance, almost twice the level recommended by the commission.

Cole assured the commissioners that the policy change would not jeopardize the county's high bond rating. In 2009, Standard & Poor's upped the county's bond rating from AA-minus to AA, and Moody's retained its Aa3 rating for the county.

Cole also reported that Davenport is working on the next phase of the county's financial needs for capital improvements.

The county's latest capital improvement bonds for the public schools and the college were approved at the polls in 2008. The $69.5 million package includes $54 million for the schools and $15.5 million for Sandhills Community College.

When bond issuance is approved in a referendum, the county can issue general obligation bonds, which Cole described as the most cost-effective way to borrow money for capital needs. However, a bond referendum has not been held for the public safety and office buildings.

Cole recommended that the county pay for the two buildings through certificates of participation (COPs), a type of borrowing similar to a mortgage for a home loan. He said a COPs program poses no direct obligation to the taxpayer while general obligation bonds are issued as a direct obligation of the county tax base. In the case of COPs, the lender may foreclose on the property if payment is not made.

Asked if there are other payment options, Cole said the county could make a cash payment or could sell the building project to an entity, such as a bank, which could build the structure and sell it back to the county on a lease-buy agreement.

Cole said the general obligation bond is the best option from a financial standpoint but explained that it too has shortcomings, such as the loss of time because a referendum is needed, the cost of the referendum and the delay in issuance of bonds.

"It's a hard question to answer," the financial consultant said.

Contact Florence Gilkeson at (910) 693-2479 or by e-mail at florence@thepilot.com.