Tax Rebate or Eating the Seed Corn?

It was October, 2003. After years of profligate spending, Northampton County Exec Glenn Reibman was about to give us the double whammy - a major tax increase and a large workforce reduction - the first major lay off in county history. A local union was able to delay the inevitable at Christmas, but at least forty union employees were let go in mid-February, 2004. Those who remained saw frozen wages and a 63.5% tax increase over just two years.

How did this happen?

Every year, Reibman kept dipping deeper and deeper into the unrestricted cash reserve. It's what council member Ron Angle calls the county's "seed corn." Instead of setting aside a reasonable amount of money every year, Reibman kept reducing the amount of cash on hand, money needed for everyday expenses as well as unpleasant surprises like unfunded mandates.

Instead of planting our seed corn, we were eating it. When it was all gone, we had to raise taxes and cut services.

This fiscal incompetence cost Reibman his job. But strangely, Council members Lamont McClure and Charles Dertinger want to repeat that folly. They are the driving force behind a 10% tax rebate proposed in Northampton County, available only to those who've already paid their bills. In response to my own post on this topic, McClure made his own pitch, which I'll repeat here.

"General Fund Balance: 95 mil.
Unrestricted: 48.5 mil.
Restricted: 47 mil.
Unrestricted Fund Balance at the end of '07: 60 mil. (Admin. used 12 mil to balance '08 budget.)

"When I questioned Mr. Hamann, he agreed that 30 mil. was an adequate fund balance. He also agreed 24 mil. was an aequate [sic] fund balance. He also agreed 20 mil. was an adequate fund balance. Mr. Hamann agreed with me that the County Real Estate Tax is responsible for only 28% of our Budget. By his own analysis, the Real Estate Tax does not fund 72% of the government. The 72% is funded by the State and Federal governments.

"When Mr. Dertinger questioned Mr. Hamann about when the County had to tap the unrestriced [sic] fund balance even at the 14 million dollar level, Mr. Hamann did not and could not answer him, because it has never happened.

"The fact is that on April 17th when we vote the unrestricted fund balance will be nearly 50 mil. And even if the rebate is approved, there will still be 40 mil. in the unrestricted fund balance. If the rebate is not approved, the fund blance [sic] will continue to grow to the Administration's predicted 64 mil. by the end of '08. That is nearly 20 mil. more than even their highly dubious formulation indicates that we need.

"We've over taxed Northampton County taxpayers, and its time to begin giving it back."

Now, I was present when McClure interrogated Budget Administrator Doran Hamann, who has served the county for 28 years. At no time did Hamann agree that $30, 24 0r 20 million was an "adequate fund balance." He simply acknowledged that previous executives let the reserve get pretty low at times, with the worst example being Reibman. True, the county never had to take out a bridge loan. It instead had a mass layoff, which seriously damaged both county services and the morale of those providing them.

McClure also argues that our cash reserve, or seed corn, should be based solely on the amount of money that the county generates in taxes, and that's only 28% of the total budget. The danger there, of course, is we might wait a long time for that 72% in pass through money from the state and feds. As Hammon explained yesterday, the county pays those costs up front, and often waits for six months before being reimbursed. And what happens when the feds or staties decide to stop funding a program? We still have to pay.

And that does happen. A recent example is the State Criminal Alien Assistance Program (SCAAP) program. Historically, the feds have reimbursed counties 70% of the cost of incarcerating illegals, but the Bush administration wants to stick the locals. Lehigh County has adopted a resolution protesting this move, but it's not really their call. They just foot the bill. So does every county. And that's why the seed corn must be based on all the money a county receives every year, not just the funds it gets from real estate taxes.

I'll be the first to agree that times are hard. But amazingly, the McClure-Dertinger rebate only goes to those who pay their bills on time. Instead of doing that, why not find a way to help people keep their homes? As Michael Bloomberg himself has noted, "What good is a rebate going to do for a family who's about to lose the place that they sleep in?"

I don't believe McClure or Dertinger are motivated by any desire to help our taxpayers - they merely wish to help themselves to a few votes.

When McClure talks about giving something back to taxpayers, I'm afraid it will be what Reibman gave them - a mega tax increase accompanied by mass layoffs. I appreciate that he took the time to explain his position on this blog, and perhaps he will convince some of you. But as far as I'm concerned, his rebate proposal is a recipe for disaster.