Buncombe County’s Fund Balance Under Pressure: Can They Maintain Their AAA Rating? - TribPapers
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Buncombe County’s Fund Balance Under Pressure: Can They Maintain Their AAA Rating?

Buncombe County's fund balance was already shrinking. Credit: Mauldin & Jenkins.

Asheville – Tim Lyons of Mauldin and Jenkins briefly reviewed the highlights of Buncombe County’s external audit for FY 2023-2024. The audit has been completed, but the commissioners needed to approve amendments to the $192,000 contract to reflect an expanded scope of work. For instance, the auditors encountered federal programs where grant funds triggered review criteria, resulting in additional auditing costs of $23,000 more than anticipated.

Hurricane Helene also disrupted normal business practices and continues to do so. Consequently, the auditors requested an additional month “to allow for any administrative processes needed to close the audit.” Lyons commended the county for completing its audit on time, unlike many other local governments that experienced less extensive hurricane damage. The nature of the outstanding issues is not expected to have more than a negligible impact on the budget he presented.

Buncombe County's fund balance was already shrinking. Credit: Mauldin & Jenkins.
Buncombe County’s fund balance was already shrinking. Credit: Mauldin & Jenkins.

As always, the county received an unmodified opinion from the auditors. Lyons explained for those unfamiliar with audits that this means its financial records for the year were “clean,” with no significant exceptions. Additionally, the audit only examines the county’s financial position, cash flow, and compliance with state and federal recordkeeping regulations; it does not aim to expose fraud.

One shortcoming, which he noted is common among many local governments receiving Opioid Settlement funds, was that some numbers were recorded in the wrong fiscal year. He attributed this to the federal government’s failure to provide timely clarity on its guidelines, a shortcoming shared by many federal programs. Amounts for three smaller contracts were also recorded in the incorrect year.

Commissioner Jennifer Horton asked Lyons to explain the “one significant deficiency and one material weakness in internal control over compliance.” He replied that the county’s systems for tracking employee hours used a different timescale than that of the state government, leading to rounding discrepancies of a few minutes here and there. He assured that nobody was “overdrawing or underdrawing.” This issue is not unique to Buncombe, and Mauldin and Jenkins has sent corrective recommendations to the state.

A more significant issue was the requirement for 25% of cases in certain federal programs to be reviewed by an independent party. Lyons stated that the county came close to meeting this requirement in only about three months. The county has made corrections to its procedures, and these programs will need to be audited again next year.

In response to Commissioner Drew Ball, Lyons discussed how the size of the county’s fund balance influences its bond rating. He added that rating agencies consider more than just fund balance; they also look at numbers and trends. “There are no alarm bells going off, nothing to cause me or necessarily anybody on the board to have heartburn.”

He explained that counties are typically required to maintain three to four months or 25% to 30% of their annual general fund expenditures in their fund balance. This is being monitored closely because, since Helene, there have been “significant changes in our revenue streams.”

Commissioner Al Whitesides, a retired banker, cautioned his peers that it is crucial for the county to maintain its fund balance at 15%. This level is essential for the county to retain its AAA bond rating, which will help secure low interest rates for all short-term financing anticipated post-Helene.

Ball inquired about what it meant for the county to be placed on a watch list, and Finance Director Melissa Moore explained that Standard and Poor’s put all local governments in Western North Carolina under a credit watch in October due to instabilities caused by Helene.

Moore stated that in a subsequent mandatory review, S&P upheld the county’s AAA rating but with a negative outlook. The rating will be reassessed whenever the county seeks to float new bonds or refinance debt. She added that a downgrade of the county’s rating by one notch would result in an increase in lending rates of 0.2% to 0.5%, “depending on what the markets do.”

She noted that among other factors agencies consider for bond ratings is “loss of tax base,” which Helene significantly impacted. Bonds are approved based on the full faith and credit of the county to repay them through its taxing authority. After a downgrade, it will take years before the county can be upgraded again.

“And we’re currently sitting below 15%,” observed Ball.