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Nazareth, Pa., United States

Monday, June 23, 2014

NorCo: A Bad Audit and The Case of the Missing KnickKnacs

According to Northampton County's independent auditor, the County is in desperate financial straights. That's what Nancy Gunza, a CPA with CliftonLarsonAllen, told Council's Finance Committee on June 18. The unrestricted reserve at the end of last year was down to $11.1 million. In a county that spends $9-10 million per month, that's an uh oh.  .

It's also way below the six months reserve recommended by the Government Finance Officers Association as a "best practice."

This is no shocker. Acting Fiscal Affairs Director Doran Hamann has been warning that we are dipping into reserves at an unhealthy pace for several years. But he's been ignored by a Council with its head in the sand, unwilling to face reality, especially when a Council member and Controller claim all is well.

The Barron Budgets

Two years ago, when Hamann first started raising red flags, Barron derided what he called the "the Chicken Little theory of budgeting," Barron insisted that the fund balance would be fine no matter how gloomy a forecast is provided. "If you're going to raise taxes and do that, I wouldn't swallow it very well as a taxpayer," he advised.

Because there are few things Barron von Footinmouth won't swallow, Council was only all too happy to go along.

Barron predicted there would actually be an $8 million increase in the County's fund balance, in contrast to Hamann's more somber forecast that the balance would drop.

Fast forward a few months later, and it turned out that Barron had been dead wrong. Instead of the $8 million increased fund balance that Barron had promised, it decreased by $2.25 million.

Barron was only off by $10.2 million.

Then Executive John Stoffa told Council,

"If I were to die tonight, my words of wisdom to you would be don't ever accept numbers from anyone in this County other than Doran Hamann. When it comes to numbers, Doran is our most valuable player. There is no one in the County who understands our financial situation better, and it is unfortunate that our Controller made this erroneous prediction without understanding the difference between a cash system of accounting and modified accrual."

Stoffa, of course, was ignored, along with Hamann. That was evident by Council member Ken Kraft's reaction to an independent CPA's gloomy financial assessment last week. He repeatedly tried to claim that she had missed $25 million.

What happened to $25 million stabilization fund?

Kraft insisted that the $11.1 million figure quoted by Gunza is in addition to the County's $25 million stabilization, or rainy day, fund. In fact, he was sure that $25 million is there "to keep this ship going" in the event of a catastrophe.

It's not there.

"We have a $25 million stabilization fund that we're not allowed to touch," he argued.

"You had $25 million," responded the County's Fiscal Director, Doran Hamann. "I think the word is you 'had' 25." The MVP added that last year, "We spent $14 million in excess of our revenues," which brought the stabilization fund down from a healthy $25 million to an unhealthy $11.1 million. Hamann also warned Council last year, during budget hearings, that the County would need to dip heavily into reserves because it was spending more than it was taking in.

Gunza added that the total fund balance at the end of last year was just $28 million.

Still perplexed, Kraft asked Controller Steve Barron to name the $25 million rainy day fund. Barron stumbled for words, while Gunza and Hamann both explained a second time that it is called a stabilization fund.

To be fair, Northampton County is by no means unique. Gunza later told Council member Bob Werner that "quite a few" other municipalities are "struggling" with low fund balances.

McClure denied deficit prior to audit report

Council member Lamont McClure unsuccessfully ran for Executive last year on a no-tax pledge. Barron, who endorsed McClure several times, introduced him to AFSCME supporters and told people around the courthouse that he would be the next Director of Fiscal Affairs, replacing Hamann. Kraft was at McClure's announcement, too, though he claimed to be neutral.

According to McClure, everything's fine. We even have the money to bail out millionaire golf course developers whose businesses have tanked. We might need to stop spending money on treating inmates, though.

They don't vote.

A few weeks ago, Council member Hayden Phillips opposed open space projects that include a defunct golf course because "[w]e don't have the money. We shouldn't be spending it."

Council member Lamont McClure, however, denied a deficit even exists. "We are not deficit spending," he asservated.. "The money from the fund balance was over taxation."

"We won't be paying our expenses this year with this year's revenue," noted Phillips. "Isn't that the definition of deficit spending?"

According to McClure, the answer is No. But to the County's independent auditor, the answer seems to be Yes.

McClure would not know this because he was absent from the Finance Committee meeting in which the independent auditor revealed exactly what is going on. He missed it the last time she came, too. .

Barron and McClure try the old switcheroo. 

To anyone willing to look at County finances objectively, it's obvious that Controller Steve Barron and Lamont McClure have been more than willing to spend the rainy day fund. It's an old tactic that has been employed time and again by politicians who lack the political will to do what is right.

It's how you end up with a 70% tax hike, which happened in Lehigh County. It's how you end up with a 63% tax hike, which happened in Northampton County during the Glenn Reibman era.

