As a professional governmental accountant with more than 36 years of experience, I was greatly intrigued by all of the claims made by Chairman Paul Oddo in his letter to the editor that appeared in The Citizen Aug. 19. Since they seemed almost “too good” to be true, I decided to research the facts based on the financial statements and budget information that is available on the county’s own website.
As Paul Harvey, the news commentator, used to say, “Now for the rest of the story.” Chairman Oddo begins his letter by saying that the budget has been balanced for various fiscal years with “no deficit spending.” Governmental accounting textbooks define “deficit spending” as “the amount by which a government’s spending exceeds its income during a particular period.”
When the former budget director for Fulton County, Steve Rapson, was hired by the county, he apparently brought with him the definitions of revenues and appropriations that he used there. It would seem that Mr. Rapson doesn’t consider the tax monies that are used to purchase capital items as being part of appropriations.
The numbers quoted by Chairman Oddo reflect this terminology which gives the citizens the wrong impression about the County’s finances. If one looks at page 17 of the budget document for the 2015 fiscal year budget, you will see that $7,995,057 in transfers were not included in the budget resolution that was adopted by the Board in June of 2015.
And the “real budget results” for the General Fund appears on page 18 which shows a net DECREASE in fund balance of $5,097,151 for the 2015 fiscal year. And based on the budget information available on the Carl Vinson Institute of Government website, there was another $3.1 million shortfall budgeted for the 2016 fiscal year. For purposes of clarity, I would suggest that the chairman include his own definition of “deficit spending” in his next letter.
Having also been a performance auditor in the past, I always try to look at how efficient a government is operating as well. It would seem that the budget is also being “balanced” by not performing some of the essential maintenance activities.
If one looks at page 143 of the County’s FY 2014 financial statements, it will show that only 14.1 and 12.9 miles of road resurfacing were performed in FY 2013 and 2014, respectively. With about 530 miles of county-maintained roads, that means we can expect our streets to be resurfaced about every 38 to 40 years.
I wasn’t sure what precipitated Chairman Oddo’s comment about the “sky falling” so I took a look at the results of operations stated in the county’s financial statements for fiscal year 2014 which is the most recent one available. On page 28 of that document, it shows that Fayette County’s Governmental Activities from a business perspective lost $9,345,922 and $2,980,399, for fiscal years 2013 and 2014, respectively.
I am not sure why Chairman Oddo feels so good about operating losses of more than $12.3 million for those two fiscal years. Or just maybe his staff has told him how bad things are going to look when the 2015 fiscal year financial statements are finally released in December.
Chairman Oddo touts the county’s AAA bond rating. However, he leaves out a couple of important facts to consider. The bond rating to which he refers was given to the Facilities Authority revenue bonds that were refunded in March of 2011 by a previous board.
The primary reason for the excellent rating is that during the refunding process, the underlying collateral (i.e., revenue stream to pay off the debt) for the bonds was changed from a lease arrangement on the Justice Complex to a pledge of the full faith and credit of the county’s taxpayers.
In determining the ratings on revenue bonds, the rating agencies look at the risk of default. In this case, the county’s ability to tax is considered less risky than water user fees. As a result, the Water Revenue bonds that the county issued have a AA2 rating, which Chairman Oddo forgot to mention.
Lastly, the chairman refers to a “$7.5 million overfunded retirement plan.” As an accountant, I find the statement to be very misleading for the common citizen and needs the proper context. The amount to which the commissioner is referring is actually the difference between the “value of the plan assets” and the “accrued liability determined by the actuary.”
If you refer to page 97 of the FY 2015 financial statements, you will see that the previous board was the one that was actually responsible for making the plan fiscally sound. In fact, the amount decreased by about $2.3 million when this board decided not to fund the pension plan in the FY 2013 budget.
But more importantly from a citizen’s viewpoint, one needs to understand how the accrued liability amount was determined by the actuary. This long-term calculation is based on a number of economic and operating assumptions.
For example, the plan assets must earn 7.5 percent interest, compounded annually, for the next 50 to 60 years. In addition, the actuary in arriving at future pension costs looks at turnover rates which have been extremely high for the last several years. So if any of the assumptions are not accurate, then the amount to which the chairman is referring is not reliable.
I hope that I have done a respectable imitation of Paul Harvey and now the citizens of Fayette County know the “rest of the story”.
Emory L. McHugh, III
Former Assistant CFO and Finance Director for Fayette County, Georgia
Fayetteville, Ga.
