No Fiscal Shell Game Here

Readers write

April 14, 1991

From: James M. Jewell

Harford County Treasurer

Bel Air

I have reviewed Harford County Council President Jeffrey D. Wilson's letter, published in The Harford County Sun March 31, and offer the following comments. These comments are necessary to clarify several misconceptions in the letter to provide a clear understanding of accepted governmental accounting procedures and practices.

Harford County is experiencing the impact of the economic recession. These difficult times require sound financial management and planning. The Rehrmann administration has prepared, with the upcoming budget, a five-year financial plan intended to put Harford County on strong footing to take advantage of the better economic times sure to come.

An integral part of that plan is a healthy credit rating and strong financial standing within the economic community. A good rating not only saves dollars on interest when bonds are issued, but servesas a benchmark for the general economic health of the county.

Harford County currently has a good rating from the recognized rating agencies. But in an economic downturn, these agencies take a closer look at government finances. A major requirement for that healthy ratingis to maintain a 5 percent operating fund balance.

In the Comprehensive Annual Financial Report date June 30, 1990 (Annual Audit FY 90), the general fund reflects a fund balance of $18 million. Subsequently, $16.5 million of this fund balance was designated for fiscal year 1991 as a revenue source. The remaining $1.5 million was shown on undesignated fund balance. This amount is still carried on the books of Harford County government as a projected FY 1991 year-end fund balance. With current revenue in decline, the actual amount is expected to be only $400,000.

Fund balances are not illegal to carry year toyear on the county's accounting records. There is no law that statesthat all revenue or carry-over fund balances must be expended year to year.

County charter section 503a states: "The County budget shall consist of the current expense budget, the capital budget and capital program, and the budget message. It shall represent a complete financial plan for the County reflecting all receipts and disbursementsfrom all sources, including all revenues, all expenditures, and thesurplus or deficit in the general fund and all special funds of the County government."

Section 503a states that the financial plan will include receipts, expenditures, surplus or deficit to be documented within the budget. There is no mention within this charter section that a surplus fund balance must be applied to a subsequent fiscal budget. Maintenance of a fund balance is in keeping with charter provisions.

During the boom years of the past, Harford County did not concern itself with a fund balance because extraordinary revenue growth during the past several years resulted in year-end surpluses that were then used as revenue into the following budget year.

The council president's letter also seems to indicate that a fund balance can be equated to a "slush fund." This legally cannot be so in that any expenditures from a fund balance requires legislative action from boththe administration and the County Council. Checks and balances builtinto our system of government work to prevent anyone from maintaining such accounts.

As stated in Wilson's letter, there is indeed a provision in the charter for a spending account within the budget entitled "contingency reserve." This account is actually a line item in expenditure account within the budget, whereby an amount of undesignated money can be placed and is not to exceed 3 percent of the general fund.

There is a major difference between a balance sheet account (fund balance) and an expenditure account (contingency reserve). Money budgeted to be spent must do so either through the expenditure accounts in the budget or through additional legislative process. Money cannot be spent from a fund balance account unless it is first broughtforward through legislation (council action) as a line item expenditure.

The Wilson letter further states that the administration is creating "illusions" of saving money by moving it from one account to another. This is untrue.

There are no illusions or shell games within legislation brought to the County Council in January 1991. A fullpresentation was made to the council of the executive's intent and reasons not to spend money on certain projects in this fiscal year. Council bill 91-03 clearly stated that the pay-as-you-go funding applied to the capital projects, Fallston Middle School and Bel Air Library, would be removed from those projects.

This money would be returned to the general fund from which it originated. During the discussion of this piece of legislation, it was made quite clear that bonds would be issued at a later date to support these projects.

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