Tuesday, October 28, 2008

Coming to a Local Government Near You - The Perfect Storm

It's coming. Few realize it, but the perfect storm is well on its way. It's about to envelop local government, but our only early warning system consists of a few voices in different local governments.

Bethlehem Township Manager Jon Hammer joins Lehigh County Commissioner Dean Browning and Northampton County Council member Ron Angle in warning us that local governments face dark times. In an well-written op-ed recently published by The Inky, Jon lays down the Hammer. Here's a taste.

Local governments throughout the country are struggling to make ends meet, and millions of Americans will be affected by significant decreases in services, significant increases in taxes, or both.

If your local government is telling you something different, it's not true.
Hammer notes a combination of increased contributions to defined-benefit pension plans; rising gas and utility prices; stagnant revenue; and crumbling infrastructure. Angle and Browning add a government whose cost is rising faster than its revenue and reductions in the amount of money coming from the state. In Hammer's words, it's a "bona-fide calamity," one blissfully ignored by most local government officials.

Defined-Benefit Pension Plans

In a defined-benefit pension plan, the employer commits to paying its employee a specific benefit for life beginning at his or her retirement. This type of retirement package is rare in the private sector, but quite common for government workers. No matter how lousy the stock market, the retiree can count on his annual pension.

In 2008, Northampton County contributed $2.36 million to its retirement fund. This year, the budget calls for $5.14 million, a 117.4% increase. According to Ron Angle, that fund is actually $50 million below where it needs to be. As the stock market continues to underperform, that contribution will increase dramatically over the next few years.

Lehigh County has been hit, too. This year, it had to contribute $ million to its retirement fund. Browning, who is looking for ways to contain this rising cost, notes the unfairness. "It is the private sector that pays the taxes that benefit the public sector. These benefits cannot be sustained long-term."

Rising Gas and Utility Prices

In his budget message, Northampton County Executive notes that "[h]eating and gasoline costs, mileage reimbursement and postage have all significantly increased." Department by department, that reality has taken a toll.

Stagnant Revenue

In the very first sentence of his budget message, Stoffa notes that "[p]roperty tax revenue is stagnant due primarily to the decline in the housing market." In Lehigh County, where revenues are also stagnant, they've been deficit spending since 2006, burning the candle at both ends. Nobody predicts a quick recovery.

Crumbling Infrastructure

Expect to see fewer decent roads. Hammer notes asphalt prices have shot up seventy per cent in some areas. Northampton County's prison, built around the time of civil war, is a lawsuit waiting to happen. Its parking garage is ready to collapse. Northampton County has already reduced the budget to maintain and repair its 115 bridges and Dean Browning worries how Lehigh will continue to find money for the upkeep on its 47 bridges. "We need to refocus on county core services. That does not includes rail studies or Pip the Mouse or Shad Tournaments."

Rising Cost of Personnel

Lehigh's personnel costs increase around 4.5% every year, but revenues are increasing only 2.5%. Every year, that gap gets bigger. In Northampton County, the workforce makes up 41% of the county's operating budget expenditures. Last year, we paid $87 million in salaries and $40 million in fringe benefits. This year, it's $6 million more, a 4.7% increase during a time in which total revenues have actually gone down 3.8%. It makes little sense to pay more when revenue is actually declining.

Reductions in State and Federal Pass Through Money

In a slumping economy, states are cutting back. In Pennsylvania, Rendell has failed to get the cash he needs to repair our rotting infrastrcture. There's a hiring freeze and ban on out-of-state travel. His last budget included spending increases for social services (6.6%) and education (5.5%), but contains no tax increases.

In the first three months of this fiscal year, state revenues are $300 million short of projections. By next July, that figure could be between $1 and $2 billion.

This is bad news for county governments, which rely on the state for around 70% of their total revenue. In this climate, Pennsylvania will be slow to reimburse counties for human services. Because Pennsylvania's own financial house is in disorder, reductions are inevitable.

This looming storm has gone unnoticed by the County Commissioners Association of Pa., whose top priority this year is "tax fairness now." But Browning and Angle are acutely aware of the damage this can do to a county budget.

Worst Case Scenarios

Browning is predicting a hefty tax increase or reduced services by 2011. Angle claims that, unless drastic measures are taken, county taxes will double in the next five years.

