Audit shows Carroll’s financial health rapidly declining

By Allen Worrell -

With expenditures increasing at a higher rate than revenues and the fund balance on a steady decline, Carroll County’s auditor said it’s time for the locality to start addressing its financial health.

Gordon Jones, a CPA with the Robinson, Farmer, Cox Associates firm that audits the county’s finances, shared the news with the Carroll County Board of Supervisors on Feb. 13. Jones began by talking about the county’s general fund summary for five fiscal years (2012-2016). For 2016, the county’s total general fund revenues were a little over $39 million, a figure that has been increasing at 1.3 percent per year.

“Total expenditures are about $42.2 million, increasing at about 4.3 percent,” Jones said. “You can see that your expenditures are increasing greater than your revenues.”

Jones noted the county’s contribution to education, its yearly funding total to the Carroll County School Board, has been increasing at about 10 percent per year. Public safety funding has been increasing by about 9 percent per year, while debt service payments have increased by about 5 percent per year. Additionally, Jones noted Carroll made the first $1.5 million principal payment in 2016 on the Qualified School Construction Bond for the renovations of Carroll County’s high school and middle school. That has a “pretty large impact” on the county’s fund balance this year, Jones said. Prior to 2016, Carroll had just been paying interest on the bonds while also receiving a subsidy from the government.

“Up to this point those bonds have cost the county basically nothing, but now you are paying back about $1.5 million in principal per year. Overall the general fund balance decreased by about $2.68 million. You can see that over that five-year period the fund balance decreased almost every year,” Jones said. “I’m not sure that is something you can sustain for very long. If it was not addressed in the 2017 budget, it would probably need to be addressed in the 2018 budget.”

At the beginning of the five-year study, Jones said Carroll County started with $12.5 million in fund balance, but ended in 2016 with $9.8 million. Cash in the general fund as of June 30, 2016, the end of the fiscal year, was approximately $5.2 million.

“Some might ask which one is the true number. You have $9.8 million and $5.2 million. Probably the number $5.2 million is closer. It is somewhere in the middle but it is not as high as $9.8 million and not as low as $5.2 million,” Jones said. “There are some receivables that come from the school that more than likely won’t be requested from the school so that would decrease that fund balance down closer to the cash balance.”

Carroll County Board of Supervisors’ Chairman Bob Martin said the county is very aware of its declining fund balance, so it has a “pretty tight job” ahead this year. Counting school board expenditures, Jones said Carroll’s total operating expenditures are about $73.2 million.

“Your fund balance as a percentage of that is about 13.3 percent and the cash balance is 7.1 percent,” Jones said. “You can see those numbers, the fund balance is about half of what it was in 2012, the cash balance about a third of what it was in 2012, so that will need to be fixed.”

Jones said over the past five years, property taxes have accounted for about 51 percent of Carroll’s general fund revenue. On the expenditure side, education has increased from 23 percent in 2012 to 29 percent in 2016, while public safety has gone up from 18 percent to 22 percent during the same time period. Assistant County Administrator Nikki Cannon noted the 29 percent figure for school funding did not include debt service attributable to the school system.

“I looked at the school board, that is a pretty large increase for the school board expenditures -$40.8 million in 2012, and in 2016 it was about $42.5 million,” Jones said. “State and federal funding in 2012 accounted for about 74 percent of the total budget of schools, in 2016 it is about 68 percent. In 2012 the local portion was 26 percent and in 2016 it was 31.5 percent. So you can see there’s been a shift from state and federal funds to local funds to the school budget.”

Martin said that’s not a surprise when you consider the mandates that “keep getting passed around but always go down.” Jones acknowledged Martin’s statement, adding that 2012 was near the end of the federal recovery money that was sent to school systems.

Looking at revenues, Jones said Carroll’s most significant ones are relatively flat. There was a slight bump for personal property taxes, but overall the major revenues that account for the general fund are mostly flat.

“And if you look at expenditures you will mostly see increases over the five-year period,” he said. “Community and economic development is about the only one that’s decreasing.”

Jones added that during the five-year period, Carroll’s general debt decreased from $47.2 million to $44.7 million. The school board’s debt, which is mostly net penchant liability, is at about $38.4 million.

“So the total debt of the county, including the school board, is a little over $83 million,” Jones said. “With a population of about 30,000, debt per capita is $2,764 compared to the state average of about $3,300. So the county is well below that number.”

Martin asked if that meant Carroll’s total debt compared to ratio of citizens was better than the state average. Jones said yes, although some citizens have pointed out that the ability of Carroll County citizens to pay may differ from the ability of a citizen in Northern Virginia.

“I think compliance-wise the county is in good shape. The numbers are probably not looking so hot,” Jones said. “I’m sure you will address that going forward.”

Supervisor Rex Hill said Carroll has a fund balance policy, which he asked Jones to review. Cannon noted the county is not currently in line with that policy.

“That is pretty safe to assume,” Jones said.

“Our biggest concern is getting our cash fund balance back up and we are working on that,” Martin responded to conclude the discussion.

Allen Worrell can be reached at (276) 779-4062 or on Twitter@AWorrellTCN

By Allen Worrell