HURLOCK – Hurlock is “healthy” according to CPA Roy Geiser of the TGM Group. Those words were music to the ears of Mayor Joyce Spratt and the Town Council when Mr. Geiser presented the annual audit on Feb. 13. That word, “healthy,” meant that Hurlock was among very few small towns on the Eastern Shore that are financially viable and even ahead of the game.
Mr. Geiser offered a rosy picture of the town’s finances noting that the Government Finance Officers Association (GFOA) recommends enough funds to support a town for two months and Hurlock has funds for a year.
Using rounded off numbers, Mr. Geiser said the town’s total net position is $8,400,000 of which $8,300,000 is capital assets (buildings, etc.) and $100,000 is unrestricted. The total net position rose by about $250,000 over FY2015.
Governmental Activities expenses include: General government, public safety, highways, public works, recreation, interest on long term debt. Business-type Activities includes: Water and sewer transfers, depreciation and amortization, and interest on long-term debt.
The Balance Sheet for the Governmental Fund does not include long term debt, fixed assets, or long term pension and health expenses for retirees. The Fund Balance was $2.5 million at the end of the fiscal year. The non-spendable amount is $44,800; restricted funds are $22,000 and unassigned totals equal $2.4 million. That was really good news. The GFAO (Govt. Finance Accountability Office) recommends having a two month reserve minimum in the General Fund for expenditures. “We’re good for a year,” said Mr. Geiser. “That means we have a nice, healthy fund balance. I can’t say that for some other towns on the Shore but I can say it for you guys.”
Total revenues were $1.9 million and total expenditures were $3.9 million with a $2 million deficiency of revenues to expenditures. However, other financing sources included; Insurance proceeds of $6,000; proceeds from issuance of debt of $1.3 million (that amount is how the accountants show the funds from the police station loan); and transfers to the General Fund from the Water and Sewer Fund were $1 million. Including the transfer, the Government Fund rose by $389,000.
That meant operating revenue is about $2.5 million; operating expenses are about $1.5 million. So the town is about $1 million over the breakeven point. That is basically an unchanged net position from FY 2015 to FY 2016.
Debt is pretty straightforward, noted Mr. Geiser. The town paid $321,000 on existing bonds and notes payable and borrowed $2 million to build the new police station and tackle the water main project. Construction was $1.6 million for the building and almost $1 million for the water main replacement. Both projects were completed.
When the discussion turned to future cost estimates for pensions and retirees health coverage it gets complicated. Mr. Geiser explained that the town is part of the Maryland state pension system and its percentage of the total net pension liability is 0049691 percent, or about $1 million. The regulations require that amount to be counted as a liability and amortized over 30 years.
According to Mr. Geiser “there’s a big change coming down the pike concerning OPEB (Other Post-Employment Health Care Benefits). No one knows what the health costs will be.” Hurlock employees with at least 16 years of credited service plus spouses and eligible minor children participate in the Maryland State Retirement Pension System. Elected officials, their spouses and eligible minor children are also eligible based on the number of terms served. As of 6/30/16 ten retirees and their families are receiving benefits. The net obligation rose in FY2016 by $282,000 to $1.7 million.
The estimated liability for Hurlock is $3.2 million with no current requirement to fund it. There are few towns this size that are funded. Mr. Geiser predicted it will “probably be a big hit to a lot of towns.” Now the liability is just “a paper entry. This is a way of showing the town what it (future benefits) will cost ... Now it’s $3.2 million we think. But that number could go way up or down based on one or two little inputs. The other thing is because you don’t have a lot of people in that plan if one or two pass away that’s a drastic change in what that number could be.”
Attorney Robert Merriken asked if there is an advantage if the town funds even part of the obligation. Mr. Geiser responded, “If you’re funding it you’re basically taking assets and putting it in a trust. The advantage is it will start building on itself. The key thing is to keep your ears to the ground. I would gamble at some point they are going to require you to fund these things. It’s encouraging that you are even in the position to even think about funding that.”