The Rhino Times has been covering Guilford County government since the early 1990s and, for the first time since then, and perhaps even long before then, the county’s savings account – the “unassigned fund balance,” often described as the financial safety net for local governments – has fallen below the mark of 8 percent of the budget.

 That 8 percent mark has long been considered by state finance oversight officials to be the very bare minimum any local government in the state should maintain.

The NC Local Government Commission, which provides oversight of local governments, gets very worried when counties or cities in the state get near or drop below that level.  Time and time again over the years county budget staff have warned the Guilford County commissioners that falling below the 8 percent mark is a dangerous thing to do. The money, like savings accounts for households, is important for maintaining liquidity and, more importantly, kept in reserve in case an unforeseen circumstance such as a pandemic, a recession or major disaster strikes a city or county.

In North Carolina, that 8 percent threshold has long been seen as a minimum benchmark for maintaining some sort of fiscal responsibility.  It is not a state law that local governments have to keep their savings account above that mark; however, the rule of thumb has become so deeply ingrained over the years that many local government leaders across the state believe it to be law. In 2022, the NC Department of the Treasury even put out a paper that addressed that myth.

In fiscal year 2020-2021 – the last time the Republican-majority board ruled the county and put together their final budget before the Democrats took control – the county’s fund balance was at 16 percent, which is considered to be the relatively safe baseline level.

In December of 2020, however, the Board of Commissioners went from having a Republican majority to a Democratic one.  The spending ramped up greatly after that.

The Guilford County Board of Commissioners has been hitting the savings account for several years in a row in order to pay for new programs, give out raises, fund non-profits, etc. –  and, by fiscal 2023-2024, that had fallen to roughly 9 percent of the county’s budget. And recently during a work session presentation it was revealed that the number had fallen below 8 percent.

 What is somewhat amazing is those constant dips into the county’s savings account have occurred on top of what amounted to huge influxes of new funds the county has seen in recent years.  For instance, much of the millions and millions in federal rescue plan money that came in during and after the 2020 pandemic could be used to offset county spending. Then, after the 2022 revaluation of all property in the county, the commissioners saw a new windfall of about $92 million in extra revenue annually since property values were way up after the revaluation and the commissioners didn’t adjust the tax rate downward to compensate for the increased property values.

 Despite those windfalls on the back of federal and county taxpayers, the current Board of Commissioners still managed to sink the county’s savings account level to below a benchmark that state finance officials have cited for years.

As the Rhino Times noted in an article in mid-2024, In the previous four years, since the Democrats took over control the Guilford County Board of Commissioners in late 2020, the board had increased the county budget by roughly $200 million, which was more than four times greater than the previous Republican-led Board of Commissioners did in the eight years controlling the board from 2012 to 2020.

In the eight years of Republican rule, Guilford County’s budget increased by a total of $48 million, while, in half that time – four years – the Democrats on the board quadrupled that amount of an increase in spending.

One way they did that was by tapping into the county’s savings account that the Republican-led board had left them.

Guilford County Manager Mike Halford, in recent budget work sessions and retreats with the commissioners this year has continually warned the board that it’s very unwise to keep using savings account money to fund recurring expenses – as the board has done repeatedly in order to find funds to pay for wants in recent budgets.

One often repeated rule of local government finance is that you should be extremely wary of  “using one-time funds to pay for recurring expenses.”

Halford was the county’s budget director for most of this century before becoming county manager and, when asked by the Rhino Times if the county had ever fallen below the 8 percent mark before, Halford said he couldn’t recall a time that it had. The Rhino Times also has not seen a time when Guilford County has fallen below the 8 percent mark.

Halford noted that the 8 percent rule is not a law and said the number comes from the notion that 8 percent would cover “a month’s worth” of expenses should little to no revenue be coming in due to an unforeseen calamity or economic collapse.

It’s important to keep in mind that 8 percent is the bare minimum.  Even being at or slightly above that mark still puts a government at a very uncomfortable level.  Many government finance authorities nationally say the 16 percent level of savings – essentially two months’ worth of savings – is the minimum comfort level.

Guilford County District 7 Commissioner Frankie Jones offered an interesting point to the Rhino Times.  Jones pointed out that one reason the county is currently below the 8 percent mark is because, in current budgets, the county is setting aside just over $50 million in funds to pay off the $2 billion school bonds that voters have approved in recent years.  Jones rightly states that, if there were a calamity that required the county to use savings, it could use that money.

That’s all true, but it’s important to keep in mind that the county is putting away $50 million in each budget for a reason: because Guilford County is about to run into a massive wall of debt repayment and it’s going to need that money to pay off that tremendous debt that will be even higher than anticipated  because interest rates on borrowing that money are higher than planned at the time that bond referendum passed.  So, the $50 million is already “assigned” for a reason.

When reserves fall too low, local governments can face challenges covering cash flow shortfalls, responding to emergencies, or withstanding revenue disruptions – which is an important consideration given the cyclical nature of county property tax collections.

As stated earlier, despite the attention often given to the 8 percent benchmark, neither the State of North Carolina nor the Local Government Commission (LGC) actually requires local governments to maintain any specific minimum fund balance.

According to a 2022 clarification published by the NC Department of State Treasurer, the idea that there is a statutory or LGC-mandated 8 requirement is a

very common myth.

Therefore, the LGC – the body within the Treasurer’s Office that oversees local government financial management – doesn’t enforce an 8 percent standard, though the LGC does engage in serious conversations with local governments that they fear may have gone financially astray.

While the amount of available fund balance is a key measure of financial health, the LGC emphasizes that it’s only one indicator of the financial health of a county. Other factors include tax collection trends, compliance with statutory requirements, and whether or not the local government is relying too heavily on fund balance to cover routine operating expenses.

The current Guilford County leaders are very guilty of that last one.

A special “Financial Performance Indicator of Concern” can be flagged for local governments with fund balances that are trending too low, but this too isn’t a legal violation—just a signal that closer attention may be needed.

When Guilford County put an eye-popping $1.7 billion school bond referendum on the ballot three years ago, for instance, Guilford County officials had to go down to the LGC in Raliegh and convince that board that that giant amount of debt would not put the county in financial jeopardy.

LGC guidance does make clear that, while there’s no required number set in stone, maintaining adequate financial reserves is one of the most important tools in ensuring the long-term fiscal health of a local government.

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