Item J2
. Revised 2/95
BOARD OF COUNTY COMMISSIONERS
AGENDA ITEM SUMMARY
Meeting Date: Aori119. 2001
Division:
Countv Administrator
Bulk Item: Yes
No -X-
Department: Countv Administrator
AGENDA ITEM WORDING:
Discussion of issues that will be part of the proposed Fiscal Year 2002 Budget with guidance from the
Board of County Commissioners concerning how they wish to approach these issues.
ITEM BACKGROUND:
In a number of discussions over the past few months, the Board of County Commissioners has
indicated its interest in reviewing certain issues prior to the initiation to the budget process. It is the
Board's intent to give instructions to the Administration concerning how it wishes to proceed in the
forthcoming budget. The four primary issues involved are the history of nonprofit funding, utilization
of performance measures, the capital program, and fund balances. Some discussions have already
occurred.
PREVIOUS RELEVANT BOCC ACTION:
As above. At the February 22,2001 County Commission meeting, the Board postponed this item to
their special meeting on March 13,2001. At the March 13,2001 meeting, the Board postponed this
item to the March 22, 2001 Board meeting. On March 22, 2001, the Board requested that this
discussion be continued to the April meeting.
STAFF RECOMMENDATIONS:
Discussion and instructions to the Administration.
TOTAL COST:
-0-
BUDGETED: Yes
No
COST TO COUNTY: -0-
REVENUE PRODUCING: Yes
No
AMOUNT PER MONTH_ Year
APPROVED BY: County Atty _
DIVISION DIRECTOR APPROVAL:
OMB/Purchasing _Risk Management_
-~-~
~ ~ ;14-
James L. Roberts
DOCUMENTATION:
Included 1L
To Follow
Not Required
DISPOSITION:
AGENDA ITEM #,;J. ~ J~ ~
4-/19/01
MEMORANDUM
TO:
Board of County Commissioners
FROM:
James L. Roberts
County Administrator
DATE:
April 12, 2001
SUBJECT: Additional Information for Budget and Fund Balance Discussions
Enclosed is additional information in reference to recommendations for
fund balances. This should be attached to your bound budget book for the
discussion at the Commission meeting on April 19.
If you have any questions, please let me know.
cY1=~~~
County Administrator
JLR:dlf
cc: Sheila Barker, Administrative Services Director
Ad Valorem Funds
Fund FY 99 9/30/99 Fund
Expenses* Fund Balance /
Balance Expenses
001/002 28,847,987 23,524,232 81.55O,fo
101 35,686,630 14,651,244 41.060/0
141 5,377,721 1,698,882 31.590/0
146 496,583 579,981 116.79O,fo
147 1,077,168 829,436 77.00%
148 5,558,812 5,925,658 106.600/0
Fund FYOO 9/30/00 Fund
Expenses* Fund Balance /
Balance Expenses
001/002 26,866,980 23,188,709 86.310/0
101 36,440,820 14,696,921 40.330/0
141 5,377,961 1,635,736 30.420/0
146 744,721 626,131 84.08O,fo
147 1,257,753 1,240,234 98.61%
148 6,416,695 8,684,130 135.340/0
It should be noted that during the preparation for the
Fiscal Year 2002 budget, we will be using estimated
figures for September 30,2001 Fund Balances.
* Includes other financing sources and uses
Office of Managment & Budget Source: Comprehensive Annual Financial Report
Ad Valorem Funds - Fund Balance Discussion
Fund 001 & 002
General Fund and Library Fund
Recommendation: Do not try to reduce Fund Balance in this area for the
following reasons:
1. This Fund Balance is one of the most difficult to predict due to the large
number of programs that are run through the General Fund.
2. Reserve for use in the event of a disaster. There may be a false sense of
security as a result of our experience with Hurricane Georges.
However, please keep in mind that this was only a category two storm,
where most of the expenses were related to debris removal. It should
also be noted that Monroe County incurred approximately $24.5
million dollars in expenses within the first 90 days following this
hurricane.
Fund 101
Law Enforcement, Jail, Judicial
Recommendation: No Change. Fund balance is not excessive and appears
stable. This fund has not had many problems in the past.
Fund 141
Fire & Ambulance District 1
Recommendation: Try to keep this fund balance stable. This instability
has created problems for us in the past.
Fund 146
Key Largo Fire & Ambulance
Recommendation: Although this fund has a very healthy fund balance,
large swings in fund balance have created problems for us in the past. This
fund has a small tax base; therefore, it has far less resources than other
funds.
Fund 147
Unincorporated Parks & Beaches
Recommendation: Wait and review this fund again once settlements have
been reached with Islamorada and Marathon. These negotiations could
have a drastic impact on the fund balance in this fund.
