Tom Muller's SOTC: Where Do I Cut?

I usually photograph the back of Muller's head. 

The moment he called me a member of the pseudo press, I liked Tom Muller. That was several years ago> He's got a good sense of humor, including the ability to laugh at himself. He is also very blunt.

Both of these characteristics were manifest in his inaugural State of the County address. Commissioners want him to eliminate the deficit and increase reserves without a tax hike, which would require $14 million in spending cuts when there is only $111 million in real estate tax dollars as a starting point. His response is to ask Commissioners what County services they want to cut.

Here's his speech:

I think I’ll start with what many of you would like to think of as the conclusion and disappoint you. As in my campaign, I am not going to make any promises or conjectures about the County’s tax rate moving forward. To do so would be both premature and disingenuous. The average Lehigh County residential tax bill for 2014 is $676, which is lower than it was ten years ago. The challenge is to get to a consensus with our citizens on the proper balance of taxes and services.

Certainly, my first few weeks in this position have had more than their fair share of discord with our Board of Commissioners, some of whom are only focused on tax rates and the political safety in promises, whether they can be kept or not. So far, we’ve disagreed on everything from a critical Cabinet appointment to a town meeting.

So, you might ask, what are the County’s prospects and how will we make progress?

Fortunately, our Lehigh County is recovering steadily from the recession, our County government is financially sound and all we need to come to grips with collectively is determining the balance our citizens want between taxes and services.

Let’s take a look at some of the basic economic indicators:

•      By all measures, the housing market is recovering, with both sales and prices up except for the past few weeks where the weather has played a heavy hand.
•      Employment is improved, although there is still substantial progress to be made.
•      Companies are back to giving pay increases.
•      Even during the recession, companies such as Ocean Spray chose to commit to the area and Fedex seems poised to deliver a major distribution hub.
*      Downtown Allentown’s transformation due to the NIZ has been a boon to the construction market and will soon be adding significantly to the tax rolls.

Meanwhile, at the same time the federal government was being downgraded by S&P, Lehigh County’s bond ratings were increased to Aa1. That enabled us to realize a debt service reduction of $5 million, which was returned to the taxpayers via a one-time tax credit. Bond rating improvements are not accomplished easily and you may be surprised to know that the Administration’s willingness to raise taxes that year contributed significantly to the deliberations of both Moody’s and S and P.

The best news in borrowing is that I don’t foresee the need to seek new financing in the next four years, although we will continue to look for re-financing opportunities. In fact, we just took a $500K opportunity for 2014 to the Board of Commissioners last night.

Our infrastructure is sound, probably more so than any other county in the State, and our only pending needs are to address the Old Courthouse and replace our legacy IT system, which will be unsupported by 2020.

We have been ahead of the curve on efforts to keep our 44 bridges fully functional and recent legislation enabling counties to add $5 to auto registration fees for such efforts could ensure that no real estate tax dollars will ever be needed again for County bridges or roads.

The financial issue that seems to keep some folks up at night is our continuing budget gap. The 2014 Adopted Budget was balanced by just over $8 million in reserves; when the Cunningham Administration, took office in 2006, we were handed both a tax cut and a budget gap of $6.6 million.

You see, politicians find it much easier to run for office committing to cut taxes. That was the case in 2005 and in 2009 and it was the case again in 2013 when a proposed one-time tax credit was converted to a permanent tax cut, instantly adding to the 2014 budget gap. The tax cut was political nonsense akin to asking your boss for a permanent cut in pay when you’re having difficulty making ends meet.

Fortunately, as part of the welcome to me in my new role, our Board of Commissioners has offered me “guidance” for the 2015 budget by setting out three simple desires: No tax increase, eliminate the deficit and build the reserves. Someone must be running for re-election in 2015!

The fact is that their “guidance” equates to coming up with roughly $14 million in spending cuts from tax spending of $111 million and they are unwilling to identify what they would cut because citizen support could be lacking and there could be repercussions at the polls next year.

Another way to look at the “guidance” I’ve gotten is to recognize that the $14 million spending cut would be 12.6 cents of every tax dollar spent. Consider the fact that almost 72 cents of every tax dollar goes to our public safety areas (Courts, Corrections, District Attorney, Crime Center, Sheriff, Public Defender, 911 Center and so on) and another 14 cents is debt service. That leaves only 14 cents for everything else the County does and they are suggesting a 12.6 cent reduction.