It's also how you end up with 11 unions when workers start getting laid off.

Barron, McClure and Kraft all deny there's even a problem. While Kraft has demonstrated an ability to read union and vendor contracts in his years on Council, he has just betrayed a disturbing ignorance of County finances.

Well, there's no way you can sweep that audit under the rug. So what they have done instead is try very hard to switch the subject.

They now are really, really, really, really upset that someone has been stealing knickknacks from the new centralized human services building, and are demanding answers. It must be those damn nonunion custodial workers.

If any of you have ever worked for a big employer, you know that petty thefts occur. It's as inevitable as the rain. If you leave something on your desk or in an unlocked drawer, it might not be there the next day. The cleaning staff is always blamed, though I suspect that sometimes, people are just forgetful.

Instead of addressing a  $14 million in deficit spending, Controller Steve Barron has his magnifying glass out, and is hot on the trail of these thefts. He made three unsolicited reports to Council last week, hoping they forget about that nasty audit.

What makes this great for Barron, who likes to advise union agents on whether they are getting the best bang for their buck with proposed union contracts, is that he can blame a nonunion company for stealing. He's honed in on a privatized, $51,000 custodial contract with ServiceMaster, a nonunion outfit, for the new centralized human services building. "The AFSCME union that does the cleaning in the building didn't necessarily sign off on this," he warned. He also has raised privacy concerns, and wants a confidentially agreement signed.

Now ServiceMaster does criminal background checks on everyone who works at that building. The Sheriff's Department and DA's office were apprised that someone might have sticky fingers. I doubt the Sheriff is notified when someone steals knickknacs at Gracedale. I know it does not happen at the courthouse, where small thefts sometime occur.

An indignant Lamont McClure feigned shock, absolute shock, that Council was not told.

"This is the first time I'm hearing of this," he disingenuously stated.

"Were we made aware of this?" asked Bob Werner

Eventually, both Executive John Brown and Acting Sheriff Chris Ziegler had to explain that a few human services employees experienced some petty thefts.

I was unaware that County Council doubles as an Investigating Grand Jury.

Of course, it does not. McClure and Barron don't give a rat's ass about missing knickknacks, or they would have convened an Inquisition by now about the petty thefts at the courthouse alone.

The purpose here was to deflect attention away from a bad audit, and muddy up a privatized nonunion business.

The ole switcheroo.


Anonymous said...

They are looking at boxes of missing staples, pencils and pads of paper, and not the fact they've spent us to the brink of disaster? Yeah, that sounds about right.

What is a "knick knack" in this case? A statue of a pig?

Anonymous said...

In all fairness, if that is possible. The Reibman tax was over two years and did not total 63%.

You have thrown a lot of accusations around and of course leave out your buddy Stoffa. He is still bragging he didn't have to raise taxes for seven years. He may have proposed a tax increase but he never pushed it. Never fought for it. Never made a hard case. He just did the old Stoffa waffle.

Stoffa wanted to dump Gracedale for a quick payday to pay for his new HS building. he fought hard for the Gracedale sale and the crazy triple-net HS building lease that even "real" businessmen laugh at. If Stoffa had invested even half that energy into pushing and explaining the need for a tax increase he may have persuaded county council. The R's loved him.

So while you are having fun blaming guys you don't like, who have an opinion based on how they perceived games played over the past eight years. You are glossing over an executive who gave PSSU and Corrections Officers huge union contracts while shafting Gracedale unions, who offered a weak wristed "two budget,"budget of choices" and was happy to spend down the Reibman surplus to the point of leaving John Brown in a bad spot.

County council and even Barron may have some blame here but Stoffa ran the show and the majority of any county budget deficiencies lays clearly at his feet. Stoffa loved Obama and it is easy to see why.

Anonymous said...

1;23 AM IF Gracedale had sold as it should have this County would be siting on 60 million bucks easily with no tax increase projected for 4 or 5 years. Two BIG MOUTHS convinced their Council COLLEAGUES otherwise. It WAS ALL A BIG LIE.

jected for 4 or 5 years.

Anonymous said...

Gracedale didn't sell because of two things. The sale was predicated on lies. As time went on the story changed and changed. The numbers changed and changed. The reasons for the sale changed and changed. It was the Stoffa/Angle version of how we got into the Iraq war with Bush/Cheney.

Secondly, fortunately the voters figured out what was the right thing to do and told the insiders to knock it off. They weighed the evidence and saw that the sale was based on bs and all done to finance an unneeded building to feed the county executive's ego. The hell with old poor people.

Even with the Press and this blog pushing the cam, the people got it right.

Anonymous said...

