NorCo's 2024 Independent Audit Available Online

At last week's meetings of Northampton County Council, they received a report from an independent outside auditing firm retained to examine the county's financial position in 2024. She gave the county an "unqualified" opinion, which is the best you can get. That report is now available online. Given the number of accusations of fiscal mismanagement, most of which are made here anonymously or by Council member John Brown, I thought I'd review it myself and suggest that you do that as well because that's the whole point of transparency. You might see something that others miss, or might be in a position to make a suggestion for improvement. 

Here are the "financial highlights" as reported in the audit: 

Governmental Activities:

• The assets and deferred outflows of the County of Northampton exceeded liabilities and deferred inflows at the end of the year by $174 million (net position).

• The County is reporting a deficit in unrestricted net deficit of ($20.7) million as of December 31, 2024.

• The government’s total net position decreased by $14.1 million. In addition, the governmental fund balance decreased $26.6 million.

• At the close of 2024 the County reported an ending net position of $174 million, a decrease of $14.1 million. In addition to the changes to fund balance discussed below, the following items also contributed to the changes in net position in 2024:

OPEB liability and related accounts decreased $2.8 million due to differences in actuarial estimates in both benefits paid and expected investment earnings in 2024.

Pension liability and related accounts increased $8.3 million due to differences in actuarial estimates in both claims paid and expected investment earnings in 2024.

Liability Due to P-3 Contractor decreased $2.1 million due to the near completion of the construction phase of the project discussed in Note #16

Long-term debt decreased $14 million during 2024.

Cash and Investments decreased $35.1 million due to the utilization of fund balance resources, aimed at maintaining a reserve equivalent to two months operating expenditures.

Unrestricted Net Position decreased $36.4 million due to the utilization of fund balance resources, aimed at maintaining a reserve equivalent to two months operating expenditures.

Governmental Funds:

• At the close of 2024 the County’s governmental funds reported an ending fund balance of $93.8 million, a decrease of $26.6 million. Significant governmental fund activity in 2024 is as follows:

Gracedale Nursing Home fund required a $9.9 million Transfer In from the General Fund in order to cover an operating expense deficit largely caused by an IGT shortfall that was not reported to management until late 2023. Expenditure and revenue shortfalls were also due to the use of agency nursing services to cover major staffing shortages and a lower-than-optimal resident census. The $9.9 million transfer is discussed in Note #1. (Brown's claim about the Gracedale deficit is accurate). 

Pending Medical Assistance applications cause a lag in collections of accounts receivable and are not included in current year revenue if collections exceed 90 days of year end. Payments collected after 90 days are included in included in the subsequent year revenue. Included in 2024 operating revenue is $3.5 million of 2023 Medical Assistance revenue while $1.4 million of 2024 Medical Assistance billings will potentially be recognized as revenue in 2025. The amounts are reflected on the Gracedale balance sheet as unavailable.

Real estate tax revenue increased $2.3 million mainly due to tax base growth.

• At the end of 2024, the unassigned fund balance, that which is available for spending at the government’s discretion is $7.8 million. However, the entire $7.8 million represents Financial Stabilization funds governed by Ordinance #526. The $7.8 million represents the minimum amount recommended by GASB, which is 5% of general fund budgeted operating expenditures, including transfers out. Additional information can be found in the Fund Balance and Financial Reserve sections of Note #1.

Some interesting points:

1) 59.3% of the county's revenue stream come in the form of state and federal grants.  

2) NorCo's total debt is $78.3 million. It has the legal authority to borrow $1.562 billion. 

3) Current year revenue plus $20.6 million in the general fund is sufficient for this year's operating budget (Brown has insisted several times that the county is cash poor, but the audit belies that assertion)

4) 85% of the county's spending is for human services as well as our courts and jail. 

5) There was an increase of $3.9 million in the drug and alcohol fund balance as a result of the national opioid settlement. 

6) County employees get between 10-30 vacation days a year, and from 0.833 to 1.25 sick days a month. Compensated absences cost the county $7.3 million per year. 

Please feel free to share your own observations. 

Bethlehem Tp Approves $10 Million Line of Credit For Big Ticket Needs

At their April 7 meeting, Bethlehem Township Commissioners unanimously approved a 5-year line of credit for big ticket items in the upcoming years. These include a $1.2 million aerial fire truck, other fire vehicles and roadway improvements. Finance Director Andrew Freda told Commissioners that the credit line would only be drawn on as needed over the next five years, with a very favorable 2.6% fixed interest rate.

Approximately half of the funding for the new firetruck - $550,000 - is included in a grant application to the Northampton County Gaming Board.

"It's a $10 million line of credit, not a $10 million loan," cautioned Comm'r Michael Hudak. President Tom Nolan agreed, noting that the certification for the fire truck is set to expire. "These are issues that we can't ignore for too long before we get in trouble."

There was no objection or questions from members of the public.

In other business, Commissioners decided against requesting the Parks and Recreation Board to consider relaxing rules to permit dogs at Housenick Park, as well a wine and cheese party that a local State Representative wanted to host.

A big part of the problem, at least in the mind of Comm'r Phil Barnard, is whether they've ever really decided how this park, part of the Archibald Johnston estate, should be used. "I don't know if we truly defined what we're going to do there," he wondered.

