GATESVILLE – On June 22, the Gates County Board of Commissioners approved a balanced budget for the 2010-11 fiscal year. Eight days later, that budget faced a deficit.

Thanks to a new state budget, one signed June 30 by Gov. Bev Perdue, the distribution formula to all 100 counties from NC Lottery proceeds has changed. In Gates County’s case, as it does throughout the state, that means less money coming in from Raleigh.

The 2010-11 local budget listed $235,000 in Lottery revenue. That money is used to help offset an annual debt service payment of $635,981.67 against a $6.5 million loan the county approved in 2007 for school construction projects – additions at Buckland and T.S. Cooper elementary schools and a new gym at Gates County High School.

However, the new distribution formula of Lottery proceeds lowers Gates County’s share to $148,957.

To address its $86,403 shortfall, the Gates County Commissioners met July 2. After a 50-minute debate over how to cover that deficit, the commissioners opted to table the issue and have County Manager Toby Chappell give them monthly updates on the status of other possible sources of revenue that could be used to cover the Lottery shortfall.

At the outset of last week’s meeting, Chappell laid out the possible scenarios the commissioners could use to address the shortfall. He stressed to the board that he did not endorse any of the scenarios…only presenting them as possible avenues the commissioners could take.

Those options included using Fund Balance, a one-cent property tax increase, converting 911 funds to the General Fund, doing away with the county employee raises already approved in the current year’s budget, taking the money from the schools’ Capital Outlay fund or performing a two percent budget revision for each department of county government.

Before the discussion started, Commission Vice-Chair Kenneth Jernigan noted that lottery sales could increase, thus lowering the county’s shortfall.

“But then again, those sales could decrease, causing us to face an even higher deficit,” Jernigan said.

“If the first two quarters (of the new fiscal year) come in and they show that Lottery sales have reached unprecedented highs, we could make the whole $86,000 back,” Chappell said.

As far as his options were concerned, Chappell told the commissioners, “You can do one of these, two of these, a combination of these or none of these. That’s a decision for the board to make.”

Chappell did point out that the actual shortfall would be $57,403. That was due to the county not taking the two-third’s hit in beer and wine tax revenue that was anticipated. This means the county’s budget will gain an additional $29,000 from that stream of revenue.

Commissioner Carlton Nickens stressed that he was not in favor of reducing the school’s Capital Outlay money.

“I’ve spoken with (Gates County Schools Superintendent) Dr. (Zenobia) Smallwood and they do have plans for that money,” Nickens said.

Commissioner Henry Jordan said the county could be in line for a share of a $32 million pot of money, the product of Lottery sales greatly exceeding their projections for 2009-10. Jordan said information he had showed that pot of money possibly being distributed to those counties whose effective property tax rate was below the state’s average. He said he felt Gates County’s rate met the criteria.

“It’s worth us looking into that to see what we could get from that fund,” Jordan said.

Jordan added there were other financial unknowns that could either soften the blow of the Lottery deficit or cover it all together. He pointed to the county possibly doing a better job in collecting back taxes.

“Is there an urgency at this point to specifically try to designate a particular line item to bring these funds from,” Jordan asked. “Even if we did do this using General Funds there’s a great possibility that we could backfill it very quickly with these potential unknowns we’re talking about.”

“If we did nothing today; if we don’t balance our budget today, are we breaking the law,” Jernigan inquired. “We accepted a balanced budget the other day (June 22). Today it’s not balanced through no fault of our own…it’s because of what the state did.”

“No, we’re not breaking the law” answered Chappell. “With the information you had at that time you passed a balanced budget.”

Questions were raised over the right to use 911 Funds – normally earmarked for answering 911 calls – for the purpose of covering a shortfall in the Lottery proceeds. Chappell explained that the state legislature is currently looking at opening up a portion of this stream of money for use in other areas over the next two years.

Commission Chair Graham Twine pondered using some of the 911 money and school’s Capital Outlay funds to cover the Lottery deficit.

“We’ve got problems in our schools…that money (Capital Outlay) needs to be used to address those problems,” Jordan said. “Our children are subjected to conditions that they do not need to be subjected to. I feel we need to look at the 911 money to cover the Lottery deficit. We can backfill the 911 fund money if these other unknown sources of revenue come in.”

“I do not want to go into our Fund Balance to cover this,” Commissioner Wade Askew said. “We’ve worked hard to build this up.”

“It’s just like a personal checking account,” Nickens told Askew. “Sometimes you don’t want to go into that checking account, but things do happen to cause you to do so.”

“The fund balance is our safety net,” Jordan said. “We’re going to put the squeeze on our county departments – telling them to do more with less while we sit on this security. It seems we’re trying to hold on to something we can backfill. What we’re doing is borrowing from ourselves. We’ve got over $1 million due in back taxes. Why can’t we go hard after those taxes?”

Jordan also advised that, going forward, the county should budget incoming state funds – which he said are forever changing – more conservatively.

“We got a good, balanced budget that we’ve already passed and that budget should be good this morning,” Nickens noted. “I do not want to see us going into any of our departments to find money to cover this Lottery deficit. I say let’s wait and see if any more new money, like the addition of the beer and wine tax money we heard about this morning, comes in.”

“If you feel not to deal with the $57,000 then so be it,” Chappell said. “But what I’m telling you is that if these numbers stay true until the end of the (fiscal) year, then you’ll have a $57,403 deficit.”

“Let’s keep these options on the table and keep in mind the idea that other revenue may come in and in September or October let’s see where we are on this,” Jordan suggested. “Let’s see if we need to make a budget amendment at that time rather than doing it upfront today.”

“My only issue with that idea is that it puts the schools in limbo if they had an immediate capital project planned….they’ll have to wait if we decide to wait a couple of months before making any revisions to our budget,” Chappell noted.

“Maybe we should sit down and discuss this, talk with Dr. Smallwood to see what her plans are,” Twine said.

“If we have to go into our Fund Balance, then we’ve got to do it, no matter if we want to or not,” said Nickens. “I’m sure Hertford County didn’t want to go into their Fund Balance for some $1.2 million, but they did so in order to keep from raising taxes.”

“We did a great job, our departments did a great job, in passing what I feel was a good budget,” Jernigan said. “We heard earlier in this meeting that we’re not violating the law if we do nothing today. Maybe if we table it, sit on this and hope that some money comes in that we don’t know about right now, it just might reduce this $57,000 deficit.”

“It seems that every time we have a problem we seem to automatically look to Fund Balance, I have a problem with that,” Twine said. “I don’t want to set the precedent of jumping in to Fund Balance every time a problems pops up or we’ll wind up having no Fund Balance.”

Twine continued, “I have no problem with tabling this and keeping our eye on this, but we must be aware that there is a deficit here and that deficit isn’t going to go away unless we find the money to make it go away. If we table this we need to talk about this at every upcoming meeting to see if anything has changed.”

“I don’t like to go into our Fund Balance either, but that’s why you have a Fund Balance to begin with, to go into that pot of money to fund unexpected emergencies such as this,” Nickens stated.

Jernigan motioned to table the issue and for the county to keep the issue on its radar screen. Jordan offered a second and the motion was approved without objection.