This is why the budget review is so important to county government. It's also why Browning would cut frills like "Pip the Mouse." It's why Northampton County Council's $500,000 "contingency" fund should be eliminated. Both Angle and Browning feel the county should focus its resources on its core services - the courts, corrections facilities, human services and row offices. Easton's State Theatre should look to country clubs to fund its new marquee. Pip the Mouse can get his cheese elsewhere. Right now, local governments need every nickel they can get.
Update: The Morning Call today reports that several LV road projects have been delayed. In the last 5 years, the price of construction materials has skyrocketed - fabricated steel is up 156%, asphalt has jumped 88% and even concrete costs 53% more.


Anonymous said...

I agree on many of the points. I still think these guys continue to play the 'pension' card because as true Republicans they despise the concept of 'defined benefit' for most.
There are still some older private sector retirees from dress factories and the manufacturing world who are collecting some 'defined benefit' pensions. These local giants of government will claim that is what destroyed the manufacturing sector. They have been blaring their tune since FDR leveled the playing field. Reagan gave them some tration with 'piss goes down' economics and it worked well. The gap between weathly and poor increased and has been on a continuing divide.
Defined pensions still exist under the guise of Executive compensation, bonsus and 'golden parachutes'.
Even after the hijinks of the Wall St. meltdown the piggies had the gall to start using the $700 billion 'taxpayer' bailout to fund Executive Pacakages.
Sorry guys, the age of Reagan and Bush is coming to a deserving end. You can only feed the people manure and call it fudge for so long. You may be successful in the short term in getting private sector folks hating public sector folks, since hate and fear is your strong suit.
But by the time this all washes out, the truth will be known and your desire to destroy pensions for everyone but the very rich will collapse much like your creedo of Greed first, Country second.

michael molovinsky said...

name coward 12:36, i'm not sure which party is responsible for the defined benefit pensions, and i doubt if you are either. here in lehigh county, democrat cunningham opened the back door to unions at cedar brook after his predecessors had fought it for years. the unions are advocates of straight democratic level pulling, including defined pension groups such as teachers.

Anonymous said...

12:36 is balls-on correct.

We all know the solution is to make rich guys pay more in taxes. Screw patriotism. Just take it.

That, and a couple of good gambling programs to provide property tax relief, which has worked so brilliantly in PA.

Isn't there something that can be taxed to save pensions? Of course there is.

Anonymous said...

I remain anonymous because I work in the public sector. My job, while important, is not critical. I see the purse strings tightening, the income falling, and a necessary pull back on services which will probably eliminate my position. I have even been telling people it will happen. But I am not excited about losing my job. The Depression is just around the corner, and the speed at which we are swirling into the drain is increasing.

michael molovinsky said...

anon 7:40, your job may be safer than you think. i see local taxes raising, perhaps a freeze, but not laying off. all levels of our government are headed by professional bureaucrats, who never met a public job which they don't consider critical. both pawlowski and cunningham hired new white collars, 33 positions at allentown city hall.

Bernie O'Hare said...

"I agree on many of the points. I still think these guys continue to play the 'pension' card because as true Republicans they despise the concept of 'defined benefit' for most.
There are still some older private sector retirees from dress factories and the manufacturing world who are collecting some 'defined benefit' pensions."

I am a Democrat and i believe we need pension reform. It is killing us. There's been too much greed.

Defined-benefit pensionsb are available to only 5% of the private sector workforce while it is a given in the public sector.

What really kills me is when I see public sector workers with three pensions. They earned 'em, but those pensions were not designed for that. In NC, your pension is vested in just 8 years. That's moronic.

Also, basing a pension on your top 30 days, as is done for Allentown cops, is insane.

I'm all for paying a living wage, but it's unfair to expect Joe Q Public to pay for these obscene pensions.

In 3 years, if the stock market remains bad, the county will be paying about $20 MM/yr. into that pension plan. Things need to change.

And free retirement health care for neww hires is another benefit that needs to stop. Lehigh County does not have it and nobody accuses Don Cunningham of being an R.

Bernie O'Hare said...

"I remain anonymous because I work in the public sector. My job, while important, is not critical."

We're all in the same boat, but local elected officials aren't trying to blog the leaks. They're just rerarranging deck chairs.

Anonymous said...

