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.