Fund 148
General Purpose Municipal Service Taxing Unit
Recommendation: This fund will also be affected by the negotiations with
Islamorada and Marathon. However this fund has grown to the point that
we should look at some options:
1. Set aside a portion of fund balance for future capital purchases or
matching funds for future grants. (Keep in mind these funds will stay in
fund balance until they are actually spent.).
2. Reduce Taxes (This should only be done to keep fund balance from
growing further, taxes were reduced by 27.69% in this fund this year
largely due to a growing fund balance)
OMB's recommendation is not to try to lower fund balances in funds 0011002, 101, 141, 146 &
147. However, if the commission disagrees, we would like to strongly encourage them to only
take action if it is in the best financial interest of the county. Such as:
1. Pay down debt and/or vehicle leases (Funds 001, 141, 146).
2. Create a new fund or funds to isolate funding to be used in the event of a disaster (Fund 001).
Ad Valorem fund balances should not be used to increase recurring expenses or to drastically
reduce taxes. Using fund balances for these reasons will cause taxes to be increased in future
years.
Non Ad Valorem Funds - Fund Balance Discussion
SPECIAL REVENUE FUNDS:
Due to the nature of these funds and the various sources of revenue and restricted uses in many
cases, no change in policy is suggested unless specifically labeled as a recommendation.
Fund 100
Affordable Housing
Fund 102
Roads & Bridges
. Funded by Gas Taxes
. Timing influences the expenditures
Fund 103
Law Library
. Funded by portion of court costs and fees collected by the County for
court related items and filing fees
Funds 115 - 121
Tourist Development Council
. Funded by Bed Taxes
. Fund balance is impacted by spending levels and tax receipts.
Fund 125
Government Fund Type Grant
. Funded by Grants. Interest earned can be used(dependant upon
grant) to fund match.
. Recommendation: Begin using $200,000 per year to Fund Grant
Match.
7
Funds 130-135
Impact Fees
. Funded by permit revenue
. Expenditures fluctuate due to timing to complete projects and eligibility
of projects submitted.
. Fund Balance can be adjusted by spending more or charging lower fees.
Fund 142
Translator
. No longer taxing
. Approximate $200 remaining in fund
. Recommendation: Begin process to close fund and taxing district.
Fund 144
Upper Keys Trauma Care District
. No longer taxing
. Fund Balance is residual from taxes previously collected
. Interest on money funds operations
Fund 150
911 Enhancement Fund
. Funded from charge to phone user. (Approximately 50 cents per
month)
Fund 153
Fund 154
Fund 157
Fund 158
Fund 159
Debt Service Funds:
Fund 202
Fund 203
Fund 205
Fund 206
. Money can be used to fund 911 program and provide enhancements to
system
. Fund Balance to decrease this year for payment of old year debts
Local Housing Assistance Tmst Fund
. State Shared Revenue for Housing
Cudjoe Gardens Municipal
. Special Taxing District
Boating Improvement Funds
. Funded by State Grants
. Used for Channel Markers, removal of derelict vessels. Fund Balance
is function of timing
Misc. Special Revenue Fund
. Fund 158 was established to track very specific revenue streams. It
comes from multiple sources. The building permit piece is for
educational uses, 2/3 of the handicap fines are designated for specific
uses. The fund was established so these highly restricted revenue
sources wouldn't be co-mingled in other funds.
r /
WI rJ..
I / "
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Florida Keys Marina - Marathon ;}J!e ~J-;~
. Funded from Fund 304 Infrastmcture :J if..'"
. Recommendation: Begin using Marina Revenues to support Fundj
1993 Refund Improvement Bonds (83)
. Fund Closed in FY 01
1993 Refund Improvement Bonds (88)
. Funded from State Shared Revenue & Interest
. Funding of Long-term debt for refunding 1988 A & B Improvement
Bonds.
. Recommendation: Principal as of 9/30/01 will be $4,335,000.
Effective Interest is 4.47%. Could pay offwith approximately 4 million
of 001 Fund Balance. This would save 001 taxes of $700,000 per year
for 8 years.
1991 Sales Tax Revenue Bonds
. Funded from Fund 304 Infrastructure (Jail)
Clerk's Revenue Note, Debt
. Funded from Transfer from General Fund and revenue raised by Clerk
of the Court
. Expenditure for Clerk's Network System
Capital Project Funds:
Fund 304
One-Cent Infrastructure Sales Tax
. Funded by Sales Tax. Raised
. Fund Balance is affected by the timing of projects
Fund 305
1991 Sales Tax Revenue Bonds
. Recommendation: Transfer to Fund 304.
Fund 306
Clerk's Revenue Note - Capital
. Expenses for Clerk's Network System
Enterprise Funds:
Fund 401
Card Sound Bridge
. Funded by Tolls
. Expenditures governed by timing of projects
. Fund Balance is maintained to fund major improvements or repair
damage after storms.
