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Wednesday, February 22, 2017

Mazziotti on Lehigh County Tax Cuts

Tom Muller
Lehigh County Exec Tom Muller surprised me last week when he announced he had decided against standing for re-election. In doing so, he still took a few shots at the Republican-controlled Board of Commissioners. He accused them of providing  "'Happy Meal' tax cuts on the taxpayer's credit card." ...  "[I]t was on the taxpayer's credit card because we had a budget deficit each time." Vic Mazziotti, a former Commissioner who was a superb Fiscal Administrator in Northampton County, supported these tax cuts. He denies strongly that these tax cuts are on the taxpayer's credit card. He instead argues that Republicans simply took a more realistic view of government finances than Muller. The proof is in Lehigh County's financial statements.

The most recent financial statement online is for 2015. What it shows, on page 15, is that after three years of cumulative tax cuts, the fund balance grew from $3.6 million. That's a surplus.

If Tom Muller were correct and Republicans were financing a tax cut on the taxpayer's credit card, there would be a deficit.

Vic Mazziotti
According to Vic, it is important to look at both the budget and financial statements when reviewing government finances. That's because government never spends all the money it budgets. This conservative spending often creates a surplus even when the budget itself contains a structural deficit.

So is Muller a liar? No. The result of the tax decrease did create a structural deficit in the budget. But the reality is that there was a surplus, thanks to conservative spending. .

This confusion over what is budgeted and how funds are actually spent is what led NorCo Fiscal Affairs Director Jim Hunter to make some dire predictions during John Brown's first year as Executive. He thought the County would finish with just $1 million. This scared NorCo Republicans, who are a little less astute than Lehigh Republicans, into seeking a one mill tax hike. At the time, I certainly thought they were right.

Lamont McClure and his fellow Democrats were opposed because they understood that a county never spends what it budgets. In the end,the county finished that year with $28 million in its general fund.

Brown, like any County Executive, claimed it was a result of his fiscal stewardship. It's really because no county comes close to spending what it budgets.

I'd try to explain this in more detail, but I'm a Democrat and my head already exploded three times.

13 comments:

Anonymous said...

"Mazziotti, a former Commissioner who was a superb Fiscal Administrator in Northampton County,"

The only reason he "looked" like a genius in Northampton County is because he inherited the largest surplus in county history. He and Stoffa lived off of it for eight years.

Anonymous said...

Save the voodoo math vic. Even Percy Dougherty did nto thin the happy meal tax cut was sustainabke because he would not support it. He finally went along witb it as a one time rebate during an election year. Fact is Cedar Brook rennovations are deferred. The old Courthouse will be rennovated on a bond and far.land preservatuon will be possible by borrowing more. These smoke and mirror policies of borrow and spend are not soind Fisically. They lnow that. It is pay to stay politics. Buying votes on deferred obligations and floated bonds. No matter how you slice it, these rebates are on a credit card.

Anonymous said...

It's common practice in Municipal budgeting to over estimate expenditures by 5% and under estimate revenue by 5%. This creates the picture of a structural deficit, when in fact this 10% cushion leads to a budget surplus. Politicians, depending on which side they're on, hang their dirty hats on this as a political use of gamesmanship. Breaking down municipal budgets for collective bargaining, utilizing the budget versus the income & expense statements, gives you the most accurate snap-shot of the financials. Therefore, I do believe Mr. Mazziotta is right.

Ron Beitler said...

@6:51AM The republicans in Lehigh County were actually divided on how to fund farmland preservation. And that money is partly, not entirely funded by borrowing.

$1.5 million per year for three years is bond.
$500,000 a year is from the gaming. (This component was in flux at one point because of the PA Supreme Court ruling on sands impact fee)

Brad Osborne's position was that a monetary commitment should have stayed in the budget from local tax dollars. He felt that would have shown true commitment to the program as a placeholder. With the placeholder now gone, he felt it will be very difficult to get it back into the mix in the future. Percy pushed for the bond because he valued locking down 3 years of funding over the short term.

Much of the funding was done in a way that it will be bolstered by municipal match dollars putting some of the burden on localities to get skin in the game. (a good thing) This also of course will increase the return from the state.

I felt there was merit in the underlying reasons for both Brad and Percy's positions. So.. as I understand it no rigid ideology won. There was a lot of compromise to get something done that large majorities of surveyed residents felt was important.

