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Unless Salt Lake County rebuilds its savings -- rather than drawing it down to ease the economic pain in next year's budget -- it could lose a coveted bond rating that saves taxpayers hundreds of thousands of dollars a year.
That triple-A rating has kept the county's interest rates low and defined it as one of the nation's 23 best fiscally managed counties.
But the unfortunate trade-off in preserving that rating in 2010 could bring higher taxes or spending cuts so deep that it would eliminate programs, shrink services or even lead to layoffs.
Is it worth it? That question will weigh on the minds of county leaders this fall as they try to balance a beleaguered 2010 budget that could require millions in either slashed spending or added revenues.
"We shouldn't have a triple A just to hang a pretty plaque in our government offices," Councilwoman Jenny Wilson said. "We have to carefully calculate the pure dollar cost. What is the least harmful way to solve a pretty significant problem right now?"
The county's bond rating functions much like a person's credit score -- it reflects how likely that borrower is to repay a loan. The higher the score, the lower the interest rate. Salt Lake County has remained at the top of that rating scale for more than a decade, earning a rare triple-A bond rating from all three rating companies: Fitch Ratings, Standard & Poor's and Moody's Investor Service.
Of the nation's 3,140 counties,
So what does that mean for taxpayers? A lower interest payment when the county used a parks and open-space bond to buy a 1,700-acre swath of Oquirrh Mountains wilderness known as Rose Canyon. And less money for a Zoo, Arts and Parks bond that now is building and upgrading recreation centers, parks and swimming pools across the valley.
Were the county's $375 million in outstanding debt downgraded by one step on the bond rating scale -- dropping to double-A-plus -- taxpayers would have paid an estimated $685,000 more a year, according to Jon Bronson, managing director of Zions Bank Public Finance.
But is a higher interest rate on future debts worthwhile if the county can extract millions from its reserve accounts and avoid -- or at least reduce -- the tax hike or spending strikes that might be needed otherwise?
County leaders are wary and, in some cases, outright opposed.
"It is virtually sacrosanct," Councilman Randy Horiuchi said. "The standards that triple A adheres by are good fiscal management for government. When you stray from those, it means you are not doing the best thing for your government."
Two out of three bond rating agencies recently warned the county that any future siphoning from its reserves would be frowned upon. Instead, officials should work toward strengthening those accounts.
"They are giving us a clear signal that we need to be careful," said Bronson, noting that the county's handling of its fund balance is "the biggest factor that will affect the rating."
Rating agencies typically ask that the county maintain a reserve amounting to at least 10 percent of its general fund expenses. With those expenses pegged at $226 million, the savings threshold would stand at about $22.6 million, according to Budget Director Lance Brown. As of the latest audit in 2008, the county had $22.8 million in those reserves.
Amid a troubling economic year that, in the words of Council Chairman Joe Hatch, includes "a whole series of very awful choices," county leaders now must decide how precious that triple-A rating really is and how hard it might be to recover it once financial sunshine again dawns.
Both are hard-to-answer questions that have as much to do with public policy as with money.
Mayor Peter Corroon remains a devout believer in maintaining the rating. Sacrificing it may grant the county short-term relief, he said, but it would come at a long-term cost through higher interest payments and a lower fiscal reputation.
"The triple-A bond rating is like gold," he said. "We need to do whatever we can to maintain that rating. It is a signal that Salt Lake County runs a fiscally responsible government."
The mayor offered few hints Friday about how he might balance the 2010 budget without jeopardizing that rating. Corroon suggested more severe spending cuts -- he previously talked about shutting down some fitness centers on Sundays -- but said he would not favor layoffs.
Those decisions are soon to come. The County Council will decide Tuesday whether to freeze wages and suspend for another year government's contribution to employees' 401(k) accounts -- a recommendation made this week by the county's human resources director. Corroon then will present his budget near the end of October.