Hudak noted that alcohol is permitted by permit in part of the community park, but it's in the open, under supervision and near rest facilities. Housenick, he noted, is a more secluded area.

Comm'r Marty Zawarski thinks the idea is premature. "I'm not in favor of going down that road and allowing alcohol," he reasoned, noting he might change his thinking as the park is developed.

The request to allow dogs into Housenick Park came from Karen Berry, who told Commissioners that many people stay away because they are unable to bring their dogs. She, herself, owns no dog. "I don't have a dog in this race she laughed."

Noting he had been down this road many times before, Hudak gave a detailed explanation why he opposes dogs in Township parks, based on what he sees during walks along the Lehigh River towpath. "There's constantly dog feces there," he complained. "It's not just the solid waste of the dog. It's the liquid waste that's just as destructive," he argued, noting most parents would be disgusted to see their children rolling around on grass where had just urinated.

So for now, dogs, are completely banned at Housenick. State Representatives are OK, but must leave the wine and cheese in Harrisburg.

Independent Auditor Gives Northampton County Clean Bill of Health

Back in February, The Morning Call published a Lamont McClure Op-Ed insisting that Northampton County is sitting on a $60 million mountain of cash, so there's no reason to be worried about Gracedale, the County's nursing home. In a dueling op-ed, I argued that we really only had about $15 million to spend on day-to-day expenses.

Which one of us was right?

According to LarsonAllen, the County's independent auditor, that would be me.

Manager Michael Palazzo, a CPA, in a review of his firm's 2010 audit at yesterday's Finance Committee hearing, stated that the the general fund undesignated balance at year's end was $16 million, which represents 18% (or two months) of general fund expenditures. Palazzo told the Finance Committee yesterday that future financial statements will footnote the total fund balance to prevent future misunderstandings.

McClure, who attended no Committee meetings at all last year and has to attend one this year, might want to think about doing the job he was elected to do instead of misleading the public. If he did that, he'd learn the following:

* LarsenAllen gave the County an "unqualified opinion," which is the highest level of opinion an auditor can give. It's often referred to as a "clean" opinion.

* At a time when cities like Allentown and Bethlehem are drowning in red ink, Northampton County finished 2010 in the black by $989,200.

* County debt decreased $4.7 million during 2010, as bond issues are paid down.

* Real estate tax revenue went from $81.7 million to $82.8 million, a 1.4% increase. This is the result of the Sands Casino TIF agreement negotiated by Executive John Stoffa, Council member Ron Angle and Bethlehem.

* But total revenues decreased by 0.1% as a result of declining grant money from the state and federal government.

* Hotel tax shot up 17.6%, from $1.17 million to $1.37 million.

* Gracedale cost the County $2.5 million in 2010.

* 77% of the County's workforce is union, spread out among 11 different bargaining units. Five union contracts expired in 2009, and another two expired at the end of 2010.

Who's Watching the Henhouse in Bethlehem?

Last week, Bethlehem City Council adopted a $65 million budget that raises taxes 5.3% and sheds 54 people from the workforce, including firefighters and a CPA. It also gave preliminary approval to a $16 million loan, which incredibly includes $2 million of a $6 million loan previously borrowed for items like a new EMS facility, but which the Callahan administration blew on something else. The City even had to borrow the money for its annual pension payment, something it swore up and down would be unnecessary.

As disturbing as it is to learn that Bethlehem firefighters may very well be down by 6 people next year, I am even more troubled by two other cuts.

An independent audit has tagged the Callahan administration for the following financial missteps: a missed pension payment; spending money without required Council approval; "borrowing" EIT money collected for other municipalities; commingling restricted and unrestricted funds; commingling 911 land line and wireless funds; running the internal service fund at a deficit; "unusual investments" in the pension fund; excess 911 personnel costs; and treasurer's escrow account irregularities. In the face of this devastating audit, Callahan's cronies basically thumbed their noses at everyone and blew $6 million borrowed for capital purchases and improvements.

Yet a part-time City Council decided to eliminate around $15,000 set aside for its own budget analyst, who would work on an "as needed" basis.

I think it's safe to say that now, more than ever, City Council needs an independent review of Bethlehem's finances. Controller Meg Holland did make six specific recommendations, and some were implemented. An independent budget analysis would likely give Holland's recommendations more credibility, and would send a signal to the Callahan administration that Council is finally watching the hen house.

The other cut that really bothers me is the elimination of CPA Celie Walton's position, in spite of her willingness to work part-time and for no benefits.

An accounts payable and receivable position is now held by Terry Reichard. She just happens to be the widow of Dennis Reichard's cousin. Dennis Reichard, the City's Business Administrator, reacted to the negative audit in August by saying, "This isn't stuff that anybody's going to jail on." The contract person listed under temporary help in Financial Services just happens to be his next door neighbor.

Celie Walton, the CPA who's job was eliminated, may have been the most unconnected person in that office. She monitored daily financial reports.

Dennis has certainly surrounded himself with people who are beholden to him, and who would be less likely to raise any questions about financial dealings of the city.

Instead of watching the henhouse, City Council may have given Mayor Callahan the key.

Updated 9:55 AM to reflect more accurately what Celie Walton did as a Bethlehem employee. I have also clarified that City Council only authorized the City to reborrow $2 million of the $6 million it had diverted.