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Part 1 of a series

GATESVILLE – Gates County officials are working on plans to plug holes in the county’s financial coffers.

At their recent meeting held here, the county commissioners gained information on a pair of problematic financial items: one that the county’s Fund Balance was down by almost $2.5 million over the course of two budget cycles, and that the current year budget (FY 2019-20) needs to fill a financial void in excess of $600,000.

As to the first matter at hand, the county received a letter dated Aug. 2 from the North Carolina Local Government Commission (LGC). In that letter, Sharon Edmundson, a CPA, addressed several deficiencies, the most glaring of which was the county’s available Fund Balance stood at $1.39 million as of June 30, 2018. That represents a $2.45 million decrease from June 30, 2016. The majority of the money moved from the county’s fund balance came during FY 2017-18.

“Such a steep decrease is excessive and unsustainable,” Edmundson wrote in her letter to the county.

She further noted that statewide, the average fund balance available for smaller counties such as Gates is 31.7% of their total General Fund expenditures. Gates County’s percentage stood at a mere 10.5 at the end of FY 17-18. It was over 33% as of June 30, 2016.

Additionally, Edmundson’s letter scolded Gates officials for overspending its budget.

“Both expenditures and transfers out exceeded the amounts authorized by the budget ordinance, indicating that the unit’s pre-audit process is not functioning properly,” she wrote.

The letter also mentioned that “actual revenues in the General Fund were significantly less than estimated revenues. Sales taxes and charges for services were under realized by $521,473 and $230,079, respectively.”

Edmundson attended the Oct. 2 commissioners meeting where she further addressed the matter. She preceded her main comments by thanking Natalie Rountree (Gates County Manager) and Kim Outland (the county’s Finance Director) for working closely with her to find solutions to the issues at hand. But still, Edmundson was stern in her comments.

“You cannot afford another two million dollar drop; you do not have a lot of cash on hand should an emergency arise,” she told the commissioners.”

Edmundson told the board that in order to deal with the fund balance dilemma, budget cuts were a start.

“You can cut every department, nobody if off-limits, to include the school system,” she said. “You can cut them unequally, meaning you do not have to cut them by the same percentage.”

She warned the commissioners and county manager not to transfer Enterprise Funds (user fees from water/sewer customers) to the General Fund in an effort to balance the latter.

“It’s not illegal (to transfer those funds), but it is frowned upon,” Edmundson stressed. “It will disqualify you from receiving state grants for enterprise purposes. I would encourage you not to do that; it’s not a good business practice.”

Edmundson noted that the LGC does not expect to see Gates County return to a 33 percent fund balance level by this year or even next year.

“It will take you some time to rebuild it,” she said. “We want to see some progress, see your fund balance make some gains. We’re available to offer recommendations on how you can do that.”

Even though Edmundson stated that the county’s “cash position is not very good,” she stopped short of calling it a “dangerous level.”

“We don’t want it to go there (danger level),” she remarked. “We want to see you reverse this trend.”

In offering an explanation in reference to the decline in the fund balance, the county responded earlier to the LGC by way of a letter dated Aug. 29.

“While the money was used to fund a variety of non- recurring projects, a substantial amount of funding was transferred to the Waste Water Project,” the response letter stated.

The letter noted that Gates County began a wastewater project in 2012 which was divided into two phases. Construction on the new spray field, phase two, was approved and let in January 2018. Reimbursable grants were received from Golden Leaf ($200,000), Rural Center ($700,000), and EDA ($900,000).

“The grants would reimburse the county only at certain levels of completion,” the letter stated. “In order to pay invoices, the county had to move money from General Fund fund balance, as well as the Water Enterprise Fund

Balance, then wait until the 25% completion point to submit for reimbursement. When the project is completed in FY20, money will be reimbursed to the General Fund fund balance and Water Enterprise Fund Balance.”

Roanoke-Chowan Publications requested and acquired from the county manager a list of approved budget amendments from both FY 2016-17 and FY 2017-18. The larger drawdowns from the county’s fund balance during those two fiscal years (the majority coming in FY 17-18) are:

July 6, 2016: $22,000 for capital outlay for the Animal Shelter building;

June 27, 2017: $275,000 for roof replacement on the new courthouse;

July 6, 2017: $123,372 for restorations to the old courthouse;

July 14, 2017: $36,000 to cover the cost of data conversion from Keystone to Bi-tek;

Aug. 21, 2017: $32,513 to cover compensation paid to four county employees;

Jan. 30, 2018: $60,000 to correct an entry on the Tax Refunds worksheet that was listed as a credit rather than a debit;

Feb. 23, 2018: $123,372 for restorations to the old courthouse;

March 27, 2018: $35,000 to replace a 20-ton HVAC unit at the county’s public library;

April 17, 2018: $963,120 to cover a shortfall in the budget for the Waste Water Facility.

June 18, 2018: $135,000 to cover a shortfall in the Solid Waste Fund; and

June 22, 2018: $15,000 to cover a shortfall in the Historic Courthouse Project.

With the falling fund balance plus the current problem with the FY 2019-20 budget that left the county scrambling to fill a $625,127 hole, Commissioner Jack Owens said this is not a, “one-time fix.”

“We already know we will have a shortfall next year,” Owens said. “We are facing a pretty rough situation, so we are appreciative of any recommendations the LGC can give us to address this.”

“We’ll be happy to look at your budget in detail and offer recommendations,” Edmundson replied. “We can make recommendations, but ya’ll will be the ones to do what’s in the best interest of Gates County.”

Commissioner Henry Jordan stated the county had to use its fund balance to pay for some of the overestimates from the county’s wastewater project.

“We inherited a wastewater system from the state (used at a now closed state prison that also served the county’s high school and middle school) that was failing,” Owens noted. “When we obtained it, we had to do something because its capacity was very low. That’s where this snowball (financially) started. We had to purchase new land for a sprayfield and things of that nature.”

“We did get some grants (for the wastewater project), but we had to pay upfront and now we’re being reimbursed with some of that grant money,” said Commission chairwoman Linda Hofler.

Hofler added that between the money expended for the wastewater project as well as the Central Middle School renovation, there would be, “a few tight years (financially).”

Edmundson again noted that the LGC does not expect the county to recover quickly from these hits on their bottom line.

“It may be a case where you just have to grind it out for a couple of years to resolve your issues,” she said. “We will work with Natalie and Kim to maximize your revenues and look for ways to lower your expenditures.”

Upcoming story: Addressing the $625,127 shortfall in the FY 2019-20 county budget.