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How much savings is enough?




County Commisssioner Fred Smith makes his case against keeping too much money in savings. Screen capture

As a percentage of spending, how much money should a county keep in savings?

Johnston Commissioner Fred Smith thinks 40-50% is a gracious plenty.



“When we start going above that … we’re forgetting that the taxpayers are living in a world of inflation, and they have their own set of problems,” Smith told his fellow commissioners during their retreat earlier this year.

“At some point in time, we’re taking too much,” he said.

Smith encouraged commissioners to decide formally what percentage of spending to keep in savings, or so-called fund balance. “How much fund balance is enough?” he asked. “Is 40% enough? Is 50 enough? Is 60%? Is 70?”

Back when commissioners held their retreat, the county’s savings stood at $182 million, or about 60% of spending. They were expected to climb another $35 million by June 30.

“There needs to be some metrics to where once we get to a place, we’re OK, and we don’t need to be taking money just to increase what’s an adequate fund balance,” Smith added. “If it’s not needed, we don’t need to take it.”

Commissioner Ted Godwin was uncomfortable setting a hard number. “I don’t think there’s an absolute answer to that,” he told Smith. “It depends on the circumstances.”

The county, for example, could need more savings in any given year if it had capital projects to tackle or extreme inflation to overcome, Godwin said.

Still, by the end of a lengthy debate, commissioners appeared comfortable with keeping 40-50% of spending in savings. Current county policy requires them to keep 20% in fund balance.

“Your 20% policy is certainly strong,” said Kyle Laux of Davenport & Co., the county’s financial adviser. “It’s very strong.”

But commissioners appear determined for Johnston to earn a AAA bond rating, which would allow the county to borrow money even more cheaply. And they think a fatter fund balance will help.

Commissioner Patrick Harris said Johnston’s already strong bond rating had saved taxpayers money. “I go back and look at that 30 million of taxpayer dollars that have been saved because of our strong credit rating, and I don’t want to do anything that’s going to hinder that,” he said.

But Laux cautioned against making 40% or 50% policy, partly because as the county’s budget grows, such a high percentage could be harder to maintain.

The rating agencies, Laux suggested, would be fine with a policy that said one percentage and an informal commitment to something higher. “Raising it maybe to 25% and then thinking about maintaining a level within that 50% range, plus or minus, I think it’s going to be viewed as very, very strong,” he said.

No matter what percentage becomes policy and which becomes practice, commissioners appear in no hurry to quickly spend down any excess savings. 

“I agree they need to come down to somewhere in the 45 to 50% range,” Commissioner Dickie Braswell said of savings as a percentage of spending. “I don’t think we should be in such a big rush to spend the difference.”

Braswell suggested perhaps investing the money and having it available when needs arise. “Because we make commitments. We made a $17.5 million commitment to the training facility,” he said, referring to a workforce development center in Four Oaks. “That’s a sizable commitment you probably couldn’t have made if you’d been sitting there with a 40 percent or 38% fund balance.”

Smith was unconvinced. North Carolina counties with savings of 40% have AAA bond ratings, he noted. “I think the danger is we’re taking too much,” he said.