Dean N. Browning said...

Bernie:

There are several points worth expanding on starting with those made by Anon 7:49. It is true that budgets (particularly those at Lehigh County) tend to be conservative and are put together as Anon 7:49 described. An over the past couple of years operating deficits approved in the annual budgets did not come about and the County recorded surpluses. A couple of responses to that.

First, it is not always the case and 2013 is an example. The budget for that year called for an operating deficit of $6.8 million and the actual result was an operating deficit of $6.2 million. Secondly, the larger the budgeted operating deficit, the less likely it is that actual results will eliminate or close the gap. The budget for 2017 should be a good test as it calls for spending of $113 million and revenue of $102 million giving a budgeted operating deficit of $11 million. It will be interesting to see 2017 actually turns out.

The other item worth expanding on involves looking at Lehigh County's audited financial statements from December 31, 2011 thru December 31, 2015 (the last year completed). During that time the County's General Fund balance has decreased from $46 million to $35 million. At the same time, the County's unfunded pension liability has increased from $68 million to $90 million. As an aside, the total unfunded liability (pension and retiree health care) stood at $223 million as of the end of 2015.

While lowering Lehigh County property taxes is a good thing, I believe it should be weighed against declining fund balances, increased operating deficits (granted - budgeted) and increased unfunded liabilities for the pension plan. Perhaps all these items were considered and factored in but if they were I don't recall them being discussed from the dais.

Dean Browning

LVCI said...

Here's something Dean Browning should have also mentioned. County budgets are usually done ahead of when Pennsylvania approves it's next budget. So there should always be a concern whether the state will ante up with the same amounts they did in the prior year. This is the same concern school districts and cities face each year. When it comes to federal funding as well. Better safe then sorry since each depend so very much on these.

Anonymous said...

Browning is correct - the commissioners should have hiked taxes 16%.

Oh, wait a minute...

Vic Mazziotti said...

There are many opinions here, but there is one fact. After tax cuts three years in a row, the annual audited financial states prove that the tax cuts did not lead to deficits. For the last three years the General Fund of the county had surpluses, adding to the fund balance.

Anonymous said...

Vic, you also eliminated green future funds in place of some farmland preservation. Another program the goes to "red" townships while not providing comparable benefit to more developed areas. You also failed to invest in Cedar Brook. The fact remains, you are still borrowing at the same time you could be using money for debt services, captial improvements, fund regional iniatives, and secure a sustsinable future. Depeleting the rainy day fund is reckless.

Vic Mazziotti said...

You know not of what you speak. The "Rainy day fund" is set at $25 million. It has not been depleted. If a conservative walked on water you would complain that he can't swim! Why not sign your name. No courage? Vic Mazziotti

Chris Casey said...

Vic. You retired. Do yourself and the rest of the community a favor and stay there. You were nothing but a hall walker in Northampton County, and you were not much better in Lehigh. How many Government jobs were you working simultaneously to build up your pension? You were working full time in Northampton, "Consulting" somewhere up north near Scranton, and then ran for Lehigh County Commissioner. Elected Reps are supposed to look out for the common good at all levels, but you spent your life living off the taxpayer. Oh, and I sign my name when I write something I know is true. I have paid taxes all my life, the only time I lived off taxpayers was in the U.S. Army for four years. Who exactly did you serve in your lifetime of hall walking?
Just Yourself. The critics above have many good points. Thank God you finally got out of government, we are all better off without you.

Vic Mazziotti said...

Chris: Thank you for your service in the Army. And thank you for signing your name. I did my best at Northampton and Lehigh counties, but I understand that not everyone agrees. To set the record straight, I spent most of my career in the private sector. I worked as the acting Financial Director for Luzerne County for one year, after I retired from Northampton County. I did not participate in the pension plans at Luzerne or Lehigh counties and therefore I do not have a pension from either county. I have a small pension from Northampton County. It is the only government pension that I receive. I consider it an honor to have served in county government, but I have no interest in returning. Hope that helps you feel better.

Bernie O'Hare said...

Chris Casey, Vice was not a hall walker. What gives you that notion? Someone has really misinformed you. I saw Vic regularly. He was a hard worker. His ideas saved the county tens of millions every year. He was honorable, too. Yes, he is a conservative R, but that is the truth. Politics are one thing, and obviously,I disagree with Vic's brand. But he's precisely the kind of person we need in government.