photo by: Sylas May

Call it the Douglas County dichotomy.

In a year when many Douglas County residents may have to dip into their savings accounts to pay their property tax bills, Douglas County government is significantly growing its savings account.

A review of Douglas County’s proposed 2023 budget found that commissioners are poised to start 2023 with fund balance totals — the equivalent of savings accounts or rainy day funds — that are $10 million larger than they were at the beginning of 2022. Since the beginning of 2019, the funds have grown by nearly $30 million, and the county has no formal policy in place on how the funds should be spent or managed.

Thus far, county commissioners — who are set to finalize the 2023 budget on Wednesday — have shown little inclination to forgo boosting the county’s savings account and instead use the money to provide property tax relief. County commissioners are set to reduce the property tax rate by 1 mill with the 2023 budget, but they aren’t dipping into their savings account to do so. Rather, they are reducing spending that was originally part of the county administrator’s recommended budget.

The growth in the county’s savings accounts comes at a time when Douglas County property owners are being hit with a historic property tax increase due to home values that have increased 10% or more in many cases. That means despite the tax rate decrease of 1 mill, most property owners are going to see significantly higher property tax bills when they arrive in the mail in November.

The spike in county property values is unprecedented in recent memory.

The idea of Douglas County government dramatically increasing its savings account with taxpayer dollars, though, has become quite common in recent years.

The Journal-World looked at seven key county funds that are either supported by property taxes, sales taxes or both, and that also play major roles in the county’s operations or could be easily accessed to fund an emergency. None of the funds includes the tens of millions of federal stimulus dollars the county received as part of the pandemic relief programs.

The county’s own 2023 budget numbers show the fund balances of those seven funds are projected to grow by $10,018,820 by the beginning of 2023. That would be consistent with what happened from the beginning of 2021 to the beginning of 2022. Using the county’s recently completed financial audit, the Journal-World calculated the fund balances of those seven funds grew by just less than $10 million in that year.

The Journal-World also did the math back to the beginning of 2019, and those calculations produce the biggest numbers. At the beginning of 2019, those seven county funds had $13.4 million in their fund balances. At the beginning of 2023, those funds are expected to have a combined fund balance of $42.8 million.

That’s an increase of nearly $30 million — funded not with pandemic relief funds but primarily with property and sales taxes that have been collected but not yet spent.

How does the county accumulate that much money to build up its savings accounts? Mainly by being conservative. That involves creating revenue projections that are likely to be less than what the county actually will receive in revenue and by making spending projections that are more than what the county is likely to actually spend.

At the end of the year, the county tallies up the true totals of what was spent and what was received, and normally the county’s savings accounts end up getting a nice boost as a result.

Douglas County Administrator Sarah Plinsky will be the first to acknowledge that she crafts budgets that are “pretty conservative.” Plinsky said the county is well served by such conservative budget-making, and she points to the county’s AAA bond rating. That’s the highest bond rating the agencies give, meaning the county should be able to qualify for lower interest rates when it borrows money.

Plus, Plinsky said the county has to have sizable reserves because the state limits how much money counties can borrow. State law sets much lower borrowing limits for counties than for cities, for example. That means counties often need to save up large amounts of cash to pay for a project, whereas a city simply would borrow the money and pay it back in small increments over 15 to 20 years.

In addition, Plinsky acknowledges that conservative budgeting is a pretty good way to build up government savings accounts.

“We are pretty conservative in estimating those, and that has been helpful to us in building the general fund budget,” Plinsky said. “It has helped us increase our general fund balances.”

Whether it has helped hold down property tax rates in Douglas County is more debatable. Over the last 20 years, the county’s property tax rate has increased from about 27 mills to 46 mills. How much of that increase can be attributed to the county’s conservative budgeting and desire to increase its savings accounts? Some, but certainly not all of it. To get a more precise answer would take quite a bit of forensic accounting at this point.

But one quick, limited look at the county’s general operating fund in 2021 — an approximately $60 million fund — shows the county collected about $6 million in revenue from taxpayers that it ultimately did not spend on operations, but rather used to increase savings accounts of various types. That $6 million in 2021 was the equivalent of about four mills of property taxes, or about $92 in county property taxes on a $200,000 home. However, it should be noted it would be unrealistic to expect any budget-maker to make revenue and expense projections that end up being exactly accurate. What a reasonable expectation should be for accuracy is likely a topic that would create considerable debate in budget circles.

Plinsky said she continues to be comfortable with how the county’s budget comes together. She said many counties and other local governments strive to have their fund balances — or savings accounts, if you will — total 20% to 25% of their annual operating expenditures. That is accurate. Many governments strive to have about three months of cash reserves on hand, although the Government Finance Officers Association says that two months of cash on hand is a minimum best practice.

Importantly, though, the GOFA also recommends that governments have a formal policy on how much to keep in a fund balance and how the monies should be used. Plinsky said Douglas County does not have such a policy currently, but she hopes to create one. She said the unexpected workload of administering pandemic relief funds has slowed work on creation of that policy.

“I would say with the pandemic, ARPA and the CARES Act, what we have tried to accomplish with financial policies has gotten off track,” Plinsky said, referring to pandemic relief programs the county was tasked with administering.

Plinsky, who has served as county administrator since late 2018, said she hopes to bring a recommended policy to county commissioners for approval within the next year. When it comes time to craft that policy, it may represent one of the more important times for county residents who want property tax relief. The policy, presumably, will do more than just set an amount for the county to keep in a rainy day fund.

It also may need to define which accounts the county is comfortable tapping into in the case of emergency. That could make a huge difference in the case of Douglas County. The Journal-World focused its analysis on seven key funds that are in the county’s budget. Six of them are accounts funded by property taxes and are used to sustain county operations. They are projected to end 2023 with a 22.2% fund balance. The other fund is the county’s 1% sales tax fund. It is listed as a fund that services county debt, but it also stores large amounts of cash. The fund currently is used to pay about $1.5 million in bond payments per year. However, the fund is budgeted to start 2023 with $12.6 million in reserve funds.

There is no dispute that the county legally can use those funds in the case of emergency, or otherwise, to fund county operations. Plinsky, though, contends the fund shouldn’t count toward the county’s goal of having three months worth of expenses in reserve.

The fund dates back to 1994, when voters approved the countywide sales tax. Exactly what voters were told the money would be used for is in dispute. That will be the subject of the second article in this series.

But for now, what’s important to understand is that if a decision is made to count the reserves in the sales tax fund toward the county rainy day total, the county already has met — and then some — its unwritten goal of having three months of expenses in reserve. With the sales tax fund added to the county’s reserve totals, the county is projected — even with its conservative budget numbers — to have a fund balance of 35.9% of its expenditures, or more than four months worth of savings.

In dollars, the difference is significant. The difference between a 25% fund balance and the nearly 36% fund balance is $11.8 million. That $11.8 million is the equivalent of 6.7 mills in property tax, which is the equivalent to $154 in county property taxes on a $200,000 home.

Those numbers, seemingly, are an example of why it is important for a government to have a fund balance policy, and how the details of that policy — such as which funds can be used for reserves and which ones shouldn’t — can have big implications for taxpayers.

A good policy may help the county figure out a legitimate question that faces many a government: What’s more important, the safety of a savings account or the comfort of lower taxes?

For the time being, county commissioners will have to figure it out without the benefit of a policy. Commissioners meet at 5:30 p.m. on Wednesday at the Douglas County Courthouse to take public comments on the proposed budget and will consider approving it.