Wednesday, August 29, 2012

Davidson Eyes Spending Money From Mi-C New Agreement

Last night, the Davidson Town Board began a series of discussions on how to spend the money freed up by the renegotiated interlocal agreement with Mooresville on Mi-Connection. 

Here's a prediction.  Lower taxes or fees will not be on the agenda. 

Instead, the Town appears to be ready to start spending again (at least for a while) as if the Mi-C problem has been solved.  Unfortunately, that's not at all the case. 

The new Mi-C agreement caps Davidson's annual payment on the subsidy at $1,000,000.  However, it does not absolve Davidson of the Town's debt in any way.  Any amount Davidson would owe above $1m becomes an interest free loan owed to Mooresville.  That debt will increase every year Davidson Commissioners choose to spend this money on anything other than socking it away to pay back that debt later.  This makes these spending decisions the equivalent of putting them on the Town credit card.

Davidson's initial proposed budget for 2013 (prior to the renegotiation) predicted a $2,087,116 subsidy for Mi-C.  After the new agreement, the $1m cap then frees up $1,087,116.  So, the question is what has already been done with that money, and what could/should be done with the remainder. 

Here is what has already been done:
  • The adopted budget for 2012 spends $325,177 of this by eliminating an additional draw on the fund balance. (See Fund Balance line item on Pg11 of the proposed budget that is not on the adopted budget.) 
  • $408,000 has been allocated in the 2013 budget to an account that will rollover to fund balance at the end of the year. 

These uses are good things because additional reductions in fund balance would get the Town dangerously close to forcing the State Local Government Commission to act.  Those actions typically mean higher taxes - something nobody wants.  Also, replenishing the fund balance by $408,000 brings Davidson back to a roughly 40% fund balance ratio which is healthy.  Together, these stabilize the Town's savings account. 

However, they also mean we will owe Mooresville over $700k at year end.  The remainder from that $1.087m is over $353k.  The question the Town Board should really be asking is this.

Do we have needs that truly justify adding any of that amount to the Town's credit card?

That's the question to be answered over the coming weeks.

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