Fund 403
Marathon Airport
. Funded by airport fees and leases
. Fund balance used for improvements and repairs at airport
Fund 404
Key West Airport
. Funded by airport fees, leases, and passenger facility charges
. Fund balance used for improvements and repairs at airport
Fund 414 & 415
Solid Waste Management
. Funded by fees charged home owners and businesses and franchise
fees
. Fund Balance used to keep fees as low as possible and to pay
approximately $1,OOO,OOO/year to pay down debt of $7 million. Expect
that fees will not cover costs this year and will eat into the fund balance
amount.
Internal Services Funds: Internal Service Funds are primarily double counted. The
departments pay a fee for these services and the expenses for the services show up in the internal
service fund.
Fund 501
Workers' Compensation Fund
. Fees to department dependent on degree of risk faced by employee job
functions. Expenditures cover medical and indemnity of employees
injured on the job. Rate is only 840/0 of state rate.
Fund 502
Fund 503
Fund 504
Fiduciary Funds:
Fund 600
Fund 602
Fund 603
. Fund Balance covers reserve for outstanding claims as provided by loss
runs. Fund Balance also covers catastrophic reserve of $300,000 as
recommended by our Consultant.
Group Insurance Fund
. Fees to department based on a calculated rate. The rate is to include
all administration, operational, and claims projects for the coming year.
. Fund Balance fluctuates based on claims experience. Last year our
claims were $500,000 greater than projected and the overage came
from fund balance. Since group insurance is a self-insured fund, we
must maintain reserves of a minimum of 30% of our claims projection.
Risk Management
. Revenue is raised from a departmental charge.
. Expenditures cover premiums paid for various policies covering
Property, Casualty, General Liability,
. Fund Balance includes a catastrophic reserve of $1,000,000 set up by
ordinance.
Fleet Management
. Revenue is raised from a user charge.
Law Enforcement Trust Fund
. Revenue is from fines
Court Facilities Fees Trust Fund
. Revenue from court costs of any civil action, suit, or proceeding
. Fund Balance to be used for providing and maintaining facilities for the
use of the Circuit and County Court system.
Clerk's Drug Abuse Trust Fund
. Reyenut from drug-abuse programs
. Fund Balance used for treatment and/or educational programs that
meet the standards of the Department of Health and Rehabilitative
Services.
Managing 'Fiscal Slack: .
You Have a Surplus. . . Now What?
With the economy booming and state and local revenues swelling,
many governments are facing the enviable dilemma of managing a budget
surplus. This article addresses some options for reducing a surplus
that can alleviate political pressure. and protect jurisdictions
from the possibility of a less-robust future.
'T"he unprecedented economic expansion
.L of the 1990s has created a new
challenge for budget directors and govern-
mental CFOs-bow do you deal with
budgetary slade? We have read about our
new economy and we have seen investors
leave the stepS of Wall Street and the Dow
Jones Indusaia1s for the point-and<1iclc
DetWOrk of the fnfWll'nl!!f and the NASDAQ.
Burgeoning govemmcnul coffers,
fueled by an economy whose Iaar
recessionuy period ended in 1992, have
been the ~,.f;",..ries of increasing in-
come, sales, and property taxes. Our
nation has eamed more, spent more, and
experienced rising property values, par-
ticuJarly in urban areas as -empty nesters"
have rediscovered the virtues of the city
versus suburban lifestyle. .
Conversely, the expenditure side of the
budget has ~~ &om reIarively
modest wage demands Eo...,J by low
levels of inflation. ~ the Federal
Reserve Board appears committed to
curtailing inflationary trends before they
can gain any momamun.
The results of these economic condi-
tions .have been manifest in operating
surpluses and notable fund b..l..nN'!!l for
state and local govemmcnrs across the
country. For example. the National Asso-
ciation of Stare Budget Officers (NASBO)
reports that fiScal year 2000 wiD represent
the seventh consecutive year that general
fund baJances (on average) will exceed 5
percent of aDDual expenditures. Those
fund h..l..n~ have ranged between 5.1
percent to 9.2 percent during that period
of time (see Tb. Fiscal SUnl6'Y of States:
Decemb... 1999).
For many govemmems the pia:are has
become even brighter due to the recem
IObacco industry lawsuit settfem- The
Master Settlematt Agn:emeor (MSA) wiD
IaUIt in a $206 billion windfall for the 46
signatory stateS (the pIIIaining four stateS
settled independently with tobacco COID-
panies). The IObacco ~IOIftMlr means
dw an unanticipaIed budgemry windfall
will soon start appeadq to boJaer the
coffers of Stale and local governmems
even more. Better yer, those set'ilOlftl!llf
dollars ~I'~ an aDD1Iily since they
wiD be received over as long as a ~
period.
