Budget Chairman Scarlett Addresses County Debt Issues
Recent actions by the Jefferson County Commission, as well as the fast approaching budget season, have brought serious questions to the forefront regarding the financial situation in Jefferson County. John Neal Scarlett is serving his second stint as Jefferson County Budget Committee Chairman (two years during his previous term) and will be leading the Committee as they begin the budgeting process for the 2015-2016 fiscal year. Scarlett’s public service resume also includes four years on the Jefferson County School Board, with two of those years as Chairman of the Board. Scarlett sat down with the Post to discuss some of the issues that are currently on the forefront in Jefferson County.
Post-What is our current debt situation in Jefferson County?
Historically, we have never been this far in debt. Pre interest figures place us around $90,000,000 in principal debt and with interest that brings the figure in the neighborhood of $130,000,000.
Post-In regard to those debt figures, do they include the original building of Jefferson County High School, as some have alluded to, or has that debt been paid off?
The original debt for Jefferson County High School has been paid off. What remains is the debt from the building program that took place after that. Other debt has been added over the years from other building programs, both school and County side, as well as other expenditures.
Post-The County Commission just passed their first of two votes on increasing the Wheel Tax and it has garnered a strong response in Jefferson County. First, was there other options and second, will this increase pass on second review?
The situation that we are in requires an immediate fix and has to bring in enough to cover the upcoming debt. We need to raise around $2 million dollars to pay our bills and that does not include funds that would have to be raised to cover the hospital lease money ($750,000) should the Commission decide to not use it to balance the budget this year. And that just gets us to about broke. It doesn’t account for any new expenses that might arise in the upcoming budget process. Wheel tax and property tax are the only two ways that I know to come up with that much money in the timeframe that we are looking at. Do I think that the wheel tax will pass on second vote? I don’t think that any sitting Commissioner wants to raise taxes. I know that I don’t want to raise taxes, be it wheel tax or property tax, and I don’t think that anyone went into this lightly. Property tax and wheel tax are the only stable way to raise funds and I believe that, while no one wants to increase the wheel tax, the Commissioners have considered their options and found that there aren’t many. We have to pay our bills so I believe that the wheel tax increase will have at least 14 votes.
Post-You have spoken on several occasions about the amount of debt in Jefferson County, yet the fund balance in the debt service account (used to pay county debt) appeared to be in good shape. What happened?
What Jefferson County has is not so much a revenue problem but, rather, a spending problem that has caused our current situation. The former Commission pulled funds that were previously going into the debt service account to balance the budget. If they had not pulled those funds, the account would have been healthy enough to pay our current debt. I have publicly stated that pulling from our debt service to balance the budget was not truly presenting a balanced budget. Obviously, we did not have that amount of excess in the debt serve account and now we find ourselves in serious shape. We should have addressed the previous budget’s deficits when they arose, rather than kicking the can down the road. We have reached the point that we cannot kick it any further.
Post-Let’s talk a little about the hospital reserve and lease funds. Can you explain those funds and what they are used for?
The hospital lease funds are the lease payment that is paid to lease the hospital from the County and Jefferson City, who jointly own the building. The County currently receives $750,000 per year for our part of the lease money. A few years ago the funds were placed in a reserve fund that built to around $4 million dollars from an accumulation of several years’ lease payments. Last year, the Commission decided to use the lease money to off set the deficit in the budget, rather than adding those funds to the reserve account. Though we currently do have a lease that is providing payments, that money is not stable like wheel tax or property tax and could go away if there is a change in the lease. The reserve hospital money was part of what was going to be used for the County cash contribution (almost $4 million) to the renovation of Jefferson County High School. With the most recent vote to issue bonds for the County’s part of the cash contribution, the money will remain in the hospital fund until it is used. The previous Finance Director and Cumberland Securities suggested that the County should take out the bond, rather than use the hospital reserve money, because it would be needed for purchase of property for industrial development. The County IDB is looking for property and I think that we, as a County Commission, sold the idea of issuing bonds based on using the previously dedicated funds for industrial property. We should uphold our end of the bargain and use the hospital reserve funds for developable property. Our problem is that we have now broken over and started using our lease money to balance the budget and I do not think that it is in our best interest to continue to use an unstable fund source to balance the budget.
Post-Understanding that it is not a stable fund, what will have to happen if the lease money is not used in this year’s budget and, if it is, and the reserve account is depleted to purchase property, what would happen if needs arise at the hospital?
