John Stoffa's 2010 Financial Address to the Greater LV Chamber of Commerce

As Northampton County Exec John Stoffa was delivering his financial address to the Grater LV Chamber of Commerce this morning, I was just getting uo, having sdlept through two alarms. But fortunately, I have the text and present it below.

Initially, permit me to express my thanks and appreciation to Dr. Scott and the Community College for co-sponsoring this event. I would also like to thank the Greater Lehigh Valley Chamber of Commerce for co-sponsoring as well. I would like to acknowledge my Cabinet Members who are here this morning.

I often say that County Government is the best held secret around… until one talks about a tax increase. Let’s look at the proposed 2010 Budget.

The proposed 2010 Northampton County Budget calls for expenditures of $330,288,500; down $32,304,605 from the 2009 budget. The County employs 1,892 full-time and 266 part-time employees. No additional employees have been added for the past two years other than those that have been recommended by the Courts and the District Attorney and approved by County Council. The Executive Branch has no control over these appointments.

Some history:

Other than the revenue, called intergovernmental revenue, which the County receives from the Commonwealth of Pennsylvania for Human Services, the County gets its revenue primarily from property tax. This property tax was last increased in 2007. (1/2 mil, 4.9%) to fund the Open Space Initiative which was previously approved by the voters by referendum. The prior increase was in 2004. As you know, real estate assessed values do not increase from year to year. So, if the tax rate does not increase, the property owner’s tax bill will not increase. Consequently, except for the Open Space Initiative, property owners have not seen an increase in their tax bill from the County since 2004.

Conversely, some assessments have gone down. In 2008, property assessments were reduced by either the Courts or the Revenue Appeals Board by almost $15,000,000 - $9,557,200 by the Courts & $4,751,310 by the Appeals Board respectively. This is a drop of $150,000 in County tax revenue alone.

The total assessed value of cases pending appeal is almost $92,000,000. Residential property over $2,000,000 and commercial property almost $90,000,000. This would amount to almost $1,000,000 in reduced County tax revenue – if those appeals are won, and most of these appeals are winning.

The boom in housing construction contributed additional revenue until 2006. When the bottom fell out of the housing market in 2007, our revenue leveled off. At the same time, due to a dramatic reduction in the interest rate, interest earned on the cash reserves in the General Fund fell from $4.8 million in 2007, to a projected $1.1 million in 2010. Even with these revenue changes, and the same inflation all of us see each year on the expenditure side, the County was able to produce a surplus in the General Fund in 2006, 2007 & 2008.

This year, 2009, has tipped the scale in the other direction: we are operating at a deficit. In some ways we were hit with the “perfect storm” of fiscal issues. The downturn of the economy took a hit on our pension fund and something called the ARC – the Annual Required Contribution to the pension fund jumped by $6,000,000. In addition, a new governmental accounting standard (GASB 45) requires us to move from “a pay as you go” to actuarially determining the liability of all future retiree healthcare costs and either fund it or note it on the balance sheet. This is an additional $3 million above the $3 million “pay as you go” amount that we previously funded.

We are one of the few governments in the state who chose to fund retiree healthcare.
Also, while our nursing home at Gracedale contributed $1 million to the General Fund in 2008, it will require $9 million of County contribution in 2009, and $7 plus million in 2010. Finally, our union contract settlements, many of which were the result of arbitration, increased our costs by $2 million.

The fiscal future appears to be quite challenging in the next few years. It is unlikely that the housing market will return to the boom days of the past. We have on the books, a swaption that was entered into in 2004, that has an exercise date of 2012. Though we originally received $1.6 million for the swaption, the current estimated “break cost” is in excess of $13 million. Our 1871 era jail, which is the oldest in the State, is over capacity and significant expansion will be required in the near future. Our County Nursing Home, built in the early 1970’s will continue to require major capital investment.

What are our options?

We can do one of the following:

We can decrease the fund balance in 2010. It is anticipated that at the end of 2009, we will have an unreserved fund balance of approximately $45 million. And without a tax increase this amount would be reduced to less than $38 million. (This amount is less than 2 months of operating costs.) These reserves were essential in weathering the cash flow problems during the Commonwealth budget crisis. They are also a major factor in maintaining the County’s very positive bond ratings (AA 2) which saves the taxpayers money when we sell bonds for capital projects. Were we to continue spending the fund balance, the gap between revenue and expenditures will continue to grow, requiring an even larger tax increase in the near future.

or

Reduce spending by $7 million plus - no small task.

Salaries and fringes make up almost 70% of General Fund expenditures. Some have suggested that spending be reduced by $7 million by laying off employees - as many as 200. Were we to do this, we would have to continue paying unemployment benefits for at least a year following their lay-off. Since we are self-insured, we must pay the total cost of unemployment compensation. If our employees were eligible for the the current maximum unemployment benefit of $558.00 per week or $29,000 per year, laying off 200 employees would still annually cost us $5.8 million in unemployment. It is not the solution it first appears to be while services to the public would suffer dramatically.
or

3. Increase the property tax. Extremely painful decision. I would prefer to not do it. I’ve thought long and hard about tax payers just getting by and I do not want to raise their taxes. It is easy to rail against tax increases and then approve every new expenditure expense that comes before you. The budget includes a modest one (1) mill tax increase (9.3% over the current rate) which results in a $50 increase for a property with an assessed value of $50,000. Annualized over the four years of this administration, this increase is 2.3% per year.

This one (1) mill of tax would bring us $7.3 million per year on a County wide basis. Is $50 per year, 96 cents per week or 14 cents per day too much to ask for a nursing home with 660 elderly residents needing medical care, an overcrowded 1871 jail with 830 inmates, and a human services system that assists over 22,000 County residents per year? Should I have said no to a ninth (9th) judge?

In sum, in compliance with the Home Rule Charter, I have submitted a budget to County Council for fiscal year 2010, which includes a modest one (1) mill tax increase. To not increase taxes now, will only mean a larger increase in the near future.

I want all of you to realize that we are not in a gloom and doom circumstance. Northampton County is far healthier than many other counties.

In the last ten years, we have gained over 32,000 residents. We are now at 292,000 people or thereabouts. We continue to grow in population as well as economically.

Finally, people still want to live here, work here, raise their families here, and yes even retire here. Northampton County is a great place to be and will continue to be so. And I want all of you to realize that. I am very proud of Northampton County.