Hamilton County protects surplus as budget looms

Hamilton County protects surplus as budget looms

March 15th, 2011 by Dan Whisenhunt in News

In this file photo Jim Coppinger speaks to reporters after taking the oath of office to become Hamilton County Mayor on Jan. 11, 2011.

In this file photo Jim Coppinger speaks to...

Photo by John Rawlston /Times Free Press.

Hamilton County has more money in its reserves than all other municipalities in the county combined.

And the county wants to hold onto that money as budget hearings loom and an ongoing stalemate with Chattanooga over sales taxes lingers.

County Mayor Jim Coppinger and Administrator of Finance Louis Wright say they are reluctant to tap into the county's $85.7 million reserves to stave off cuts to county services.

"We're in the preliminary stages of putting the budget together, so the short answer is obviously we'd be looking at all options that we have," Coppinger said.

According to the University of Tennessee's County Technical Assistance Service, county governments are not required to keep any specific amount in reserves. Budget documents state county government keeps a reserve in its general fund that would cover three months' worth of operating expenses.

Coppinger repeatedly has said in public forums that he does not want a tax increase in the next fiscal year, which begins July 1. The reserves are a sign of the financial health of the county, he said.

"That's something that helps us have a AAA bond rating," Coppinger said."

The bond rating affects the kinds of interest rates the county receives when it borrows money. Hamilton holds one of the best bond ratings of any county in Tennessee, and is in the top 2 percent of all counties in the nation.

Wright said that, aside from the bond rating, the delayed Red Bank Middle School project is another reason to hold off on tapping those reserve funds.

In 2007, county commissioners approved a 26 cent property tax increase intended to fund two new schools, an addition to the jail and courthouse renovations. One of the schools slated for construction was Red Bank Middle, a project delayed because of a federal land use issue.

The site for the project, located behind Red Bank High School, received federal funding in the 1970s for recreational services, according to school Superintendent of Auxiliary Services Gary Waters. The county is awaiting federal clearance to change the use of the property, which involves a land-swap with Red Bank.

Waters said the county is very near receiving clearance from the U.S. Department of the Interior so construction on the middle school can begin. Once that's done, he said, construction will take two years.

Wright said the county plans to spend $30 million in short-term debt - known as commercial paper - to build Red Bank Middle.

So what does Red Bank Middle have to do with whether the county uses its surplus money?

Once the school is nearly finished, Wright said, the county wants to turn most of its commercial paper debt into longer-term bonds with a fixed interest rate. He wants to take care of all the county's long-term bonds at once rather than issuing one long-term bond now, then coming back after Red Bank Middle is completed and issuing another one, he said.

"A big chunk of what you're looking at [in reserves] is used to pay for those bonds," Wright said.

He said he could not say how much of the reserve money would be needed to service the longer-term bonds.

"It depends on the interest rates," Wright said. "We're trying to be very conservative."

After the county passed the property tax increase in 2007, its reserves grew by $28.9 million, county records show. Wright said when the county issues its longer-term bonds it will reduce that number, but the amount of reduction depends on the interest rates at the time the county issues those bonds.

Wright and Coppinger said the delay in construction of Red Bank contributed to the increase in the reserves. Wright also noted that the county's reserves tend to go up before the county issuing bonds.

The county faces the prospect of losing more than $10 million in sales tax revenue if Chattanooga allows a decades-old sales tax agreement with the county to expire.

Coppinger has said he's concerned that the agencies the county jointly funds with the city, such as the Chattanooga-Hamilton County Bicentennial Library, will not receive adequate funding from the city if the county loses its share of the money.

County Commission Chairman Larry Henry said dipping into the reserves is a possibility, but only if there is no other alternative.

"You don't want to ever get into your fund balance until it's just absolutely necessary to do it," Henry said.

Coppinger hasn't taken the possibility of using the reserves off the table, but said it's not his first choice.

"Obviously, we'd prefer not to," he said.

Contact staff writer Dan Whisenhunt at dwhisenhunt@timesfreepress.com or 423-757-6481. Follow him on Twitter at http://twitter.com/DWhisenhunt.