10-3-22 BOC Regular Meeting - Laserfiche WebLink

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Summary:Lee County, North Carolina;Appropriations; General Obligation Strong budgetary performance Lee County's budgetary performance is strong in our opinion.The county had operating surpluses of 6.5%of expenditures in the general fund and of 3.2%across all governmental funds in fiscal 2017. Our assessment accounts for the fact that we expect budgetary results could deteriorate somewhat from 2017 results in the near term. After accounting for recurring expenses and revenues into and out of the general fund as well as one-time transfers to fund capital projects,the county experienced an operating surplus of approximately$4.3 million,or 6.5%of expenditures in fiscal 2017.Lee County regularly transfers funds from its general fund to its capital projects outlay fund. In fiscal 2017,about$1.0 million of the$1.6 million that it transferred into the capital fund was at the county's discretion;therefore,we did not include that discretionary transfer as an expense.Property taxes are the county's largest revenue source at 60%of general fund revenue,followed by sales taxes at 18%. The county's approved$70.1 million fiscal 2018 budget included a fund balance appropriation of approximately$1.9 million.The appropriation of the fund balance is consistent with the county's budgeting practices over the past several fiscal years. Due to conservative revenue and expenditure projections as well as current trends in sales tax revenue, we anticipate at least balanced operations in fiscal 2018.Budget preparations for fiscal 2019 are underway,but we do not expect any significant changes year-to-year.As a result,we believe the county's budgetary performance will remain at least strong over the next two years,or the budget will be at least balanced,but operating surpluses in excess of 5%might not be sustained. Very strong budgetary flexibility Lee County's budgetary flexibility is very strong,in our view,with an available fund balance in fiscal 2017 of 21%of operating expenditures,or$13.4 million. We consider the county's general fund unassigned and assigned fund balances to be available. Lee County's nominal available balance has consecutively grown over the past three years,and the county has consistently maintained it above 15%of expenditures.Based on year-to-date budget-to-actuals,we expect the county to maintain very strong reserves over the next two years,and remain compliant with its reserve policy. County officials approved a 7.5-cent increase in Lee County's property tax rate for fiscal 2016,bringing the tax rate to 79.5 cents per$100 of assessed value from 72.0 cents.The purpose of this increase was to fund education capital needs,including this bond issuance,pay for ongoing school system expenses,and to establish a capital reserve for future capital projects or debt service costs.The capital projects outlay fund maintained a fund balance of about$3.3 million at year-end 2017.Based on conversations with management,we believe that reserves in the capital projects outlay fund could be made available for any lawful purpose,should the need arise.Depending on sales tax receipts,the county could use about$2.3 million over the next two years associated with the initial increase in debt service on the 2018 LOBS.As a result of the planned use of these reserves,we have not included these available funds in our calculations.As per state statutes,Lee County also has more than$5.7 million in its restricted general fund balance that is not included in our available fund balance. North Carolina requires that certain financial amounts be restricted from appropriation until they are realized as cash.Therefore,this balance is not included in the county's overall available fund balance,but we recognize that it adds additional flexibility for North Carolina issuers. Had the combined $9 million from the capital outlay projects fund and state restricted reserve fund been included,we estimate that WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 6,2018 4