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Calvert County’s main operating fund ended fiscal 2012 with a budgetary loss of $500,935, the county’s independent auditors told the commissioners Tuesday.

The independent auditors, Murphy and Murphy, CPA, LLC, presented the Calvert County Board of County Commissioners the results of the audit for fiscal 2012 during Tuesday’s meeting.

According to the Comprehensive Annual Financial Report, the largest component for the loss was a decline in income and property tax revenue, which composes 89 percent of the county’s general fund.

Property taxes accounted for 62 percent of the total general fund for fiscal 2012, the report states, noting the decrease in property values as a main driver for the lower property tax revenue.

“This decrease in value is expected to lower the real property tax revenue in fiscal years 2013 and 2014,” according to the report.

The auditors explained during the presentation that there was a negative variance in income tax of $550,956 from the final budget.

Income tax revenues, which accounted for 27 percent of the total general fund for fiscal 2012, “were strong in [fiscal] 2012 and based on projections by the State of Maryland, moderate increases are expected to continue,” according to the report. Income taxes are directly affected by personal income levels, employment levels and population growth.

The general fund, said auditor John Crawford, remained “relatively constant” over fiscal 2011 and 2012, at $66,543,067 and $66,515,686, respectively.

“Obviously, a lot of folks will zero in on that it showed we had a negative balance of $550,000, but in reality … it actually worked out to about $27,000 cash loss,” said Commissioner Gerald W. “Jerry” Clark (R).

Director of Finance and Budget Tim Hayden explained in a phone interview Thursday that Clark was referencing the impact of outstanding purchase orders at the end of the year on the modified gap, or fund accounting, basis of the audit, which reflects the impact of those outstanding purchase orders.

The budgetary basis of the audit reflects “cash in and out the door almost 100 percent,” Hayden said, adding that there are a few exceptions. One of the exceptions, he said, is the outstanding purchase orders that become a real expense in the current fiscal year. Hayden said that is when a change occurs in the modified gap basis of the audit. “Those purchase orders are backed out of the fund basis,” he said. “In this year, the impact actually lowered our loss from $500,935 to $27,381.”

“So, we came pretty close to hitting it on the head,” Hayden remarked, adding that it is one way to look at it.

Clark also said Tuesday, “The thing that always sticks in my mind, and [County Administrator] Terry [Shannon] and Tim tell me I shouldn’t think this way sometimes, but, we also did a budget adjustment where we moved $2 million out of the [other post-employment balance] funds to funds, or [a fund balance] line item reserve to fund OPEB by $2 million. That’s recorded as a liability, but it’s not recorded as a revenue, so on a cash basis, in the worst case scenario, my mind tells me actually we had a million and a half dollars extra for the budgetary project process for 2012 in reality. We’re absorbing the liability, but we’re not putting the revenue up here; we’re taking the funds out of a line item reserve fund to plug that hole. So cash-wise, where it may show we lost half a million dollars, on the cash basis, we were actually a million and a half dollars ahead.”

Hayden explained that in June 2012, the county decided to fund the OPEB fund with the fund balance. He said the concept is to “spend our savings to cover that loss.”

He said the county planned for a $2 million loss, but “when everything else got done, it came out to a $500,000 loss.” The other line items in the budget, he explained, had a $1.5 million positive variance in the budget, which “offsets” the $2 million and leaves the county with a deficit of $500,935.

“We already knew that we had a $2 million loss, so that we had a $500,000 loss is really good,” Hayden said.

The ending fund balance was $66.5 million, of which $18.6 million was committed for the stabilization arrangement in the committed fund balance for contingency and emergency situations. According to a county resolution from June 2011, the county is dependent on the revenues from the two largest tax payers currently in the county, Dominion Cove Point LNG and Constellation Energy Nuclear Group, and in the event of a decrease in their revenue, the stabilization agreement fund is a short-term replacement source for the county.

Department of Finance and Budget Deputy Director Joan Thorp said the stabilization arrangement is a way for the county to protect itself should the revenues of the large tax payers in the county decrease.

“It’s like a cushion,” she said.

According to the presentation, the county’s net position is about $207.9 million, a $0.1 million decrease from the previous year. County government activities’ net position increased $0.2 million, while business-type activities’ net position decreased $300,000.

The total expenditures, the auditors said during the presentation, were less than budgeted by $2.5 million.

The audit found that no transactions were recorded without authoritative guidance, all significant transactions were recognized in the proper period and management estimates were determined to be reasonable.

Consultant hired for Prince Frederick plan

In other business, the BOCC unanimously approved a budget adjustment in the amount of $95,000 for bringing in a consultant for the Prince Frederick Town Center Master Plan. The consultant is meant to expedite the process, resulting in a “charette,” or multi-day collaborative design and planning workshop held on site and inclusive of all affected stakeholders.

Susan Billick, a resident, gave public comment saying she was interested in the commissioners revising the Prince Frederick Town Center Master Plan.

“I was really astounded to see that you had permitted $95,000 to hire a consultant for this project,” she said, adding that the surprise was because the commissioners are usually “conservative” financially. She said that it’s hard to see why the things the consultant will be doing can’t already be done in-house.



aharrison@somdnews.com