A New Challenge
The new ..h..lI,.,...ge presenu:d by this
rosy piaure is haw do we deal with fiscal
1liI4:? Most public 6aance profestinn..ltt
wue trained and have powD up in a
much different era-en era ....a...~
as one of fiscal stTaS.. 1'JJer know bow to
cut budgas and scdt more bang for the
caxpayas' bade. As badger aaalysu, they
Ieamed how 10 Cerrec out budgecary slade
and reduce the size of goP"J'lnMlf, or at
least conuo1 me rue of powth.
Govemmeat finance officers ale experi-
enced in such u:cbniqua .. reftDUC
_h..n.-nen~ iac:teaaecl user fees, hiring
&eezes., early retirements, redvl"f'iontt in
force, across-dle-boar caa, onaomcing,
pofin..n..n,g debt, selling delinquent taxeS
or other receivables, and a myriad of other
budget_b..l..n~ng approaches. They have
read about aU these and other fiscal tools
in me Government Finanu Review and
By Ronald D. Picur
heard first-hand stories at GFOA\ annual
conference. But now what?
This atticle outlines a structnred ap-
proach to deal with fiscal slack and
aIIocare those new taX dollars in a planned
and logical fashion, before the elecn:d
officials spend it. The underlying thesis of
financial planning is consistent with basic
principles set forth by the National Advi-
sory CoUDCil on State and Local Budgeting
(NACSLB) in its ~ Budget
Prtzaiea. For eDD1ple, the NACSLB caDs
for developing policies for use of one-rime
rennues, smbiIization funds, loq-range
An..n.....1 pLinning, e9aluating rennue and
expenditure options, and so forth.
Start with Fucal Principles
To avoid some politicians' appmach of
waming to get out in front of an issue-
also c:hanaerized as the -fin, ~ aim
school of pubW: adminisaation"-one
should start with a foundation of sound
&seal principles. Thar foun<l..~nn wiD
provide boch direaion to and i.l$Iifit'!lrion
for the a1locations of new do1lan dw are
flowing inrD the revenue-side of the budget.
The list below is not imended 10 be cl1-
inclusive. Rathel; it serves 10 ilIustme the
point of swdng with fiscal principles
b6(ore ma1dng dollar allocations (as
specific examples will be suggested later).
Other principles may well be warranted to
reflecr local idiosyncrasies including an
expecwion of continued revenue growth
driven by an expanding population base.
· Avoid Ongoing Commiunenu and
IDacasing Budgcrary Demands. Primary
JUNE 2000 · GoVDNMENr FINANCE REVIEW 7
.' .
~
]
i
examples of such a (':ftmmitm~f are a
pennaoeDt taX cut or an iacn:ue in
persoanel cosu. Par example, many
fiaance officers have seeD a budget
amendment that adds additional public
safety officcrs-lll1 '"appropriation of
choice" for many e1ec=d officials. 1he
amea(lment becomes even more fisca11y
onerous whm scheduled start dates are
midway through the yeas; thus requiring
only half the cash . . . this yeG That
-small" am"'dment this year wiD, of
course, double next year's c:omnnl7"ent
plus the necessity of providing for
automatic '"SIep" increases, COLAs, and
&inge benefit cosa (i"eluding heahh
insurance).
. Make Invesmu:aa daat Gcncrare Patare
BenefialSavinp. This principle is pal"
ticu.larly appropriate for one-time rev-
eaue wind1i1ls--sud1 as dollars received
by '"bonding out" future receipts from a
tobacco settlmteot. This principle is an
e:xteDSion of the uadiaonal f;"llInL"i"g
approach of '"one-type uses for one-time
sources." The exrension focuses on the
continuing benefit dimeasion of this
principle. Stared another way, inwst the
doUan rather than spaJ the doUan.
. SeekIMuimize Patare PlexibiJky. If
ongoing ~minft_ are necessary or
juscifiable, e.g., if tobacco -n-
doUan will be t.aived as aD annuity
Oftr some number of years, tbea the uses
made of those dollars should provide for
budgemry Be:xibi1ity. For example, a
comminft_ of such doUan to an
expanded pay-u-yon-go component of a
capital improvement program provides
greater flexibility than t'ftmmttftl'g those
same doUan to an ongoing senior citi-
zens program, lib a propel~.tax c:in:uit
breaker or sp-i1llIi7.M bus serrice for a
seniors' housing complex. When the
windfall annuity scops, it is mudl easier
DOt to build sO!"~i"g than to iDaease
property aaxes or cut the seniors' bus
service.
. Follow aD Aacc AUOf"'IUOD ApproadI.
Stated another way, this principle sag-
.gem don't put all the egs in one basket.
