The Luzerne County manager’s 2014 proposed budget presented for consideration by the county council requests a 42 cent increase to next year’s millage rate.
For the owner of a $100,000 home, this would translate to an annual county tax bill of $574, up $42 from the previous year’s tax of $532. Of this amount, $143 would be immediately obligated for debt service, leaving $431 for the support of county operations.
The millage increase is requested because General Fund revenues have structurally declined by $6.3 million from 2013. Ending the practice of monetizing unpaid tax revenue reduces General Fund revenue by $4.3 million and the ending of certain reimbursements reduces revenue by another $2 million.
On the expenditure side, a variable rate reset will increase debt service costs by $1.8 million, medical inflation boosted employee health care costs by $1.4 million, and pension costs rose by approximately $400,000.
General Fund salary costs are reduced by a total of nearly $600,000, the net of workforce reductions and contractually obligated wage and longevity increases. The budget contains no padding, slack or hidden funds to accommodate general wage increases for contracts expiring on Dec. 31. Those who rush to compare Luzerne County to Detroit may note the following: Detroit’s proportion of debt service costs to personnel costs is approximately 25 percent. Luzerne County’s proportion of debt service costs to personnel costs is approximately 50 percent — twice that of Detroit.
The net of revenue decreases and expenditure increases totals approximately $9.4 million. Approximately $8 million would be derived from the millage increase, and the remaining $1.4 million will be resolved by cost reductions prior to the budget vote. The proposed budget would meet 2014’s obligations with 2014’s revenues, finally placing Luzerne County’s operating expenses and debt service costs on a pay-as-you-go basis.
Since 2012, and in the 2014 proposed budget, county government has been reduced and reformed in ways both subtle and significant. The county workforce has been pared by at least 75 funded positions, down to 1,435 full time equivalents (FTE). Northampton County, slightly smaller in population than Luzerne, and Lehigh County, slightly larger than Luzerne, will each have approximately 1,400 employees in 2014.
County Budget and Finance will collect county property taxes in 2014, for a savings of more than $200,000. Other examples of new business processes include: moving mandated indigent defense functions from the courts’ jurisdiction to that of the county solicitor for annual operating savings of $100,000; Budget and Finance replaced $100,000 in contracted accountants with a senior accountant on staff at a salary of $45,000; and, workers’ compensation claim costs have been reduced by 33 percent from 2012. Banking services and major software solutions were acquired through a competitive process with openly-solicited proposals reviewed and recommended by panels of county employees.
These changes might not make headlines, but they make a difference in how Luzerne County does business.
Residents curious about county government’s relevance to their lives will find much of interest in the online budget document. The 2014 proposed budget includes, for the first time, narrative descriptions of divisions and departments, setting forth expenditure history, mandated functions, goals for the coming year, activity measurements and comparative data. All contracts signed by the county manager are posted on the county website, as are narratives of each budget transfer, the results of all Right to Know Requests and many documents once accessible only at the courthouse.
There are those who say the financial shell games of prior county administrations are immaterial to this budget. I respond in the words of the philosopher Santayana, “Those who cannot remember the past are condemned to repeat it.” The poor choices of years past will make every budget decision both difficult and unpleasant for years to come.
In the span of only seven years — from 2003 through 2010 — Luzerne County’s bonded indebtedness tripled, from $99.6 million to $298.1 million. By one estimate, approximately $70 million found its way into General Fund spending and offsets as “working capital,” was applied to unfunded pension liabilities, was used to fund workers’ compensation costs and was given away to localities and nonprofits in the form of non-repayable “capital grants.”
During this borrowing and spending spree, the county boosted spending even more by monetizing more than $22 million in unpaid taxes. Although monetization provides an immediate infusion of cash from prior year taxes owed, the amount is discounted by 10 percent or more. Further, because prior year taxes are generally paid two or three years after the year in which they were due, monetization interrupts that revenue flow in subsequent years.
Imagine a tank with inlet and outlet holes in its top. When the tank fills completely — as unpaid taxes accrue for two or three years — water flows out at the same, steady rate it flows in. Scoop out the tank’s contents before it fills, and you’ll get water quickly, spill 10 percent of it on the ground, and never achieve a normal, consistent outflow.
Even with nearly $100 million in bond proceeds, refinancing and monetization monies at its disposal, the county ran General Fund deficits of minus $13 million in 2006, minus $13.6 million in 2007, surpluses of $5 million in 2008 and $12 million in 2009 due to debt issues and restructurings, then back to deficits of minus $5.6 million in 2010 and minus $6.5 million in 2011. Millage rates remained unchanged in 2006, 2007, 2008 or 2011, even as deficits mounted. The 2010 deficit of minus $5.5 million accrued even as the millage rate increased by 15 percent.
Years without millage rate increases were purchased with tens of millions of dollars in non-recurring and quick fix revenue, by exhausting fund balances rolled forward from prior years, and applying revenue from land sales, monetization and bond issue “working capital.” Therefore, the 2014 millage pays both the cost of county government in 2014 and a portion of the bill left over from the days of wine and roses and taxes deferred.
The budget now before council turns fully away from the destructive practices of the past, and places Luzerne County at the beginning of the long road to recovery. To be sure, it took some time to eliminate prior bad habits. The 2012 budget included the use of $1.4 million in bond proceeds to pay debt service costs. The 2013 budget assumed $4.3 million in monetization revenue — ultimately made unnecessary by the receipt of unanticipated revenue during 2013 — while reducing county government’s size and cost from the previous year.
Although Luzerne County government stands encumbered by debt, burdened with a negative fund balance and holding the barest minimum of a General Fund reserve, finally we stand on our own two feet. I strongly believe that the proposed budget’s fiscal integrity will move Luzerne County another step closer to our common goal of financial sustainability, and I welcome the county council’s contribution to perfecting its details.