Georgetown's fund not uncommon, analyst says

Marty Tennant, a former candidate for mayor of Georgetown, essentially cleared the room Tuesday night when he got up to speak at a forum where Georgetown Mayor Jack Scoville was answering questions from area business owners about taxes.

Tennant read a speech that cited what he called a $21 million city "slush fund."

Scoville and several others left the building after Tennant handed out copies of his prepared statement regarding the accusation, which he also made when he was running for mayor. But an expert on local government budgets said the fund - formally known as unrestricted net assets - and others like it are common across South Carolina.

Eric Budds, deputy executive director of the Municipal Association of South Carolina, said the city's unrestricted net asset account is used to help the city maintain services when it might not have cash available, or when a disaster strikes.

According to a 2009 city audit, the city has about $16.7 million in unrestricted net assets, meaning the money has no specific spending designation.

Budds said such accounts are used to regulate cash flow because municipal governments have an "irregular revenue-payment cycle."

The majority of a city's income arrives when taxes are paid, generally around October, and when business license fees are paid, generally around March, Budds said. Most cities have very little cash on hand during the summer, but must continue to maintain services.

"You have to have somewhere to draw cash from," he said. "If you don't have that, you have to go borrow money," which means paying interest and other fees.

The city of Myrtle Beach's 2009 audit showed that it also had unrestricted net assets of about $7.5 million in total.

Such funds could also have internal restrictions on them, Budds said.

Often governments have informal designations for that money, such as long-term projects.

"They could say, 'Oh, we'll use $5 million of that for a new water tower in 5 years,'" Budd said.

Budd also said coastal communities tend to have larger emergency-type funds because they are more susceptible to natural disasters.

"In the case of a natural disaster you're having to front the money to purchase electricity, you may be repairing roads and public buildings," he said.

Georgetown has to be able to show large cash reserves to get good interest rates for some of the financing it does, said Chris Eldridge, city administrator..

"Having this money buys us cheaper money," he said.

But Tennant said he thinks if the city has money set aside, it should use that money first, rather than issuing bonds for equipment and other costs.

"Would you borrow money if you had $21 million sitting there free and clear?" he asked. The $21 million figure comes from Tennant's estimate of the fund balance, based on a report from June 2008.

Tennant said he thinks having several million dollars in a fund with no direct purpose is too much for the city of Georgetown, especially when compared to other area governments, like the city of Myrtle Beach, which has a much larger budget. Myrtle Beach's total 2010-2011 budget is about $137 million. Georgetown's is $33 million.

Budd said the budget is not necessarily the determining factor for what amount of unrestricted net assets is appropriate for a government.

He said the fact that the Georgetown has its own electric department means it would need more cash flow ability.

"Every city makes local decisions as to how much fund balance they need," he said.