If the Commission decides to not use the lease funds in this year’s budget, then they will have to dedicate other funds to cover the $750,000 or cut expenses. If the lease money is no longer going into the hospital reserve fund and the fund is depleted, we will have no funds to address any commitments that the County might have regarding the hospital.
Post-The recent bond issues for a little less than $7 million dollars included renovation and repair for Building 8, as well as the County portion of the cash contribution (almost $4 million) for the renovation of Jefferson County High School. Obviously, this new bond issuance ups the debt for the County. Talk a little about where we are revenue wise.
Our revenue has actually increased around $5 million dollars since 2007. Last year we had an increase of $800,000 that went unrecognized when the vote was taken to increase the tax rate according to the State Certified Tax Rate, which became our starting figure and we added onto it from there. It was presented to the people that the increase was just an adjustment by the State of Tennessee and that the only real increase was the seven cents that we added on but the reality is that the State did not account for revenue of nearly $800,000 and we could have taken that much off the suggested increase. The increase was cloaked in a lie. We should have called it like it is and admitted to a little more than 14 cent increase rather than selling it as a 7 cent increase. Our problem is that we are outspending ourselves. Nineteen Commissioners, all that were present, voted to move forward with Building 8. We want to take care of the schools, students and teachers. But we are charged with spending the tax payer’s money and we have responsibilities beyond the Department of Education. We did the building program wrong. Operational expense, beyond the cost of building the buildings and renovating, has increased around $3 million dollars in the last two budget cycles. We simply did not account for that type of increase when considering financing the building program. We should have looked at the total picture, including operational expenses, and tailored the building program to what we could actually afford and what our revenue stream would allow.
Post-Along those lines, you made a motion to fund the bond for Building 8 and the cash contribution to the renovation of Jefferson County High School with a caveat that the Capitol Projects Money for the schools (figured at $500,000 per year) be dedicated toward their tab for Building 8. Is it reasonable to believe that there will be no Capitol needs in the next five or so years?
Capital Projects are a part of the funding formula that the State uses in figuring the BEP money (sent by the State) that will be allocated to each County. So, there is Capitol Projects funds. However, the State does not mandate that the funds are used in that way. The Department of Education has been requesting Capital Project money from the County and we have been funding them at around $500,000 for the past several budget years. Those projects that the funding was requested for have not been completed and the funds have been directed to other projects. I don’t know if not spending the funds as requested is because there was actually not a need or that the maintenance needs are not being met but either way it appears that the requests were not a necessity. Commissioners were very concerned about the situation at Building 8, could see that it was a real need that impacted students, and we funded their request at the level of funding that was requested.
Post-The upcoming budget season starts soon. What is the outlook for the 2015-2016 fiscal year?
Our Finance Director, Langdon Potts, has been working hard to get information together and he has hit the ground running. It will be a challenging year because we are entering this process with eight new Commissioners that will surely have lots of questions, as well as a new Finance Director. I really don’t know what to expect, yet. I know that there will be increases in the standard categories that will have to be addressed, as well as issues in County departments. We are starting out in a bad situation with the debt service fund.
Post-Do you anticipate a tax increase this year?
I want to be clear that we have had significant tax increases in the last few budgeting cycles but they have not been done in an upfront way. Beyond the 7 cents that was increased last year ( above the State Certified Tax rate), as well as the dime that it was increased the prior year, we also absorbed the additional $800,000 in revenue instead of passing that along to the tax payer, which was around 8 cents on the property tax rate. Over the last couple of budget years the former County Commission, or rather 11 Commissioners, took the equivalent of around 13 cents from the debt service fund, which it could not sustain. All in all that is the equivalent of around 38 cents on the property tax rate. It hasn’t been presented to the public that way but that is what happened. Now we are paying for the move from the debt service fund. There is simply no way around it. We have to find more revenue or make significant cuts-or a combination of both. Raising the wheel tax was the first step in clearing money that was already spent. I am just not sure that there is any way to cut enough to make up for the $2 million or so that we are still in the hole after the wheel tax is raised. And, that doesn’t account for any needs that may be upcoming. I am open to any ideas that citizens have and hope that they come and participate in the budgeting process. It is their money and they need to be involved. There are just very few avenues to raise the amount of funds that are needed without using property tax or wheel tax. Basically, the taxpayers are paying for a meal that was eaten yesterday. We may be hungry today but we still have an old tab to pay.
Post-Do you think that you will be able to come up with a budget by the July deadline?
It may be challenging but the plan is to present the budget to the full Commission in June.