Anonymous said...
I remain anonymous because I work in the public sector. My job, while important, is not critical. I see the purse strings tightening, the income falling, and a necessary pull back on services which will probably eliminate my position. I have even been telling people it will happen. But I am not excited about losing my job. The Depression is just around the corner, and the speed at which we are swirling into the drain is increasing.

7:40 AM

It is time for government workers, and teachers (who prefer to not call themselves govt employees), to understand one very simple fact:

You work for us. We do not exist so that you can be comfortable. The PUBLIC created positions to serve the PUBLIC, and we will decide what we are willing to pay. We will come to that decision based on the necessity of the services you provide, the productivity you deliver, and current labor conditions. We reserve the right to settle for the generic product when it will do, rather than be forced to purchase a lexus because you say we need one.

No one believes gov't workers should not be compensated fairly. But how in the hell did we ever get to the point where the employees tell the employer how things are going to be?

Folks, the gravy train is running out of steam. The time is now to reform all public compensation and align it more with that of the private sector that provides it.

Joe Hilliard said...

I have been blogging about this problem - which will be accelerated by a lack of borrowing for local governments. This has fueled continued operational deficits, especially in Allentown. Mayor Pawlowski borrowed $33 million over two years to produce a $14 million "suprlus" over those two years. Do the math.

However, please do not tout Commissioner Browning as a prophet. I supported Dean based on his claims as a candidate. However, he personally voted for a budget with a $12 million operating deficit which raids existing surplus funds to balance the books. As we head into tougher times, such an act is incredibly irresponsible.

All those special interest groups who beg taxpayers for more and more money better realize something. The gravy train is coming to an end. Massive tax hikes are not an option. More borrowing is not an option. Government must be cut by significant amounts, and not in core services like public safety.

All those other 'nice' programs will have to be cut or eliminated. Then those programs will have to do what the rest of us have to do - earn the money we spend.

Anonymous said...

For the life of me, here in the Lehigh Valley, can someone tell me what LOCAL government is overstaffed with so called fat cats and what kind of salary are they receiving. I bet there are none. Ever go to Northampton or Lehigh County or any local government office and try to get someone or speak with someone? Well, I have and it is difficult. Not that people don't work there, but there are not enough of them. The Recorder of Deeds office, tax office, permit ocunters come to mind. Here in the Valley, the locals have done a good job. The problem if you cut anymore local government jobs, government will cease to exist and there will be no service. That scenario is just unacceptable. Good job to all the local government workers out there. You are doing a fine job despite the anti government naysayers on this blog and others.

Bernie O'Hare said...

Anon 6:00 PM,

You are basically right in that the a very high percentage of government workers are dedicated and hard-working. Still, we need to get a grip on those spiraling pension costs. There is too much potential for abuse.

Also, I have watched five different county executives. Believe me when I tell you, that "hall walker" jobs have been created in the past to take care of political hacks. The people who resented them the most were other county workers.

Anonymous said...

Stoffa not only has his onwn 'Hallwalkers' as they are known.

But what about his multuole public pensions, Bonnie. He's collecting a Northampton County Pension, while he gets paid by Northampton County. Not to mention the Lehigh County Pensions.

Step up to the truth. Your manfriend is fleecing the taxpayers.

Bernie O'Hare said...

I am uncertain whether Stoffa is collecting his pension, but I do not fault people - county executives or deputy sheriffs - who are beneficiaries of multiple pensions. I fault the system, which must be changed.

Joe Hilliard said...

Anon 6:00,

Allentown was surviving 7 years ago with 49 less bureaucrats.

People who raise these questions aren't "anti government".

We merely ask why are 49 more papershufflers necessary to the survival of the free world. And in another few years, why will another 30 or 40 more bureaucrats be necessary?

Anonymous said...

I am 7:40. My job accomplishes alot for the gov't sector I work in, and I often save the taxpayers money. I have more than earned my salary, but still, the job is not critical. We will still have police, and fire protection, and lights will go on, and potholes will be filled, and snow and leaves collected. But it will operate less efficiently without me. Losing my job will ultimately cost taxpayers more. But my position will still be among the first to go, I believe, because it does not translate into direct needs. The decision makers at the top don't see the connection. By the time they 'get it', it will be too late. It is like the movie "Perfect Storm" in that the people involved don't see the big picture. And so it envelops them, and they are out of the picture, but the picture never changes.