Cunningham Financial Outlook Hints at Gracedale Sale & Bethlehem Deficit

Stuck in Easton, I missed Don Cunningham's annual financial outlook speech today. It really is my loss. He's undeniably the LV's best public speaker. His disarming style has won me over more than once, and I'm by no means alone. Today, for example, everyone was so mesmerized that nobody even thought to ask about Lehigh County's looming tax hike next year.

Don's finale this year actually takes a pot shot at both Northampton County (selling assets, i.e. Gracedale) and Bethlehem (selling forest lands, running at a deficit).

His criticism of Northampton County is no surprise to me. Cunningham told me earlier this week that selling Gracedale is a mistake. He told Angle several years ago that private management is the answer, and repeated his concern at Musikfest. He'd be right, too, if we could just get unions to give back 1/3 of their benefits.

After his speech, I'm told he walked over to Northamton County Exec John Stoffa to apologize for criticizing his neighbor, but Stoffa was so impressed he never really noticed.

What really surprises me is that Cunningham even included the Callahan administration in his cross-hairs. As ex-Mayor of that City, he's certainly entitled. I guess he's not buying the Callahan-Reynolds-Holland spin that everything is beautiful.

Here's the County news release.

Allentown – Lehigh County Executive Don Cunningham delivered his annual financial outlook speech today (8/26) to the Greater Lehigh Valley Chamber of Commerce at Symphony Hall in Allentown and outlined how Lehigh County’s government has gotten smaller. Cunningham previewed some of his upcoming 2011 budget, telling the audience that next year’s budget will be at least $20 million less than the current budget. He reviewed a list of budget cuts announced during the last month that will cut $7 million through freezes, eliminations and reductions.

“The combination of all these cuts, a drop in capital project spending and state reductions in pass through spending will result in a budget that is at least $20 million less than this year’s $412 million budget,” Cunningham told the business leaders. “Yes, you heard that right, next year’s budget will be lower than this year’s budget. And, our work force will be smaller than it was twenty years ago.” Cunningham recently announced the need to cut 50 jobs from the county payroll by the end of this year, bringing a total of 150 positions removed during his tenure. The cuts will reduce full time employment to 2,122 people, shave $3 million from payroll and create a government smaller than it was more than 20 years ago.

“The ability to do this is a testament to our managers, our employees and our labor unions,” Cunningham said. “They are truly delivering more with less for our taxpayers. The bottom line is that Lehigh County government is smaller today than it was in the past. Everyone thinks that government only gets bigger. And, maybe that’s true in some cases but here in Lehigh County we’ve shown that government can get smaller. We have fewer employees than we did 20 years ago, a smaller total budget than last year and a tax rate that will remain lower than it was eight years ago.”

For the last four years, growth in general county operating spending has only been two percent. Next year, there will be no growth in general county spending, despite wage and health care cost increases, Cunningham said. “The $7 million in cuts will help to achieve a budget that nets out with no growth in spending.”

The actions are necessary because of the national recession’s affect on Lehigh County’s revenue. “The last time we saw new revenue in county government was the beginning of 2008, about two-and-half years ago,” Cunningham said. We don’t project any new money in 2011 or, for that matter, the foreseeable future. In fact, our income will drop for the third consecutive year.”

Since the recession began, revenues to the county will have declined by nearly $5 million in 2011. Cunningham outlined a series of revenue factors.

1. Hotel tax revenue to the county is down 19 percent since 2007.
2. The first four months of this year, hotel tax revenue to Lehigh County was 29 percent less than the same period in 2007.
3. Investment earnings have slid from almost $7 million to only $1 million.
4. Revenue from deeds is down 27 percent since 2008, almost half a million dollars.
5. Losses in the stock market have more than tripled pension fund contributions, skyrocketing to almost $10 million this year.
6. And, real estate tax revenues have remained close to flat. Any minor gains from slight growth have been offset by an explosion of assessment appeals that have stripped away nearly $1 million in real estate tax earnings in the past year alone.

Before today’s speech, Cunningham began announcing cuts and reductions last month in preparation for the release of the 2011 budget. The county capital budget released earlier this summer was reduced by 50 percent. Along with the recent job cuts, Cunningham has announced the closing of the County’s Organics Recycling Facility, along with the reduction, freezing or elimination of a myriad of county programs, including “More for Children,” “Green Futures,” and “Quality of Life.” The reductions amount to $7 million in budget cuts.

“There is no one size fits all model in government,” Cunningham said. “You have to manage government to fit the times. In the end, what we do cannot exceed what the taxpayers can afford.” Cunningham also told the business leadership it’s critical for the county to remain fiscally sound to come out of the recession stronger. He outlined several indicators of the county’s underlying fiscal soundness.

1. The county retains a $20 million cash reserve. “We are not eating up savings or going without a savings account and rainy day fund to accomplish this,” he said.
2. The pension fund is fully funded. “Despite payments that have tripled, we are the rare government that is fully funded,” he said.
3. The rating agencies have rewarded the county’s approach upgrading its bond rating twice recently to an Aa1 rating.
4. The county’s debt burden is very low, about 14 percent of its budget payments and of short duration. “Most of it goes out only twelve years, unlike many governments that extend debt as much as 40 years, increasing interest rates and payments,” he said.
5. The county has new buildings and infrastructure. “We are in the final stages of the most productive capital project and maintenance program in the county’s history,” Cunningham said.

In the last four years, we built Coca-Cola Park, renovated and expanded our Courthouse, relocated and upgraded our 9-1-1 Emergency Communications Center to a state of the art operation, re-built or repaired more than 20 million bridges, upgraded and improved our IT infrastructure, developed a Central Booking operation to help local police departments an expedite bookings, relocated and improved our Domestic Relations Office, and overhauled our Cedarbrook Nursing Homes for energy savings efficiency, reducing energy consumption by 20 percent, a move that we will repeat this year in all our government buildings. We built the Trexler Environmental Center and the Autism Resource Center, two one of their kind facilities. In addition, we invested tens of millions of dollars toward the preservation of open space, building nature trails and improving municipal parks.

Cunningham said the spending controls of the previous four years have allowed the county to finish this year with $4.5 million untouched in the much talked-about Tax Relief Fund, which was scheduled to have run out in 2008, but remains alive and well this year.

In light of the depth of this recession, all of the reductions are still not enough to sustain the full tax cuts county property owners were given in 2004 and 2006, Cunningham said. “Fiscal responsibility does not just mean cutting taxes, it means maintaining a financially sound operation at the lowest possible tax rate,” he said. “We have seen this year in Northampton County and Bethlehem discussions about selling county assets to plug shortfalls and local governments running actual deficits. In my view, neither should happen. As we finish the budget, I can assure you that the property tax rate will be lower than it was in 2003, prior to the two recent tax cuts.”

Cunningham will release his 2011 budget to the Lehigh County Board of Commissioners next Tuesday (8/31) for their deliberation.