The problem is Gracedale and wouldn't exist if Gracedale had been sold. It's Gracedale, stupid. Now, let's sue to overspend on ambulance services! Peg Ferraro is more dangerous to the county than a ebola outbreak.

Anonymous said...

Stoffa was right about the financial future of Gracedale. Barron and McClure were wrong. It's on pace to lose $9 million this year. Nursing Homes are no longer core functions of county government in PA. Human Services and Correction are.

Bernie O'Hare said...

"The Reibman tax was over two years and did not total 63%."

Just went back and checked. You're right. It was 64%.

Bernie O'Hare said...

1:23, It is not Stoffa who spent down the reserve. It is Stoffa who did what he could to keep the reserve. It is Council who was all-too-willing to spend down the reserve, especially with Barron and McClure there to tell them there's nothing to worry about.

As for shafting Gracedale unions, they voluntarily made concessions bc they know Gracedale is in trouble.

As for Stoffa not proposing a tax hike, I twice criticized him for not pushing a tax hike, and called his budgets irresponsible. His argument is there was no way he could get 5 votes on Council. I agree he should have pushed a little more.

Anonymous said...

I'm afraid nursing homes, and the individuals who require them are being pushed aside for convenience these days.

Our government, and too many citizens, kinda see Seniors as people who 'get in the way.'

Who cares, you ask? In time, YOU!

Fred Windish

Bernie O'Hare said...

The notion that the sale of Gracedale was predicated on a lie is nonsense. We failed in that effort because people were not ready for it, and we pushed things. Ron should not have been the public face of "Sell Gracedale" bc all his enemies come out. We should have tried a privatized manager first. But all along, our goal was NOT to just dump this problem on someone else, but to make sure that the residents there continued to get high quality care. Because of declining reimbursements to the county and high labor costs, we were failing. We continue to fail. A sale would provide a higher reimbursement and cheaper labor costs. If we kept controls in place to ensure a high quality of care, it might have worked. If we formed a nonprofit to take control, it could work. If we actually listened to the recommendations made by the privatized administrator, we'd save money. But now, the Dems on Council want to dump the privatized Administrator and install someone who knows nothing about nursing home operations.

There are many who wanted to keep Gracedale bc they thought it the right thing to do. I respect them. There are those who had other agendas. I don't respect them. I got a real education on nasty people in the sale effort. But I came to meet some good people, too, and many of them are the union workers. That was a surprise to me, but they really do care.

The people have spoken. I believe in democracy. We lost. We have to do our best to make it work.

Bernie O'Hare said...

"and the crazy triple-net HS building lease that even "real" businessmen laugh at."

I doubt you know much about real businessmen. That lease passed 8-1. A Council that hates Stoffa approved it overwhelmingly. It was not financed by the sale of Gracedale, but by the sale of two aging county buildings in dire need of costly repairs. And the lease makes business sense.

Had the county purchased it outright, it would have to require bids on all the construction costs. This would have been cumbersome, expensive and added to cost. It makes more sense financially to have someone else build, who can do it more cheaply, and lease for 5 years, then buy. If the building is a lemon, walk away.

Anonymous said...

Do you think Brown will ask for a 2 mil tax hike for the next budget?

Bill Coker said...

The sale of Gracedale was predicated on one of the greatest slogans of all time...."Save Gracedale". That intimated it would be closed unless "saved" by voting for the county to keep it. Needless to say, closing was never in the equation, just privatization. Only thing "saved" were union jobs.

Bernie O'Hare said...

I have no idea what he intends. On inauguration day, he stated he would resist a tax hike. But there comes a time when these are inevitable, unless you intend to make drastic cuts in services. Reibman did that, and attempted to balance his budget on the backs of workers. The result was 11 unions.

From a political point of view, the best time to impose a tax hike would be now. Next year is an election year.

John Blankstein said...

I'm not current on any of these specific Northhampton issues to comment, but I have a general observation.
Despite the fact that counties and municipalities all over the country are dealing with pension-debt driven fiscal crises of one magnitude or another, I have seen zero creative thinking or problem solving coming out of the GOFA. Have you Bernie? Are or the people there just waiting for enough time to pass for a big bank to snap them up?
Six month fund balance as a best practice? Why six? It sounds like to little if there was a stable economy, and potentially way too much over the past several years.
In my opinion rating houses and banks use these guidlines as an excuse to be way harder on public entities than private when it comes to cash on hand as a factor in bond ratings--even though most publics have a more stable revenue stream--(ie taxes)--than most private businesses.

Ovem Lupo Commitere said...

This is the only year that Brown and his Council have to look at the millage rate under the cover (accurate or not) of "we didn't realize just how bad things were... a one time tax increase... we won't do it again..." and still be able to counter the inevitable campaign junk mail screaming "he/they raised your taxes!" After this year, they'll be in the box and won't.