This approach panicuJarly makes sense
where substantial amoums are involved,
such as with tobacco .-rIem-~ doUan.
Assuming that to be the case, the asset
allocation principle would allocate the
DCW resources to different uses, just as
an investment men.V" allocates a
portfolio among equity, debt, real-estate,
and so forth.
. Inc:orporate the Fasc:al Principles into
8 JUNE 2000 · GoVDNMENT FINANCE REVIEW
Pormal Fm......... PoJic:ieL By ",inlring
ahead, the sany badger direccor em
forestiall the r.l.w.-e--uee approad1, -
. i.e., a pRSeIIt for aeryone, when deIJing
with budgetary surpluses or reftIUIe
wind/,ollll, Once die fisc:a1 principles (as
outlined above) bae been [nnnlllli--l. it
becomes harder to j1IICify die '"c:bidcen in
every pot" med10d favored by many
elected offI";llIl_- Ja ef&ct, ~ so
would violate die prerioualy ....~Iillh..d
1icies
S;o be !au; these principles em reacm-
ably be c:baracterized as fiscally prndem.
They reflect aD impJk:it assumption daat
the opendng sarpJuses.mar DOt l'ftIIt'inae
and cOuld be replaced by t'ftftditiOUI of
fiscal suess at some !aaue pohtt.
Otbas em ....f'fnlly upe !or different
princ:iples to n=fIecc Jac:aI ~~ powth
~nditions or ~ pnliti~l. 0Iienta-.
DOn. For example, III CJOlftml..,Ift- expen-
encing til"if;~nt'. ptpaladon increaes,
the resuhing rm=nue puwth will have
jasdfiable service "-and ~tioD,. In
aach cases, there ia aD UDdemandable
need for expanding ..-inning amunit-
ments from schooJs to public salay. Thus,
the fiscal po1k:ies aboa1d Il'l'rftIIIIftode~
dw form of reftIUIe powdl. IfOweveI; in
those cases, a I-..I.......an..g approadl
(e.g., po&:e Ae.~ lime or .."- per
~t would be ..........-1 as a mans
of decid"'g die lenl 01 OI1&1Oing commit-
mentL
AUocuing Surp1uscs
Wbar options are afti1ab1e to a11oa~
those e:a:ra doUanl NeedIea to say, most
ao..Mnm- will bae little pmbJem in
quiddy diaposing of thole RI01IftZS.
HoweftI; oar tbaia ia to have a pndetcr-
:mined piau (ad idaJIr eabIiIbed finan-
c:ia1 poUc:iest to guide adJor coaar.iq the
n:salting public poliq deba1e ad result-
iDs fiscal actionL Ccaaal to daat tbesia are
the following mnea.
. CraIe aD AdeqIua Geaenl Faad
B-1........ p..A-n,r die II.Uln~.I:n'1el
wisdom that all gaod tbinp III1IIt come
to an end, a logi&:a1 COIIIidetation for
budgetary surpluses 01' 0DHime windfall
revmua is die noe-n.,.n of aD adequate
reserve in the geaeral fmad. Many gov-
cmmeDIS already have CSfllIhli.....d a
ainy day fund or a ""tIZ smhili_tinn
fund" by 1epl1y seuing aside a desig-
nated amo1lllt or pec~ of die
otherwise UDI!'D.......baed, unreserved
balance in the general fund. Note that the
GAAP definition is utilized to avoid the
ambiguities associaPel wiIh the budgemry
bail as well as providiag an ~1I1
c:eni6....rion (cbrough die annual audit
process) of the lUD01IIlt so Mnl"eted At
iIIae would be what is '"adeqaatei"
Porauwely, ample ralcs of thumb,
pid..lin~ and bml'hlftllm ezist. Several
commOD rules of thumb 01' gpid..Ii"_
n=prding the general fund reserve are
rep(~ by: a) SOl' 10 pea:ar of
8IIDU811eft1lues, or b) cae or two
momba of spending. These urpt values
mf1ect DOt only c:oDveationa1 wisdom, but
both also have beeD codified to a certain
CXIeDt by bond razing 'IP"'"- (Note:.An
..,...-n-t justificadon and RSOUR:e can be
found in the GPOA\ pabJ;,."tinn An
ElM:tMl Offidal's GIIid6 to IWul BaJanu.)
Another approach is daat of
bendunarIdng. Por ......."'Ple, DIIIIlY stateS
require dw local goyernmcms file annual
Ieportl with a state apm:y. Those agen-
da often summarize die findiap or make
the raw data available (011 a CD-ROM or
diakcae). Alternatively, the GPOA\ PisCJZl
buJiaztof'$ DiItIIbau em be used to
calculate IJenrhmlllrlc ftlues!or an
appropriate re!ereace sample (e.g., the
ume general size of mnni~ within
die same Slate or general ngioa).
