Rick Boettger Columns
Sunday, December 6, 2009
It's in the bank

By Rick Boettger Special to The Citizen

Ihave discovered some tremendous good news. At every level of government I have analyzed so far, past fiscal conservatism has left them in extremely strong financial positions. I will be working hard to convince them to use a relatively small amount of the money they have saved up in the past to help us now, when we need it most.

To convince them, I first have to convince you, gentle reader, and unfortunately, I have to start by patiently explaining the basics of the Monroe County budget.

Hey! Don't stop reading! It's actually very dramatic. Yes, high drama in that, by the latest audited report, we had more than a quarter of a billion dollars earning only 3.5 percent interest, while we were paying 4.93 percent interest on the $93 million we have borrowed.

And since then, interest rates we earn have plummeted. That means we could save almost a million dollars a year just by paying down our most expensive loan with some of the $25 million in money market funds earning less than half of one percent -- a million dollars that could keep our libraries open or pay out some overdue raises without raising our taxes a dime. And that is just the tip of the iceberg.

This is not a story of financial scandal, I am pleased to say; this is a story about an intense, difficult, hear-all-sides discussion we must have with the public servants managing our money on our behalf.

I expect impassioned arguments throughout the long summer budget process, and I want to explain enough of the issues at stake for you to form your own opinion of how you want our county government to manage our money.

The crux of the debate is how much extra money the county should keep in each of its "funds" above and beyond what it actually plans to spend each year. These 60-plus different funds may seem confusing at first glance, but they're not. Compare it to an individual who has retirement and college tuition funds and a health savings account. For each fund you know how much you want to have in it, where the money is coming from, and when and how it will be spent.

That's what the county budget does, with different funds for law enforcement, roads, fire and ambulance, and the like. For each, they detail exactly what they are spending on, and where the money is coming from.

The part I want to argue with them about is the extra money in each account they call the "cash balance" and "reserve." For an individual, it would be as though for your $20,000 annual rent and utility bills you felt you had to earn and budget to your account, $26,000 -- $20,000 for the actual bills, $4,000 of a "cash balance" for uneven income (say you work on commission) and $2,000 on "reserve" for rainy-day emergencies.

That would be nice if you could do it, and the county does: They are currently budgeting an extra $41.9 million of this extra money out of a total budget of $327 million. It is as though, for a family earning $100,000, you decided you would not spend $12,800 of it -- and this means above and beyond your rent, groceries, IRA, taxes, medical insurance, and every other part of your budget.

If you want to do that with your money, hey, it's a free country. But the county has been doing that with our money, in the midst of the Great Recession, and I say, let's talk this over.

Their argument in brief is that what they're holding is legal, and we need it for hurricanes and lower interest rates on our borrowed money. Yes, it is legal, but the 10 percent and 20 percent numbers are the absolute most allowed by Florida law. By comparison, statutes require only 3 percent for school district budgets, and even that is more of a recommendation. So the 10 percent and 20 percent numbers are meant to limit counties from in effect "hoarding" too much money, which is what the Wall Street Journal calls it, as corporations have increased their cash holdings recently.

As for our bonds, all our holdings say, "Reserve requirement: None." In the analysis the county had their investment advisers prepare to show how bigger reserves help our bond ratings, the advisers first note it is only part of the fourth of four major considerations, a contributor to "sound management." And they quote Standard & Poor: "It is important to keep in mind that the use of budget stabilization reserves is not in and of itself a credit weakness. The reserves are clearly in place to be used." S&P doesn't even mention general reserves in our 2007 rating.

Their No. 1 consideration for bond ratings is the economy of the county. While the federal government is doing everything it can to stimulate the economy and create new jobs, the banks won't lend, corporations "stash cash," and our state and local governments are proudly increasing their reserves. What most helps our "economy" is money flowing around in it. The county can help its own citizens' economy best by letting some of the quarter billion dollars in three local banks flow back into our hands.

Yes, many of the accounts are seemingly restricted. But, for example, Fund 304 for infrastructure spent $3 million on the Hickory House. Right now that $22 million fund has $3.9 million in extra money. Over the summer, I want to debate, fund by fund, how much actually has to be kept for uneven income flows and emergencies. I want to study what actually happened to our cash flows in past hurricanes, and what our local and national options are in future ones.

Alcoa recently cut its dividend and fired 15,000 people while adding a quarter billion dollars to its cash reserve for "peace of mind." Its chief financial officer said, "They'd have to beat me over the head to get it out of my hands."

There is not a word in the county's audited report of concern for the economy of its citizens. They want peace of mind for themselves. But the reserves are there for a "rainy day," and it's pouring out.

It is up to us to convince them to rebalance their care for their own budgetary cushion with the need to help the citizens they serve. Support our commissioners in their negotiations with county staff. Ultimately, what is good for our own budgets will help theirs as well.

Rick Boettger was a business professor before writing his book and hosting a 25-state talk radio show on political economics. He has done tax and financial advising in Key West since retiring here in 1996. Questions, information and differing opinions are welcome at rd.boettger@gmail.com.