LENOIR — An annual audit that called for a significantly higher fund balance led to some harsh words.

During Monday night’s (Jan. 10) Caldwell County Board of Commissioners meeting a heated discussion followed an audit report. Jill Lang, an auditor from Martin Starnes and Associates, presented the annual comprehensive financial report. The report was overall positive; however, several commissioners took issue with one aspect of the report, which details the fund balance available threshold that the Local Government Commission (LGC) recommends the county meet.

The state requires a minimum fund balance of 8%. Currently, Caldwell County has a fund balance of 12.12%, but according to Lang, the LGC changed its recommended minimum to 20% within the past year. Therefore, the county is asked to increase its fund balance by nearly 8%.

Commissioner Donnie Potter was the first to voice his displeasure, saying that the lack of communication between the county and the auditors was “extremely disappointing.”

“Personally, that’s unacceptable,” he said. “It makes me want to go and search for another audit team.”

Chairman Randy Church agreed.

“I think we’ve been very fiscally responsible with our fund balance and the things that we have done in the past to maintain those fund balances as required,” Church said. “That’s a pretty big jump to move from an 8% requirement to a 20% in one year and expect us to have it on a whim, if you will.”

County Manager Donald Duncan spoke more positively about the work of county financial officials.

“You had actually budgeted to spend quite a bit of fund balance, and you returned $1.5 [million] so that’s actually quite amazing,” Duncan said. “So your staff is doing an excellent job trying to get there and push that number up, given the circumstances of a dynamic economy.”

Vice Chairman Mike Labrose spoke of his commitment to the county and residents in the community.

“I’ve been on the commission board for 12 years now,” he said, “and we’ve never had a fund balance of the liking what the state is requiring...the county needs operation funds to operate the county, the schools, the community college, the EMS, the sheriff’s department, and animal control, you name it, and we do a fantastic job doing that. And I applaud all our county employees and department heads for a job well done...if we have to call Dale Folwell himself, the treasurer, and make our complaints, we will, because our county has always met the need and will continue to meet the need.”

Labrose added, “We have a strong team in our finance department, and we’re not going to burden our taxpayers any more than what we have to, and it’s enough, they get burdened enough.”

According to the county’s Chief Financial Officer Tony Helton, in order to raise the $6.4 million in reserve funds that would put the county’s fund balance at 20% in just one year, taxes would have to increase ten cents. However, it is his opinion that the board has no intention of raising taxes in order to meet this threshold requirement. In fact, he believes that the LGC would also not recommend or require a raise in tax rates.

“We have to write a letter explaining our condition and plan,” he said.

According to the auditor’s report, “Caldwell County continues to maintain a sound financial condition.” The county currently has $0 in total bonded debt and no outstanding revenue bonds. Several projects have been funded and are currently in the process of completion, including the construction of a new Granite Falls Middle School. The county was awarded a state grant of $15 million from the Education Lottery and borrowed an additional $12.3 million for this project. The project, when completed, will replace portions of the school that are over 100 years old and provide a much more modern and effective learning environment.

As of the end of the current fiscal year, Caldwell County’s governmental funds reported combined ending fund balances of $29.7 million, an increase of about $930,000 from last year. The General Fund is the primary operating fund of Caldwell County. The total fund balance of Caldwell County’s General Fund increased by $1.9 million during the current fiscal year. This was primarily due to increased grant funding the county received as well as greater than anticipated sales tax collections. The county’s fund balance available, using the calculation method suggested by the Local Government Commission of North Carolina, equaled $9.9 million, or 12.12%, of expenditures.

“Fund balance is basically our reserve account,” said Helton. “Fund balance percentage is how much you have in reserve divided by how much we spent.”

The fund balance available is an important reserve for local governments to provide cash flow during periods of declining revenues and to be used for emergencies and unforeseen expenditures, according to nctreasurer.com.

“In the past, units of governments have been grouped by population to evaluate various ratios and benchmarking. This year, the Local Government Commission has also grouped units by expenditures, which they say is a more effective comparison for some of the ratios,” Lang said during her presentation. “One of the ratios that the LGC looks at is the available fund balance divided by net expenditures. The LGC has a minimum threshold for this percentage, and it is 20% for units with general fund expenditures below $100 million, which is a new benchmark that they have set this year. In 2020, the county’s percentage was at 12.12%, and so based on that, the county did not meet LGC’s minimum threshold and so they are requesting that the unit respond back to the LGC within 60 days.”

According to Duncan, the reason for the change in the standard was due to the economic conditions within other counties.

“There are other counties and municipalities in financial hardship, [the LGC] want to make sure they are living up to higher standards,” he said. “This new standard is not law, the law is 8%, new standard is just a higher regulation.”

During Lang’s presentation, Potter asked her, “How long has Martin Starnes known about this?”

“I’ve known when I sent the email as part of review on the financial statements, the data input sheet is included in the review,” Lang replied.

When questioned further about why there was no follow-up from Martin Starnes after receiving no response from the Board, Lang said, “I got a response that said the financial statements were good because the financial statements, the debt input sheet, they were all together, it was part of the final review to say that the financial statements were in agreeance and complete and agreed.”

There are many ways the county budget can meet this new standard besides raising taxes.

“I don’t think the commissioners want to do that,” said Duncan. “[Instead], establish more reserves. They changed the way it is calculated, we would change the way we budget. It’s not a magic bullet of raising taxes, its not just about revenue, its also about expenses and savings.”

Lang ended her presentation on a positive note by describing the other general performance indicators that the LGC looks at for each county.

“They look at timely audit submissions, which the county has,” she said. “The county also has stable property tax valuation collection percentage, and the county also met the water operating net income and cash expense ratios.”

Despite the board’s protestations, the financial situation in Caldwell County appears strong and stable, based on the auditor’s findings.

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