BY MICHAEL WALTON email@example.com
Traverse City Record-Eagle
---- — TRAVERSE CITY — Grand Traverse County officials will tap $1 million in cash reserves to close a 2014 budget gap and buy time to review financial questions that could impact taxpayers for years to come.
County commissioners this week approved the use of $1 million from their fund balance to shore up the 2014 budget. The decision temporarily concluded a debate on how best to balance the 2014 books either through cuts to services and personnel, or through borrowing $46 million to cover the county’s unfunded pension liability.
“I hate to say this, but we don’t have the time to do what is necessary to go through that department by department to find these cuts ... and quite frankly, I feel this pension bond issue is a rush solely to solve next year’s budget,” said Commissioner Larry Inman, who first proposed use of the county’s cash reserves. “We need more answers to this whole bonding thing.”
The county currently holds about $8 million in general fund balance, Inman said. That’s about 18 percent of overall general fund expenditures. The general fund balance will be reduced to about 15 percent of expenditures with the $1 million going to the 2014 shortfall.
Commissioners also voted this week to — starting in the new year — prepare a two-year budget that brings the county’s projected revenues in line with expenditures. That will include looking at a proposal to issue $46 million in pension bonds to be paid off over 20 years. Board members narrowly rejected the bonding question -- which could cost taxpayers $23 million in interest payments over the next 20 years -- in a recent 4-to-3 vote.
County officials face an accelerated repayment of their unfunded pension liability because they ended most of their defined-benefit pension plans. Annual payments are projected to rise from almost $4 million to more than $6 million by 2024, then begin a quick decline. Bonding would set those payments at about $3.5 million a year for 20 years, but it would reduce the 2014 payment to about $2.4 million.
Board Chair Herb Lemcool, who cast the only vote against on the fund balance motion, said he “strongly supports” the bonding proposal. Lemcool said the county will spend its fund balance to zero if it relies on it to close budget gaps that are going to grow because of accelerated pension payments.
“If we don’t do the bonding proposal, we will have to by the 10th or 11th year cut $2 million out of our budget in that year,” he said. “To me, that’s just not acceptable to continue cutting a budget that’s pretty tight in and of itself.”
But Christopher Radu, a financial advisor who works in Traverse City and lives in Garfield Township, cautioned commissioners about pension bonding during public comments at a meeting this week. Radu said the bonding proposal is based on flawed projections, including that pension investments will yield an 8 percent return.
Bonding might finance the county’s problem for the first few years, but it will cost taxpayers -- especially younger taxpayers -- far more in the long run, he said.
“As a younger taxpayer of Grand Traverse County, I wanted to represent my cohorts and say I am not in favor of this wealth transfer,” Radu said of his comments to the board. “I am not in favor of this being my liability for the next 20 years.”
The county board will hold a public hearing about the bonding proposal on Dec. 4 at 7 p.m. at the Governmental Center.