. Bay DowD 0uutandiDg Debr. There are
two general mabods far applying this
concept. Both reflect a CDIICIepC where
oagoing obligatioDl are mIm:ed, thereby
~ in greater faaue A-t'hiIUy.
These methods include the following.
1.~ PtIbIre IltnuWDMObIip-
..... Reflecting both the nauOJJlllJ
cIeIwe regarding the DIe of the na-
tional surplus-a well u the fiscal
zea1ity of the u.s. Treasury stopping
the sale of the long-cerm ~merk
3G-year bond--scare aDd local govern-
IIIaltI could emulate thae federal
praaices by reducing gnftI'!Iftdi"g
bonded debt. For e:amp1e, New York
Governor George Pacaki recattly
proposed using ur~ Slate
revenues to reduce the saue's debt
burden by increasing trIDICas into the
Debt Redw::tion Raeml Pand. .
1\vo general teclmiqaes exist:
. Open MJuket PurchtlSa. The govern-
ment could eagage in opea-markct
,....."l"riODl by buying down its
ouacmding debt in the ..-nnd,."Y
market. High inrerest rate debt
would arguably be the first priority.
Howevel; a second approach would
be to buy down previously refunded
debt which could otherwise DOt be
refunded due to Treasury prohibi-
tions regarding a second advance
refunding.
. EsCTOW Fund. The government could
establish an escrow fund, in mw:h
the same way is done in an advanced
refunding. 1he differeDce is that in
this case the funding soura: is the
excess revenues or windfall revenues.
Thus, unlike a uaditional advanced
refunding, there is no new debt
SCtVice to pay nor are there ubi-
uage-rebate rcsaic:tions to consuain
the invesunent strategy or instru-
ments. Li1ccwise, there are DO bond
issuance costI to incur. This fund
could be added to at any point in
time (e.g., on an annual basis utiliz-
ing tobacco settlement receipts).
Howevel; to avoid any futaie raids
on this fund, one recomm-dation is
to struaure it as an irrevocable trUSt,
analogous to a typical advanced
refunding suucmre. While invest-
ments should reflect the existing
invesanent policy, greater latitude
would ncmnally exist than in an
advanced refunding escrow (e.g., use
of zeros or snips). In panicular,
there is DO lep1 need to absolutely
match matUrities with debt service
data since a lep1 refunding and
defeasance baa DOt been effec:awed.
.z. RMhu:e P"'" Fwul Obliglllitnu. A
correspondent use to the bonded debt
buy-down is the redw:tion in another
major long-a:zm debt for most gav-
ernments-its unfunded pension .
benefit obligation (BPO). Many fiScal
experts consider this a tiddng time
bomb on the books of both state and
Ioca1 governments. Their view is that
while like bonded debt, pension
obligations are legally viewed as
general obligation debt, pensions are
often DOt mau:bP!d with a specific
funding source. For example, G.O.
bondS typic:aIly are paid through an
eumariccd property tax (or at least
the full faith and credit pledge to the
bondholdets). A number of gcm:m-
ments have recognized. the benefits of
reducing the unfunded BPO by selling
pension bonds (generally as taxable
bonds due to federal tax law restric-
tions). 1he anticipated benefits
include a faster payoff of the PBO on
the assumption that the pension
. . fund's professional JI10IIq managers
will earn a higher remm than the
interest cost of the peIIIion bonds.
1he roaring -bull J:JJadler>> of the
1990s has cenain1y foaad this financ-
ing tecbnique to be a -JuI
strategy. lhe proposed use of either
one-time windfall .."'...~. or excess
continuing surpluses is . variation on
the bonded debt theme. It seeks the
same resuIis without ~ing either
issuance COSts or lIDDII8l debt service
payments. Mon:over, these BPO _
payments can be made at any time and
at any leveL Not c:oi..,,",,--IIy. this
tecbnique also can be .- as part of a
colJeaive bargaining SIDIe&f by
foregoing often ~ hntllnn. and
czrtaioIy ongoing fundias requUe-
meors associated with wap iDaeases
with the beDdit of in~g the
funded level of the peDIiaa fund that
BVic:es the union's IIn......__
. Use Ema Raoan:es for CtpiIal Ptojeas.
Here again tbete are.two aaic:s for
impJf'lftf!lltiJlg this gcneraIlIl'aIegf~
1. ~ P~lWJlng. This
strategy ~ the u-di"nnll -one
time uses for one time 1DUraS"
approach to finllnee. As aew-Cound
revames are..ecetnd, GI' as ~
fund blll....~ have .......-.-I~ this
approach genaally re8eca the pzin-
ciple of avoiding ongoiac C""'""w-
mems. Thus, rather dIaD iaaeuiog
serrica by adding public u!ay
officers, im:reased senica could be
provided by capital ... acquisition.
