Tavares, FL - Thursday, Oct. 10, 2013 11pm
Not long ago, if my memory is accurate, the Lake County
Board had a policy to maintain a 10% reserve of their budget (my details should
be confirmed) for emergencies like hurricanes, etc. Then Board member Jimmy Conner pushed them to
move the reserve to 15%. However, in
the last year, as revenues fell off, the Sheriff and some other Constitutional
officers also refused to cut their
budgets 6% like other Lake County Departments.
In reaction, the County Board not only dropped some programs, including
the controversial Lynx routes 55 & 204 (now partially re-instated), and laid
some employees off (or did not fill vacancies), they also reduced the budget
reserve policy to 7-12%, but they planned 7% for the new budget year
2013-2014. That is a huge drop.
The result is that according to this article, the Fitch bond rating service reduced one of their bond ratings to “negative”, which could result in higher interest rates. I have no idea how bond investors will react to a "negative" ranking, even though the bonds are still AA- and not lower (see chart below).
I expect the County Board and County Manager to answer this tomorrow, or at the next meeting in 1-2 weeks and we will report more. They should be able to calculate whether the change in ratings will affect interest rates and the added cost, if any. Being rated as “Negative” is not a good thing.
Read the entire article for a full picture of Fitch’s decision. I don’t know if this will affect other Lake County bond issues, including some pending CRA activities.
The article did describe several positive issues related to Lake County, but the reduction in reserves was enough for them to reduce the rating of $81-million in AA- “capital improvement bonds” (i.e. used for construction of that expensive new Judicial Center and other projects) to negative from stable.
Here is an extract of the article:
“The county operating property tax rate was maintained at 4.73 mills for fiscal years 2011 through 2014. Spending cuts continued in fiscal years 2013 and 2014, including freezing vacant positions in both years and 6% across the board cuts in fiscal year 2014. Despite this, additional resources were needed. The county has opted to draw down reserves rather than increase the property tax rate. However, absent economic improvement bolstering revenues, expenditure cuts, which are now more limited in capacity after recent reductions, may not be enough to achieve budget balance and maintain adequate reserve levels.
The unrestricted general fund ending balance for fiscal year 2012 was $32.7 million or 27.1% of spending. Current estimates for fiscal year 2013 shows a total general fund ending balance at about $19.3 million or 16.3% of spending, which decreases to about $8.8 million or about 7.7% based on fiscal year 2014 budgeted figures. Fitch believes budget projections reflect some conservatism, given a trend of actual budget results outperforming budgeted expectations. However, they indicate a significant continuing imbalance leading to a major draw-down of fund balance.
Fitch's concern is heightened due to the county's recently revised reserve policy, which allows for much lower ending balances. The prior reserve policy set the minimum fund balance at 15%, a level that the county had historically exceeded. The current policy, revised in 2012, sets a targeted fund balance range of 7% to 12% of the operating budget. “
Vance
Vance Jochim
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