CECIL TIMES SPECIAL REPORT: County Budget Bleaker Than Rosy Report to County Council; New Executive Faces Fiscal Challenges
A CECIL TIMES SPECIAL REPORT
Cecil County‚Äôs fiscal picture looked rosier than expected recently as county finance officials presented a detailed accounting of the recently completed budget year and projected a positive forecast for the rest of the current fiscal year. But buried in the numbers were enough caveats and concerns to make even a cheerful Pollyanna reach for a calculator, a crystal ball and a salt shaker.
A linchpin of the financial reports, presented to the Cecil County Council on 11/15/16 by county Finance Director Winston Robinson, was a prediction that county revenues from income taxes would continue to rise. However, state budget officials have issued two warnings in recent months that state revenues from income taxes would be lower than expected for the rest of the current budget year and next year‚ÄĒand as a result, Governor Hogan has scaled back on state spending and tax cut plans. The state collects a local income tax for Cecil and other counties as a ‚Äúpiggyback‚ÄĚ on top of state income taxes.
In Cecil County, even higher than expected local income tax money received just a few months ago has already been mostly wiped out by higher costs for county employee healthcare. Healthcare costs are rising even though county employees are now being charged higher premium costs and/or reduced benefits under health plan changes made in the current Fiscal 2017 budget year, which began July 1, due to a higher than usual numbers of high-cost ‚Äúcatastrophic‚ÄĚ illnesses.
Moreover, a key barometer of the county‚Äôs fiscal health‚ÄĒthe amount of its fiscal cushion in case of emergency‚ÄĒhas been systematically drained throughout the administration of current County Executive Tari Moore. But the latest financial reports use an accounting device to understate just how much she has drained from the ‚Äúunassigned fund balance‚ÄĚ reserves to balance her budgets‚Äô spending.
And Winston Robinson, the county‚Äôs current finance director, acknowledged to Cecil Times he ‚Äúcannot predict‚ÄĚ just how much of that financial cushion will remain at the end of Moore‚Äôs current budget in the next few months in case the new county executive needs to draw upon such funds.
Meanwhile, the county landfill‚Äôs accounts showed a better than anticipated fiscal picture, despite lower numbers of tons of stuff deposited but higher fees for dumpers, largely due to a mild winter that let debris be compacted more than usual on the site Under accounting procedures, the more space still remaining on the site means less money that has to be set aside each year for environmental costs related to closing a fully filled landfill many years in the future. But a harsh winter in the next few months could dump the dump‚Äôs finances and pose a possible drain on general taxpayer funds to balance the books.
The fiscal reports represent the sunset of County Executive Tari Moore‚Äôs four-year tenure as she prepares to leave office in early December. She will be replaced by Alan McCarthy, the current vice-president of the County Council, who won overwhelming majority support in the recent election to become the second county executive under Charter government.
Despite the rosy fiscal portrait presented to the County Council recently, McCarthy‚Äôs administration will face multiple fiscal issues very quickly, since he must present a Fiscal 2018 budget proposal to the County Council by April 1, 2017.
The looming problems include rising employee health care costs; a nearly $50 million backlog of overdue maintenance projects on aging county public schools at the same time that the state has cut back on promised school repair aid; projected lagging income tax revenues in the near future; and the potential for a harsh winter that could boost Department of Public Works costs. And all those problems will come against the backdrop of a much smaller fiscal cushion to fall back on, due to Moore‚Äôs budget policies.
The state Board of Revenue Estimates recently reduced anticipated revenues to the state by $800 million, primarily due to sluggish income tax revenues. That forecast affects the state‚Äôs counties because they impose a ‚Äúpiggyback‚ÄĚ income tax that is based on state income tax revenues. The state collects the county taxes as part of citizens‚Äô regular state tax return filing, so many local residents may not even be aware that their county has an income tax.
Now, the state expects to collect $365 million less than expected in the current budget year, on top of a previously announced shortfall of $250 million in the just completed Fiscal 2016 budget year. And to make matters worse, the state is expected to face another revenue drop of $417 million in the upcoming Fiscal 2018 budget year. When the General Assembly reconvenes in January, the budget problems will be at the top of the state agenda‚ÄĒwith trickle-down impact on counties that rely on state funds for many local programs.
But while Maryland officials are looking at adjustments‚ÄĒincluding emergency spending cuts to the current fiscal year‚Äôs budget– to reflect the fiscal realities of lower tax revenues, Cecil County‚Äôs financial officials are predicting that local income tax revenues will rise.
In a statement to the County Council last week, Robinson admitted that so far in the current budget year, overall revenues are already down by $907,521 from his earlier forecasts, with half of the shortfall due to lower receipts from property taxes and inventory (‚Äúpersonal property‚ÄĚ) taxes imposed on businesses. The county‚Äôs current budget estimated that local income tax revenues would rise by 2 percent over the previous budget year, but now Robinson concedes, ‚ÄúThis estimate will be closely monitored as the State is writing revenue down in anticipation of weaker than expected wage growth.‚ÄĚ
In a lengthy interview with CECIL TIMES, Robinson said that he was still confident that overall Cecil County revenue numbers would be up in the current budget year, despite the state forecasts. But he acknowledged that recent budget trends were concerning. Although the county‚Äôs income tax revenues were $1.9 million higher than previously expected during the recently completed Fiscal 2016 budget year, health care costs were over budget by $1.36 million in the same time frame, he said.
