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Most people know low interest rates mean lower mortgage payments and lower car payments, but few realize they could result in a cut in services and higher taxes.

Because almost every government entity depends on investment earnings as part of its revenue, those revenues drop when interest rates drop. And this year they've really dropped.In total, the budgets of government entities in Utah County expect to come up about $1.3 million short this year in interest income. Those with the biggest shortfalls are scrambling to cover expenses and balance budgets. Those with small shortfalls are making minor adjustments.

Hit hardest by the low interest rates are Alpine and Provo school districts. Alpine officials budgeted for more than $2 million in interest earnings during the 1991-92 fiscal year. The district only expects to collect about $1.25 million.

"At this point in time there is not reason to panic," Alpine Superintendent Steven Baugh said.

Still, the district recently implemented cost-reduction measures in an effort to reduce budgets by 10 percent. For the remainder of this fiscal year, district administrators will review all vacancies before positions are filled. Also, principals and teachers are encouraged to conserve energy and to be frugal in using health benefits to reduce utility costs and insurance costs.

Provo School District budgeted for $617,831 in interest income and expects to come up about $200,000 short of that. Interest earnings are important to school districts because they supplement budgets and help keep taxes down, said Lynn Smith, Provo School District budget administrator.

"Rates have dropped enough that we may have to cut our projected earnings by about one third," he said.

To cover the anticipated shortfall, Smith said administrators asked principals and teachers to reduce travel budgets and to conserve supplies and materials. Also, teachers were told to make wise use of substitute teachers.

Nebo School District is a little more fortunate than Utah County's other two school districts. According to Nebo business administrator Errol Smith, Nebo has much of its reserves invested in a tax anticipation note pool that guarantees the district a 6.4 percent return. Nebo is expected to have a shortfall of only about $50,000.

Although most cities will have interest-income shortfalls, the impact does not appear to be as significant. Keith Haslem, Provo City budget officer, said Provo projected $220,000 in interest income in the 1991-92 budget, yet collected only $62,872 through December. Orem officials said they are running about 20 percent behind in interest-income collections. Still, the anticipated shortfalls for both cities will be less than half of 1 percent of their general fund revenues.

"It's not a real cause for alarm," Haslem said. "It will probably be made up with other unanticipated revenue, so it washes out."

Other cities are echoing Haslem's sentiments. Springville City Recorder Richard Manning said sales tax collections are up and the city has sold more power than expected. Other city officials said their shortfalls will be minor because they anticipated the low interest rates and budgeted conservatively.

Utah County Treasurer Leonard Ellis said the amount the county loses in interest income will be made up by interest saved in paying off tax anticipation notes. Ellis said the county's budget will not be significantly affected by its $40,000 anticipated shortfall.


(Additional information)

The shortfalls

Estimated revenue shortfalls in 1991-92 budgets in interest income:

Alpine District $750,000

Provo District $200,000

Provo City $100,000

Springville City $80,000

Nebo District $50,000

Utah County $40,000

Orem City $30,000

Pleasant Grove City $20,000

Spanish Fork City $14,000

American Fork City $10,000