05/25/09 — County's finances get credit review

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County's finances get credit review

By Steve Herring
Published in News on May 25, 2009 2:04 PM

Moody's, the agency responsible for establishing the credit rating that determines the county's ability to borrow funds from private lenders and to seek bond financing on the open market, reviewed the county's financial status last week.

Over the next several weeks, Moody's will review all of the information submitted and develop a draft of the credit opinion by the review team. That draft will then be sent to Moody's Review Board and to the county for comment and clarification before the final review is published.

It will be at least 45-60 days before county officials learn the outcome of the routine review.

County Manager Lee Smith is hopeful the county will retain its A-plus rating and has even requested a further review for possible upgrade consideration.

"We do understand that in the present economic environment that an upgrade may not be possible, but we feel if Wayne County has ever been financially positioned to be considered, it is now," he said. "We can weather the storm. We do have a strong financial and management team."

Smith said the county's case should be shored up by its ability over the past several years to build the fund balance and to operate on a lean budget.

"One thing I am confident on are the things we provided in the budget that we have done to have grown the fund balance," he said. "We have told them we were going to do that and how we were going to do that -- we were going to be very conservative on revenues and we were going to make internal cuts within the budget every year so we would give ourselves some ability to save dollars every year, and we have done that. We have raised it up to $25 million."

Moody's, he said, appeared impressed by the county's ability to have built its fund balances to present levels.

"In fact, they commented that we were fortunate to have done this in the manner and time frame that we did due to the recent economic crisis," Smith said. "They were very interested in our ability to 'weather the storm' and we were able to show them we had the capability to handle 12-24 months of the economic downturn and reduced revenues."

He said Moody's was interested as well in how the couty had reduced expenditures and positions over the last several years and used those reductions to build fund balance and establish a stream of revenue for future capital projects.

Smith and his staff was in the midst of finishing the 2009-10 budget draft when they were contacted two weeks ago about the review.

"That is a big deal, and I'll tell you the budget went on hold because I cannot allow this county to be re-rated and downgraded," he said. "I have got to either stay the same or seek an upgrade.

"They come in and they look at your capital plan. You would think they would just look at your finances, and of course they look at your finances, they are what they are. But they look at what you said you were going to do in your budget message, that person being myself. They get my resume, (finance officer) Pam Holt's resume and the financial advisers for the county and they judge us based on our abilities. Granted, your rating is supported by your ability, the economy."

Mrs. Holt and Smith have a combined experience of approximately 50 years in government manage-ment/finance and private management/finance.

Davenport and Associates, the county's financial advisers, assisted the county in developing the credit review package submitted to Moody's.

The county has not had a full credit review by Moody's in 10 years, but has undergone at least two basic updates in the last six years.

A full review includes:

* County financial policies -- a review of the actual policies as well as an audit of adherence to those policies by management and the board.

* General fund capital funding analysis -- the county submits its annual 10-year Capital Improvement Plan as developed by the staff and Davenport and Associates, the county's financial advisors.

"The big issue and success for Wayne County is the fact that we have intentionally moved away from short-term leases and financing over the last six years," Smith said. "We have moved to predominantly a cash basis on annual capital and long-term financing on large issues such as jails, school, etc."

* Annual audit review from June 30, 2008 as presented to the commissioners with an up to date snapshot of county finances.

Smith said county revenues were reviewed in detail and that questions were answered about sales and property taxes.

In addition, it was demonstrated that property tax collections were actually up from last fiscal year and were holding, Smith added.

"We discussed the fact that sales tax revenues were down and discussed the reasons why, including the economy and recent action by the state to eliminate article 44 of sales tax for counties as part of the Medicaid relief package" he said. "We did explain that it appears in 2009-10 the county will lose an additional $1.1 million in sales tax as part of the Medicaid relief package and the required 'hold harmless' assistance for cities and towns."

The hold harmless basically means that if revenues for cities and towns fall below certain levels as determined by the state due to the loss of sales tax, then the counties must make up the difference.

The county submitted a detailed report of budget versus actual and there was much discussion, he said, about the county's philosophy of zero-based budgeting.

The local economy accounted for roughly 40 percent of the review and included the county's recent economic development efforts including location of AAR, AT&T, Triangle Spring and expansions of Case Farms.

Infrastructure improvements in the area including U.S. 70 and Interstate 795 and the impacts they will have on Wayne County also were discussed.

"They asked questions about our investments in land and buildings for economic development that have rendered jobs for us," Smith said. "We demonstrated to them the job growth in Wayne County as compared to other North Carolina counties and showed how we had done fairly well over the last year in comparison to allot of communities.

"Of course, we reviewed the last several years of residential and commercial building permits and developments of both types that have been constructed over the last five years including but not limited to both the new Wal-Mart locations, residential subdivisions across the county, as well as other commercial developments in the city of Goldsboro."