Q: What is the county's financial position?
A: The county is in a healthy financial position. This does not mean the county can provide all the services requested or provide services at levels desired by every resident.
The funding of the new court-mandated justice center will result in increased costs to the county. The financial plan is to issue $5 million of certificates of participation and to use $7 million of reserves to fund the new justice center.
In addition, the county is experiencing a slow down in the economy that has resulted in lower sales tax, use tax, intergovernmental revenues, interest revenue and fees.
Q: How does Routt County's
financial position compare with other counties'?
A: Routt County does have a significant amount of unrestricted reserves at this point. The unrestricted reserves for Routt County represent 99 percent of governmental activity revenues.
After comparing the financial statements of a few resort and Front Range counties, each county has its own way of financing the services it provides to the public. The percentage of reserves to governmental activities revenue for the other counties ranged from 77 percent to 38 percent.
Routt County does plan to use the reserves for the construction of the new justice center. The percentage of unrestricted reserves to governmental activity revenues after the $7 million is spent on the justice center will reduce this percentage to 71 percent. In addition, unrestricted reserves will be used for the replacement of equipment, pavement and bridges; the upgrade of gravel roads to chipped and sealed roads; the reconstruction of roads that have seen significant increases in usage and to provide a reasonable amount of funds for cash flow and contingencies.
Q: Just how much money does the county have in reserves?
A: The county has $2.6 million in restricted reserves and $22.1 million in unrestricted reserves. Restricted reserves have a legal restriction such as a state law or debt covenants that limit the use of the funds. Unrestricted reserves can be used for any purpose of the county. Reserves are similar to an individual's savings balance and are not revenue or income.
Q: How did the county build up its reserves?
A: There are several aspects of economic and financial planning that have led to the reserve balances.
First, the economy from 1992 to 2000 was the strongest in the history of the county. Second, in 1992 and 1993, the county implemented pay-as-you-go funding to fund the timely replacement of equipment and infrastructure. Third, in about 1994, the county presented to the electorate a ballot issue to raise taxes for the reconstruction of County Road 14. The electorate rejected the ballot issue. The county took the position to fund the reconstruction of CR 14 internally, therefore funds were set aside for this project.
Finally, the Taxpayer Bill of Rights was passed in 1992 with the purpose of limiting the growth of government. TABOR has achieved this purpose by restricting the growth of property tax for the county by roughly $2.1 million annually. In addition, TABOR has restricted the ability of the county to issue debt.
Without an election, the county's options are to issue certificates of participation (lease purchase agreements) or restrict reserves to pay off the debt, with this type of revenue restriction and lack of flexibility in issuing debt, the county has reserved funds for future contingencies.
Q: What is pay-as-you-go-funding?
A: Pay-as-you-go-funding allows resources to be accumulated to replace existing equipment or infrastructure as it deteriorates or becomes obsolete. As an example, a truck is purchased costing $30,000 with a useful life of five years. To fund the replacement truck at the end of the five years, the county sets aside $6,000 per year for the life of the truck. The county is setting aside about $800,000 for the replacement of equipment having a historical cost of $16 million. The average replacement charge is reasonably 5 percent of the cost of the equipment.
Q: What are the benefits of pay-as-you-go funding?
A: The benefits are that significant funding of equipment costs from annual expenses helps keep debt low, and the reserves accumulated improve the county's financial flexibility. Also, doing funding this way matches the use of the equipment or asset with revenue sources and promotes multi-year financial forecasting, which enables the county to anticipate potential budget opportunities that may result from projected revenue and expense gaps.
Interest revenue is earned on the accumulation of resources allowing resources to be used on other services. And when equipment is not financed with debt interest, expense is not paid, lowering the cost of acquiring the asset.
The negatives are that taxpayers may view high levels of reserves as "excessive" and it limits the option of borrowing funds and using cash held currently for additional services or assets.