Auditor: Debt repayments 19% of spending

Last updated: April 08. 2014 11:17PM - 1901 Views
By - jandes@civitasmedia.com

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Prison expenses that went millions of dollars overbudget and $3.58 million in budgeted back-tax revenue that didn’t materialize were cited as two main reasons Luzerne County spent $7.4 million more than it brought in during 2012.

Delays implementing layoffs budgeted for 2012 also contributed to the overspending, auditor Andrea Caladie, of ParenteBeard LLC, told a council committee Tuesday.

ParenteBeard briefed council members as a follow-up to its recent release of the 2012 draft audit.

The county ended 2012 with a $3.7 million shortfall on its financial record because the prior year closed with a $3.7 million surplus, she said.

To clear the deficit, the county must bring in $3.7 million more than it spends in subsequent years, Caladie said.

County Budget/Finance Division Head Brian Swetz told council he is optimistic the county will end 2013 with no surplus or deficit, though the final verdict will come with release of the 2013 audit, which is due June 30 under the home rule charter.

In comparison, the county ended 2009 with a $13.4 million surplus. However, Caladie cautioned the 2009 surplus was artificially created by borrowing funds — not keeping expenses far below revenue.

County officials have an interest in presenting a strong fiscal position to obtain a credit rating needed to refinance debt at lower interest rates.

Around 87 percent of the county’s revenue comes from property taxes, compared to 60 percent in most governments, Caladie said. The unusually high percentage has become necessary due to the county’s excessive debt, she said.

The county ended 2012 owing $397.7 million in debt — $277.9 million principal and $119.8 million interest. Another $25.2 million was paid in 2013. Debt repayments account for 19 percent of county spending, compared to the norm of 10 percent in a “healthy organization,” Caladie said.

Around $93 million of the outstanding debt was borrowed to cover non-capital expenses — $30 million for employee pension fund subsidies and the rest to cover operating expenses and debt repayments, she said, describing it as a “significant number.”

Councilman Harry Haas asked Caladie if she’s aware of other governments borrowing to cover operating expenses. The practice has occurred elsewhere, she said, but nowhere near the extent it has in Luzerne County.

During public comment, Exeter resident George Race urged council members to research the possibility of legal action against past county officials who authorized borrowing to cover operating expenses instead of making spending cuts.

“We may have recourse against these fools who did this to us,” Race said.

Weaknesses cited

ParenteBeard auditor Adam Hartzel highlighted several weaknesses identified in the county’s internal controls:

• The same employee sometimes initiates payments and issues checks, instead of segregating the duties.

• Reconciliations of some accounts are not completed at least monthly.

• Some payroll disbursement duties are not segregated, resulting in the same person adjusting pay rates and processing payroll.

• The county has no comprehensive written document outlining accounting procedures that must be followed by employees.

Councilwoman Linda McClosky Houck asked if the 2013 audit will be completed by the June 30 deadline.

ParenteBeard representatives said the initial audit took more time because it required new information that had not been compiled in the past to meet government accounting standards, and county staffing shortages and turnover slowed up the preparation of this data. The 2013 audit should be completed faster because a lot of this “heavy lifting” has been done, Hartzel said.

Councilwoman Kathy Dobash complained that the $7.4 million overspending wasn’t addressed in 2012 because the administration is required to spend within budget.

Dispute over Sterling

In other business Tuesday, county Community Development Director Andrew Reilly told committee members the county continues to contest a federal audit recommendation the county put $6 million back into its business loan fund in connection with the Hotel Sterling project.

The U.S. Department of Housing and Urban Development (HUD) inspector’s office said the fund replenishment was warranted in 2012 because the county did not “properly evaluate, underwrite, and monitor its loan” to the nonprofit CityVest for the Sterling project in downtown Wilkes-Barre.

HUD has not made a final determination in response to the inspector’s recommendation.

Reilly said the county has requested a meeting with HUD officials in Washington, D.C., to discuss the matter. He said the loan fund contains about $13 million and has said the pot contains about $5 million in non-federal funds that could be counted as reimbursement if necessary.

The nonprofit CityVest spent its $6 million county loan on consultants, enlarging the parcel and tearing down another structure on the 4-acre lot. Wilkes-Barre condemned and demolished the hotel and is taking legal action to obtain ownership in an attempt to sell the site to a developer.

The county will receive any sales proceeds after the city is reimbursed for demolition, officials said.

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