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Fiscal Court Faces Tough Budget Decisions

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Members of the Letcher County Fiscal Court will meet in special session Thursday morning to discuss the county's grim financial outlook.

Phillip Hampton, the county's treasurer, warned members of the court last month that they would soon have to address the mounting fiscal concerns. Mr. Hampton said future payments for obligations could be delayed as a result of the cash crunch.

Only four months into a new fiscal year, the county's budget woes have been a long time in coming. Coal producing counties throughout eastern Kentucky have dealt with the same problem as Letcher County: declining coal and mineral production, high unemployment, and budgets more suited to prosperous economic times. While Letcher is the latest county government to be forced into considering the size and scope of its governance-Pike County passed a countywide occupational tax earlier this year to maintain services-the day of reckoning has been delayed largely due to the fiscal prudence of County Judge-Executive Jim Ward, his staff, and members of the court. When the Letcher County Sheriff's Department asked the court to allocate funds to maintain department services during the budget process in the spring, Mr. Ward remained adamant that the county could not afford it. Despite the uproar that resulted in a deadlocked court decision failing to award the sheriff's departments funding request, as it turns out, Mr. Ward was correct.

While there is no single explanation for the situation in which the county finds itself, it can be simplified into a simple formula: Declining Revenue + Rising Costs = Budget Deficits. State law prohibits counties from ending their fiscal years, which run from July 1 through June 30, with budget deficits, though as long as their budgets are positively reconciled by the end of the fiscal cycle, monthly deficits are acceptable. However, it would be imprudent, not to mention, politically untenable to operate a government in that manner.

One of the most significant drivers of Letcher County's current hardship is a decline in coal and mineral severance revenue. Counties receive a portion of the tax collected on production. Those funds are remitted quarterly, regulated by statute, and administered by the state's Department for Local Government. In Letcher County, severance tax funds are used for a number of different projects. They include, among others, funds for fire departments, domestic violence prevention, and roads.

Since 2007, the county has received nearly $27 million in severance tax funding in its Local Government Economic Assistance (or L.G.E.A.) fund. In 2008, the county received $4,104,251.61-the highest total of any year during Mr. Ward's admnistration. Of that total, $1,822,080.42 came from coal, while $2,282,171.19 was mineral. To date, the county has received a fraction of those amounts: $623,899.48 in coal and $569,213.26 in mineral through three quarters, leaving the county on pace to receive its lowest total since Mr. Ward took office in January 2007.

As severance funds have declined, many of the county's budget obligations have remained steady, or in some cases, risen. Salaries remain the highest expense for most county departments, while fixed costs, such as utilities and insurance, have risen steadily. The county employs some 140 people in various aspects of governance, from sanitation and roads to senior citizens and recreation.

The court will have few choices when it meets on Thursday. Unless a new revenue scheme is introduced, staff or services-and more likely, both-will need to be cut.

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Original Publication Date: November 4, 2015

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