Also consider the fact that, while the County’s population has grown approximately 1% per year since 1990, the County’s workforce is now 8% below where it was in 1990 and County government is a people-intensive service business; we can’t easily automate or ship our jobs overseas.

Let’s just leave that budget “guidance” as direction that must be countered with a simple statement: “Tell me what you no longer want the County to do.”

Our nursing homes got a fair share of negative press late last year due to the increase in the required County support to over $6 million. The driver for that bad news was the combination of Medicare and Medicaid reimbursements not keeping pace with healthcare costs and an increase in empty beds as more seniors choose to stay at home. That latter trend is expected to shift in the medium term but we have some experts in nursing home operations evaluating all that we do at the two Cedarbrook homes and look forward to some good ideas we can implement now to cut costs or increase revenues.

On a parallel path, we are in conversations with other healthcare providers to determine if collaboration on services can help the situation or if there is a demand from the private sector for some complementary use of available space. I have made it clear that my position is that the County should retain Cedarbrook, but I also believe we need to tweak the business model to some degree to recognize today’s issues.

Now, I’d like to talk a little bit about how I plan to move forward in this somewhat hostile environment and with financial challenges. Broadly, the answer is simple; I plan to connect with the citizens as no other County Executive has done to determine what is important to them and use that knowledge to develop plans and budgets. During my campaign I said I planned to get to every municipality’s council meeting at least once per year; although the weather got in the way in February, I’ve managed to attend 7 of the 25 and one school district meeting so far, had some great conversations and learned a lot.

Next month I will hold my first “town hall” meeting at the Government Center and we are working on a system to engage citizens online to weigh in on issues and priorities. I also held a “town meeting” on the controversial Hamilton Crossings TIF because I heard from many citizens that they were interested and there was a lot of confusion on the subject. I happen to support that project personally because it generates over $20 million in wages every year and only requires the taxing bodies to forego taxes they don’t even collect now. Even if I didn’t support it, the citizens have a right to get answers to their questions. That’s true transparency and that’s how I plan to operate.

I also want to try to identify both public-private partnerships as we did with the combined Coroner’s Center and Cetronia Ambulance headquarters, which saved each partner millions and should open in late July. And I want to pursue regional partnerships which would provide the coveted “win-win” end result. I’m optimistic that John Brown and I will find ways to collaborate for the good of our counties and look forward to the day we aren’t making process-related headlines and can put our heads together for the good of our counties.

I also plan to continue working to take costs out of our systems, sharpen the focus on outcomes or results and eliminate any function that isn’t needed. Along that line, we have just notified our employees that we are closing our juvenile detention center and have agreements with Northampton County and others to meet our housing needs. There has been a significant reduction in incarcerated juveniles in the wake of the Luzerne County scandal and with the adoption of more sophisticated methods of evaluating troubled juveniles. Some experts suggest the pendulum may swing back a few years from now so we will simply mothball our excellent center and reduce our overall costs by an estimated $750K annually. What has been terrific about this effort is that there has been collaboration among all involved parties to ensure that the savings are realized without an impact on services.

I remain a firm believer that, first and foremost, our citizens want to be safe and public safety efforts such as our regional crime center will remain as top priorities. In fact, I hope we’ll be able to count Northampton County as a full partner in the crime center in the near future. Criminals don’t recognize county borders so we have to effectively work across those borders.

I’ve also gotten strong reinforcement from our business leaders and citizens that what makes Lehigh County a great place to live and work is the broad range of quality of life options available to everyone. While County investments in such destinations could be among the first on the chopping block for ultra conservatives, I plan to continue those commitments and “double down” with the Planning Commission in determining how we can best bring the inventory of athletic playing fields in line with the boom we’ve seen in youth sports as the County’s population has soared. I am a firm believer that sports involvement helps bind families and keep kids on the right track.

Will all of these plans sync with the $676 average residential tax bill? Time will tell, but my commitment is to have citizen inputs weigh heavily on budget issues. I’ve observed that, as politicians move up the ladder and get further away from those who elected them, they rely more on the inputs from major campaign contributors and their own political agenda and less on those who put them in office. I am extremely humbled at having been chosen to run this outstanding county of ours and pledge not to lose focus on those who are most important—the citizens of Lehigh County. Thank you.