Ragsdale's Houdini Budget

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County Mayor Mike Ragsdale qualifies as a magician for the ways in which he fabricated a $614 million county budget that covers the $57 million cost of a new pension plan for sheriff's deputes while retaining progressivity on other fronts without a tax increase.

Ragsdale's biggest single budgetary trick was to draw down $15 million in county reserve funds to cover the cost of annual debt service on a bond issue that funds the pension plan and other operating expense increases in excess of county revenues.

Ordinarily, it's bad budgetary practice to balance a budget by drawing upon a one-time source of funds like reserves to cover expenses that recur in subsequent years. However, these are exceptional times in Knox County because of the furor and instability arising from the appointment of eight county commissioners in January to fill the seats vacated by the State Supreme Court's validation of the term limits provision of the county's charter.

Those eight appointees on that 19-member body all face reelection next year. With a cloud already overhanging them because of the suspect way in which they were appointed, the chances of getting them to vote for a tax increase this year are near zero. (Note: appointed Commissioner Frank Leuthold is a singular exception to this rule.) Factor into the political equation such Ragsdale antagonists as Commission Chairman Scott Moore and Commissioner Lumpy Lambert along with taxophobes such as Commission's Finance Committee Chairman Paul Pinkston, and the county mayor would be facing almost certain defeat if he'd attempted to do battle on the tax front.

Still, unless he can pull more rabbits out of a hat a year from now, Ragsdale's resort to the use of balance, as the reserve funds are known, is just postponing the day of reckoning when a tax increase will be required. And because any other type of tax increase would require unlikely voter approval in a referendum, it would almost surely take the form of the first boost in the county's $2.69 property tax rate since 1999.

There are actually two sets of fund balance on the county's ledgers that Ragsdale tapped this year. One is in the county's general fund, which covers operating expenses (exclusive of schools). The other is in its debt service fund from which the county makes payments on its $573 million in borrowings (inclusive of schools) that are due to grow to $653 million in the year ahead.

Ragsdale's budget for the fiscal year ahead draws $6 million from general fund balance, which figures to reduce it from $40 million to $34 million by that year's end. County Finance Director John Werner reckons that's about as low as it can go without beginning to impinge on the county's credit rating and thus its burrowing costs.

There's little basis for believing that general fund revenue growth from existing sources will begin to cover the $6 million shortfall in the next fiscal year. Property tax collections, which are the general fund's primary source of revenues, tend to grow about three percent a year. But expense growth tends to exceed that for almost obligatory employee pay raises and increased benefit costs alone. Moreover, beyond a $2.4 million increase to $6.4 million this coming year, Ragsdale is committed to supplementing the regular school budget with more funding for his Great Schools Partnership, primarily to extend a teacher incentive pay program that's being piloted at three schools this year.

So how is the $6 million or more hole to be filled in fiscal year 2008-09 and beyond? Werner suggests that if and when Knox County gets the $26 million in additional state funding that Gov. Phil Bredesen has recommended, some property tax revenues could be reallocated from schools to the general fund. But Ragsdale spurns this notion â“barring some dramatic unforeseen circumstance.â” He artfully dodges the question of where he foresees the money coming from by saying, â“Trying to project the budget a year ahead at this point is like trying to project the Vols' football season.â”  

His current budget draws $9 million from debt service fund balance, primarily to meet the $7 million annual cost of servicing the $57 million bond issue that will cover the unfunded liabilities created by the sheriff's new pension plan. That will reduce this fund balance to $18 million; but unlike the general fund balance, county finance officials believe it can continue to be drawn down without jeopardizing the county's credit standing. However, with further projected reductions of $9 million a year, it will soon be depleted.

Indeed, the county's five-year capital plan presumes no new libraries, a cessation of spending on roads after 2010 and only as much spending on schools as the school system can come up with from its separate revenue stream. â“The reason why it looks so stark in the future is that we don't have any more money to spend, â“ explains Deputy Finance Director John Troyer.

Yet in his state of the community address last week, Ragsdale heralded construction of two new branch libraries and four new elementary schoolsâ"schools that the school board hasn't even recommended pending an address to elementary school rezoning. Moreover, Ragsdale reiterated his intent to have the county assume the cost of building the new schools rather than looking to the school system to do so, as has been the case historically.

So don't be surprised if a year from now Ragsdale is recommending a 19-cent property tax increase that it would take to fill a $15 million revenue hole; or, possibly he'll find a way to temporize for another year in order to get the 2008 elections behind him.

â" Joe Sullivan

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