Nevertheless, his budget documents still insisted that the current budget year‚Äôs predicted income tax revenues would eventually meet his target‚ÄĒeven though the documents show that during the first three months of the budget year, income tax revenues to the county are already $518,000 below receipts during the comparable same time period last year.
Robinson also told the Council that income tax money received by the county in the just completed Fiscal 2016 budget year was $1.9 million better than expected, and in previous meetings with the Council he said the reason was money from an influx of temporary construction workers building the massive Wildcat Point electricity generating plant near Conowingo, owned by Dominion Energy Cooperative. But that work is expected to be largely done by spring of 2017, with just a small pool of workers staying here to actually operate the plant‚ÄĒand pay local income taxes. That means McCarthy will likely have a large drop-off of income tax revenues to expect as he drafts his new budget plan.
A fiscal hallmark of Moore‚Äôs administration was repeatedly draining reserve funds, accumulated over many years by her predecessors to guard against fiscal or weather emergencies, in order to finance her spending increase plans along with a freeze on the county property tax rate for two years. But she also proposed a host of fee and tax increases in the two most recent fiscal years while still tapping into the reserve fund, known as the ‚Äúunassigned fund balance.‚ÄĚ
The newly revealed statement of the final budget tally for Fiscal 2016, which ended on June 30, 2016, suggests that Moore only tapped into the so-called ‚Äúunassigned fund balance‚ÄĚ reserve funds by $6.2 million thus far in her term, from Fiscal 2014 through Fiscal 2016. In fact, a year by year review of budgets since Moore took office show she pulled out much more‚ÄĒbut a new accounting device seeks to minimize the appearance of the actual hit on reserves in the latest county financial statements.
The account‚Äôs balance was $15 million in the Commissioner‚Äôs final Fiscal 2013 budget and the new financial statement to the County Council listed the fund balance remaining at $8.7 million in the recently concluded Fiscal 2016 budget year. ‚ÄúThere are no secrets‚ÄĚ in the budget documents, Robinson told the County Council.
But in an interview with Cecil Times, Robinson acknowledged that much of his report‚Äôs remaining $8.7 million figure was due to an accounting revision to re-calculate how much, and WHEN, the county would have to put aside money to give income tax refunds to county residents under a state Court of Appeals decision, known as the Wynne case. An estimated $3 million had been set aside in a fenced-off area of the budget to pay court-ordered tax refunds to people who qualified, but Robinson told CECIL TIMES he reduced the accounting ‚Äďand shifted it to the ‚Äúunassigned fund balance‚ÄĚ– recently based upon new state guidelines.
In other words, the accounting change underestimates how much Moore really raided the county‚Äôs reserve funds. In fact, Moore‚Äôs actions would have almost depleted the reserves, if the remaining balances had not been re-calculated by Robinson under changed estimates of how much the Wynn case could cost the county and over how many years the costs should be spread. The actual total costs to Cecil County of the Wynn case are still unknown. [And shifting the money to the “unassigned” fund balance does not change the fact that the county will still have to pay refunds to certain taxpayers who file for them, and therefore the fund balance would have to be tapped to pay them, meaning that up to $3 million would not be available for paying snow removal or other emergency costs.]
Contrary to the new documents shown to the County Council, a Cecil Times year-by-year review of Moore‚Äôs budgets, as adopted by the County Council and mid-year budget amendments, shows $11.8 million in hits by the Moore administration on the ‚ÄĚunassigned fund balance‚ÄĚ reserve funds account in that same three budget year time period‚ÄĒor nearly twice what the new fiscal report suggests.
And the total tally rises to $14.2 million in budget hits on the fund balance during Moore‚Äôs four-year tenure when including $2.47 million tapped in the current fiscal 2017 budget. That would appear to leave under $1 million remaining from the original $15 million fund that the former county commissioners left behind.
The hits on the fund could be even greater in the more than six months remaining in the current budget year, especially if projected income tax revenues fall short and/or a severe winter boosts snow removal and road repair costs, leaving McCarthy to pick up the pieces from Moore‚Äôs final budget as well as having to come up with a new Fiscal 2018 budget in the spring.
How did we get here from there, in historical budget terms? In the final budget of the former Board of Commissioners for Fiscal 2013, only $612,436 was drawn out of the fund balance, which then left the total unassigned balance held in reserve for future emergencies at $15 million.
In her first budget, Moore‚Äės Fiscal 2014 budget, as adopted by the County Council, drew $3.34 million from the unassigned fund balance. But that budget was revised as the year went on, according to a tally reported in the subsequent Fiscal 2015 budget documents, to escalate the total hit amount to $6.64 million in Fiscal 2014.
In Fiscal 2015, Moore‚Äôs approved budget drew $4.16 million from the account. In Fiscal 2016, the County Council cut her budget‚Äôs spending plans by over $2 million and reduced her fund balance drain to $1 million.
In the current Fiscal 2017 budget year, the Council-approved a budget that allocated $2.47 million in unassigned fund balance money, a reduction of a modest $131,000 from Moore‚Äôs original proposed hit on the reserve funds. For the first time, most Council members voiced concerns about the pattern of using those reserves to finance county annual spending.
‚ÄúWe can‚Äôt balance the budget any more on the back of the fund balance,‚ÄĚ Councilor George Patchell (R-4) said when the Council adopted the current budget.
He and other members of the County Council, which includes two new members for whom the budget will be a whole new world, will clearly have their work cut out for them when the new county executive and County Council try to piece together a new budget next year.