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Financial advisers warn Caroline County to stop relying on fund balance as a recurring revenue source
Summary
Davenport & Company presented a fiscal review showing revenue growth but faster expenditure growth, rising use of fund balance to balance budgets, and limited near‑term debt capacity; the firm recommended policy changes including a budget stabilization reserve and adjustments to debt limits.
Courtney Rogers of Davenport & Company briefed the Caroline County Board of Supervisors on March 25 on the county’s recent financial results, reserve levels and debt capacity as the county begins next year’s budget process.
Rogers said revenues grew from about $59 million to roughly $66 million over recent years, helped by interest earnings and local tax gains, but expenditures — especially public safety and general government — increased faster, eating the revenue gains. The firm flagged use of fund balance in adopted budgets: the '24 adopted budget initially contemplated using about $2.7 million of fund balance, and the '25 adopted budget included roughly $400,000 more use of fund balance to balance operations even after a one‑cent real‑property tax rate increase.
"If you use fund balance for ongoing operations, rating agencies will treat that as a management weakness," Rogers said. Davenport recommended the board consider a formal budget stabilization reserve (2–5% of operating revenues) separate from the unassigned fund balance policy and to consider a policy to transfer excess above a high threshold (illustrative 25%) into capital reserves.
On debt, Davenport reviewed the county’s outstanding borrowings and projected debt service. Using current budgeted debt service capacity (about $9.1 million) and conservative assumptions, the firm estimated the county could support roughly $24 million in additional debt from existing budget capacity over the next five years; under broader policy limits (15% annual debt service to revenues, 20‑year financing at 5%), theoretical capacity rises toward roughly $67 million, but Rogers emphasized that capacity is not the same as affordability.
Rogers and board members discussed utility projects under design, including a sewer interceptor and upgrades to wet‑wells and pump stations. Staff and consultants estimated additional interceptor work could be on the order of several million dollars — town staff mentioned an engineer’s estimate near $5 million for additional pipeline sections — and that well development work was underway to expand water supply.
The presentation included recommended policy changes: (1) create an explicit budget stabilization reserve (2–5% of operating revenues), (2) refine debt policy language to explicitly count utility debt as tax‑supporting when the general fund subsidizes utility operations and (3) consider raising the debt‑to‑assessed‑value threshold from 3% to 4% (still within Moody’s “moderate” guidance). Rogers closed by urging the board to avoid substituting recurring operating support with fund balance and to consider moving excess reserves into capital funding when appropriate.
No formal vote followed; the presentation was advisory for the budget season.