Howeva; the nature'of tbose assetS
also should be CODtidmd because of
future maiotelWlCe ..~Pl'l_ As
an illustration, the ~ Park
Disrric:t-t. separate gDII""'m_1
stilT serving the citr of n,i~gr-
bas apeOefla:d a series of sabstamiaI
...~.&Iiog surpluses raaIdag in a fund
balance Well in eECSS of a:andard
guideJiaes and '-rh___ The
districn management da:ided to
-spead-ilown" a ponima of that .
balance through a one1ime capital
user acquisition by pnorIt-ang
additional green..pace ia rapidly
gentL4ying neigbborhoodl that a few
years ago were primar:ilJ empty
faaorr buildings. 1he II&W parlcland
was an alternative to lwoOLfing new
buildings in existing pub tbroughout
the city. The future mll~lInl'Jl!! cost
will be significantly 10WlI!I' OIl the new
green space than would lie aaoci;.ft!d
with new bride and mortar assets.
.z. InWst ;" CIpittIl AsrGs with p.",..
Siwinp PotMdIIL This appcoac:h is ~
corollary to the prior taaic of in- .
creasing pay-as-you-go funding of.
capital programs. Mindful that new
fa,-ilities will require additional future
Iftlli_lInl'f'!, the ~go Park
District also has used iJJa-t-1
capital dollats to fioanc:e a number of
eaergy-saviog projects in existing
&,-iliril'!!l ranging from new HVAC
systems to light swia:hes c:onuol1ed
by motion season.
. Offer Early ReriraneIII Bay-oaa. This
caca:ic is anaIogouI to previous sugges-
tions in that eECSS fund hallln~ or 0ne-
time soan:es are used to redw:e ongoing
operating expenses. Commonly cired
advamaga of these buy-outs iDdude a
reduaion in operating c:osa (both
salaries and fringes) aIoog with an
anticipated increase in prodw:dvity or
service level as older worbn are re-
placed with younger ones. ~1~IIdve1y,
one most be aware of the resulting loss
of experienced employees who often take
with than the institutional JDeDlO1'1
developed over many years. However;
other tradeoHs may result to the
goyeromem's beaeBr. Per eumple, if the
buy-ouc employees are in a ~noJogy-
oDenrM ala the IoIt ~onaI
memorr of a Cobol prograIDDUlI' is more
than of:&et by a repl-- who is
~,enaot in daIa base admioisaar:ion
or e-commerce applicu:ioos. FmaJly. the
early' retirement can have even loapr-
teml effects if the -bay-ouc" anployees
are part of a pJaaned redumofl in fcm:e.
. Ptmide Economic DeYclopmcat Iauza-
tives. Many budget or fioanc:e directon
coDSCUltly find themselves at odds with
their economic deveIopmeor .:GD01a-
parts who innriably want to give away
the ax base. The potemiaI impact often
goes beyond the i......Mia~ govemment.
Per eumple, wbm a ax iDaemem
fin""""g (m) district is used to atrract
a commercial eotity-wbose future taxes
are then used to pay off debt service on
TIP bonds issued to finance iofrurruc-
cure improvemem:s-cbe school district
will not receive its iocremema1 taxes for
up to 2S years. To foresa.Il such fiscal
impacts, either ongoing operating S1JI'o
pluses or a one-dme windfall could be
earmarlced to an Economic: DeRIopment
Fund. Subsequemly, those dol1ars could
be used for similar purposes that a TIF
bond would be issued for, without
JUNE 2000 · GOYEIlNMENJ' FlNANa REYIEY
9
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iDc:urriDg the isau81l't'I!! c:osa or e8rJD8rlc-
iDg fumre ~I taxes.
. Cue Taa adJor Pees. Invuiably the
laX cat proposal will be raised. nu.
proposal is a ~ iaae at the federal
IeYel surrounding the record surpluses
beiDg geaeraed by the !Joomireg
economy. New vuiaticms on the thane
uise n:pIarly. For -.mpte, in DIinois,
Wes wra are applied to motor fuel
sales in addition to a flat motor fuel laX
(on a .. gallon baaia). Tbe receDt
dramatic rise in fuel prices baa genena:d
equally dramatic inaeues in sales laX
collections on motor fuel saJei. M a
result, the Dlinois SenaIe nn.nimously
approved a bill to "';minllce motor fuel
&om the sales laX base, a laX that baa
been on the boob for many years.