It was irresponsible--if not dishonest, knowing he likely wasn't going to win the primary-- for McClure to take a page from Norquist, and claim he would not to raise taxes. If Dems had won Exec/Council they'd be in the same boat Brown/Council are in. Now he probably wouldn't for the purely political reason of putting it on the GOP.

Bernie O'Hare said...

John, an attack on the auditor is unhelpful. It is not her job to act as financial advisor. It is her job to ensure that the money that is there is being handled properly. Northampton has been deficit spending, and at some point, that catches up with you. This is no deep dark secret. Council has been warned about this since at least 2021. It was one of Angle's chief concerns. McClure and Barron have done a real disservice to the voters by pretending there has been no problem. And I am shocked that Ken Kraft, after two years on Council, would still be drinking their Kool-aid. Also, the attack on the auditor as someone just waiting for a big bank is nonsense. These people are in private firms, make a career of what they do, are professionals and make more money than they would at some goofy bank.

Bernie O'Hare said...

Since at least 2011, not 2021.

John Blankstein said...

I'm not attacking the auditor. I havent read the audit and dont know enough about the specifics of Northhampton County finances to make much sense of it if I did.

My comment was meant to pick up on your mention of GOFA's best practice guidline. GOFA is a very powerful entity with intense national influence over a very important but complex issues...and they operate in a similar policy space to the ratings agencies who were ignored prior to fall of 08 and pilloried afterward.

Bernie O'Hare said...

John, OK, so it is an attack on the GOFA. Still unhelpful in this setting.

Anonymous said...

"If the building is a lemon, walk away"

One Hell of an expensive walk!

Anonymous said...

Any Democrat voting for a tax increase will be tea parties next year. the Republicans stated they will fix things, good. Now they can fix things and not raise my taxes.

Bernie O'Hare said...

The only pol who said he would not raise taxes is McClure.

Anonymous said...

"Nature abhors a vacuum." In the absence of a strong administrator under Brown, hacks like Barron will be the default "expert" on what is happening in the county. At the council meeting Barron, McClure and Werner tag-teamed Brown who was short on facts and arguments. His "Director of Administration" sat there like a deer in the headlights. She knows nothing and could care less. A real asset to Brownie. Time for another cigarette break.

Bernie O'Hare said...

Neither Barron, McClure nor Werner came close. They manufactured an issue to divert attention away from a negative audit. Brown refused to take the bait.

He does need a Director of Admin and made numerous mistakes in his first few months in office. But his mistakes have been made in what he believes are the best interests of the county. McClure and Barron are partisans who will attempt anything to stop brown from succeeding, even if they drag down the county.

I have been one of Brown'e most vocal critics. But I refuse to play their game.

Anonymous said...

The Three Amigos of Bullshit will try to take over council meetings with their insignificant issues blown out of proportion. All 3 are gas bags with zero credibility.

Anonymous said...

Of course kraft and McClure are buffoons but the mistakes of this new regime that has the motto "our arrogance is only exceeded by our ignorance" will cost tax payers dearly.

Anonymous said...

The real crime here is the total bullshit of giving the architect of this mess a pass. Stoffa has handed out fat union contracts, bought buildings and paid his Administrators top dollar and all without a tax increase.

Bernie claims he wanted one but council wouldn't approve it. Really? Did he hand them a tax increase budget and say, "this is it, if you can do better go at it."

No he gave them his limp wristed two budgets of choice and refused to push what was needed. He fought to dump Gracedale. He fought for his multi-million dollar palace of waste that he cut a deal to have named after him after he dies. Ask Peg??? Why do you think he lies to brag how he didn't raise taxes. He spent like a drunk sailor and burned through the surplus.

The Executive puts the budgets together and presents them to county council. If an executive won't fight or push a budget, you expect county council to do his job?

Stoffa was a terrible administrator and everyone knows it. Now these people have to clean up the mess.

You can blame McClure and Barron all you want but only McClure had a vote on county council and Stoffa had his five Republican friends for four years, so why not push for the tax? He didn't' want it that is why. He just kept burning thorough the Reibman surplus while blowing his trumpet and building his birdhouses.

Bernie O'Hare said...

Actually, Stoffa proposed a tax increase twice, and this is in addition to the half mill tax hike in his first year. So your homophobic slur is inaccurate. He also never paid top dollar for cabinet members.

Anonymous said...

What waste and overhead? We need revenue! Time for the rich guys to pay their fair share. Enough of the cutbacks to human services in the county. Stop buying golf courses and take care of those who can't afford to do it themselves! It's called compassion..remember? Do unto others..

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

Bottom line is the last Admisntration is responsible for its own spending, not McClure, Kraft or Barron. shifting blame is easy, taking responsibility is hard. Responsibility is not a keyword for the last county administration but spending was.