Needless to say, dlat same legislative
body adopIed DO CD1I in service ~ a
-rainy day fnnd- proposal that baa been
around for many years. Tbe obvious fear
. is that today's tax ~ by wind-
fall revenues--will become romorraw's
tax increase. Accmdingly, the bndget or
finance din:ctor should take cbuge
before such a proposal tabs on a life of
ill own. Thus, if a tax cat is going to
happen, it should be strw:mred in such a
fashion to easily permit a reversion to
the statui quo without the dreaded
fnmre tax vote. Alaska offers one illus-
tration of an approach that it baa used
for many years. Each year the state sends
10 Jum2000. GoVERNMENfFINANCERmEw
a rebate c:beck to d ia resi"- based
upon exa:ss reftDIICS coll--l from
petroleum Wa. Similar approaches have
been used by local gov-nm~n- e g
Ck....twOOC!, D1inois, IIlDt cbecb to '
houu:ownen based upon wind!all rev-
enues generated by a ax on an off aadt
betting esmhlw.- 1oc:aecl within the
CIOIJUI1UIIitT. Ia I1I1II, if a tax' cat is ineri-
1able, it should idally be .---trheci-
with the soua:e of the cat so a quid-pro-
quo relatiOlllbip aisa, as in Alaska.
. iiu:reacd Semces. SimiJar to a tax cut,
it is inevitable that eIeca:d offi,.;.I. will
find many ""poll- to fill with their
newfound -,.hLolr_,- ~ DOled eulia; a
moDg ~ sbauld be made for
one-t:ime Sp-&"S tapial pIOIDDII are
probably the eaieIt seII-ratber than
ongoing C""""~ Tbe -flypaper
~ is a well-bown pbenftlll-._ in
public finance whem employas !Wed
using one-time soaa::es (lib a pant) tend
to -scick amand- when the pant ends.
For example, IDlUIJ' ~nitU!ll that
n;CCived fedaaI grma to hire .d~mnrlJll
police officas scweral yeaa qo, are now
ICIUr)'ins around to balance their bad-
pIS II those multi-year gana are soon
to end. .
The options .~M above have been
udlized by a DUIIIber of scare govenunems
ill receDt years. Exhibit 1 __n- by
snrvey resuks dawn from a receDt
NASBO sarver.
511mmsary
OpecaciDg S1Upiu.ICII and windfall J:eve-
aues are seen II a bJcaing by badpc and
f!nanc:e dim:ma DOIIII8ily coaditiftlUlJJd to
4iealing with fiIcal..... But lib
bles-i.,p, there is a hiIMJIJI1 :::ii:
1bis anicle {)tOpC*I a .
approach that beaina by aahll.hing
prindpla to guide fia:al ~ aaoci-
au:d with such A......ceL Those prim:iples
are ideally ftV"""T- with pniously
adopced and farmal finMu:ial polida.
Working from dUa Coaad"';"", a saies of
~ Ij~ haft been ;d-.ftftt'!d to
aIlocare these ..... ;.r II a JDODeT
IJlI'Inllp would, baed upon the plUlosophy
that cominWng beaefiIIlbould be gena"
au:d rather than i~g ongoing biDs. a
JaN,w) D. PlaIa, l'ILD.. CPA. is. rror-of
~lIlJ .r;..,,,,,. a-c.",.. U......., of llIbIt* ill
crn.:.,.,. H. is.. ,........,tIIIIIDlf4 'lbpoiIa.
w_ d>Co.. LtIL_t-~(or.. City.
ofChialJo.
A comprehenBiDe
. ooercieuJ of
the flUblic-sector
ifrDestmentJurwtian! -. \
~,~
second edition'
T Ids newly ~ ed1tlon of the
classic Govermnent FfDance Officers
Assocf:atlon's ten on investfDg now
., Offers the most complete and
. ~te information available.
~..
~ ntten'to meet the needs of both
and experienced
professionals, lncesting Public
is a survey ofbaslC investment
concepts and practices, and Is fully
l1Iustrated with more than 90 exhibits.
TO ORDER:
Q)pies of I.wating PuI6 Frmds
. De availIb1e ._.dI_1P{y &om
GovemmeDt Fbumce OfBcerl Association
i ' ., AttD: PubJlcatioM DIstribudon
Jj~18O N. MlcbJgm Ave., Suire 800
P. Cb1cago, IL60601-7476
Telephone: 312J977-97oo
. fa: 3121911-4806
E-mail: PubUcadonOnieIs@&foa.or&
f: .
Irreesting Public Funds
~{ .' .:"y' .xmd edition
:.~i ,written by Glranl YlIler
with M. eoiiane Lanon and \v. Paul ZOm
i j :~i\ IOftcover, 399 pages
~j .~ 'U9.95forGFOAmembers
~1 / ;.J '79.95 forn~Pmhers
I~-/ &14.95 forstudents
(J'()VERNMENT FINAXCE
OFFICERS ASSOCIATION