Fixing ‘Financial Mess’
posted by Alex Ferreras on June 1, 2012 in Bankruptcy
SUNBURY ( Source: Mark Gilger The News-Item, Shamokin, Pa. (MCT) – Property taxes will be raised 2.5 mills in Northumberland County in 2013 as part of a long-term plan to avoid bankruptcy.
The 11 percent increase is necessary to pay off a $5.1 million loan the county will pursue – money it needs to meet payroll and other operating expenses.
During a news conference Thursday morning, Commissioner Chairman Vinny Clausi outlined a plan he says is necessary for fiscal security as the county fights growing costs for labor, health care and pensions that total millions of dollars every year.
“We will have a $40 million deficit in 2022 if we don’t do something to correct this financial mess,” Clausi said. “We can’t afford to go backward like the years when (Allen) Cwalina, (Charles) Lewis (Charles) and (Sam) Deitrick were in office. I won’t let that happen again.”
Noting this is “only the beginning,” Clausi thanked budget director Jeff McClintock and Controller Tony Phillips for their assistance.
“The plan is good and achievable,” McClintock said. “The cash flow problem will be corrected by the end of 2015 with the tax increase. This is definitely the lesser of two evils, with the other option being bankruptcy.”
Phillips thanked the commissioners for allowing him to be part of all budget negotiations and the long-term plan.
“This is the least painful way to get us back on solid financial footing and move forward,” he said. “We must continue to make cuts, look at making technology advances and negotiate union contracts. This isn’t an end-all to the financial problems, but it’s a good start.”
Loan now; tax OK later
The 2.5-mill increase is expected to generate $1.85 million, since one mill is equivalent to $740,000.
Total millage would rise from 20.318 to 22.818, which will remain the same for at least the next three years. The county raised taxes by 1.95 mills in this year’s budget.
Approximately one mill will be used toward debt service for the next 10 years, which is the life of the $5.1 million loan being sought. The remaining 1.5 mills will be used for the general fund, which includes payroll and operating expenses.
The proposed increase is scheduled to be approved as part of the 2013 budget by the end of December, but the loan will be sought now.
Even with the proposed 2.5-mill tax increase, Clausi said taxpayers will be paying less than they were prior to 2009, when commissioners lowered the rate by 3.367 mills in conjunction with the sale of Mountain View Manor. The county generated $16.5 million from the sale, but that money can only be used to pay off long-term debt.
$12 million loan, too?
The county may also need to obtain a $12 million bond to pay for upgrades to the 911 center that involve constructing three new communication towers to comply with a federal mandate to change from a wide to narrow band frequency system by 2013.
If the county has to secure both loans, the overall millage increase would jump from 2.5 to 4.25. That would represent a 20.917 percent increase in millage from 2012.
But Clausi said the county and other entities are seeking an extension from the federal government to give them time to secure grants to help fund the 911 center upgrades.
With that, the higher tax increase is in limbo for now.
The plan lays out some other situations:
- If the commissioners choose only to finance the $12 million bond for the 911 center and not the other $5.1 million, taxes would have to increase a total of 13 mills, or 63.9 percent, in 2013.
- If the county did nothing to address its financial problems and kept millage at its current rate, it would go bankrupt in January because it wouldn’t have any cash to pay its bills.
Cash-flow woes
McClintock said the county faced a $1.5 million fund balance deficit in 2011 – another reason, Clausi said, he pushed to develop a long-range plan. McClintock said a $2.5 million to $3 million fund balance is needed by 2015 to correct cash flow issues. Cash flow problems exist because the county only receives tax payments during a certain time of the year and has no constant influx of cash that would better allow it to make payroll and meet other operating expenses.
Clausi said a tax increase to supplement the general fund also may be needed in 2016 and beyond, depending on the county’s financial condition, which he said nobody could predict at this point.
According to other county figures, total revenue for 2012 is $15,035,320, including $13,381,420 in the general fund and $1,653,900 in debt service. Through the tax increase by the end of 2015, total revenue will jump to $18,180,320, including $15,231,420 in the general fund and $2,948,900 in debt service.
Rising costs make that extra money necessary. Clausi said that while 106 positions have been cut in county government, trimming payroll by $4.7 million over the past four-plus years, those savings have been wiped out by increases in union contracts and pension and health care costs.
Clausi said the commissioners have agreed to budget approximately $100,000 for 2013 in case the county needs to hire an additional employee in the controller’s or budget director’s office to help with the workload involved in his long-term financial plan. He said the employee costs would not total $100,000, but believes it is a good practice to set aside the money for possible other expenses involved with carrying out the financial plan.
‘A last resort’
Commissioner Stephen Bridy praised Clausi for his efforts.
“This plan is a last resort,” he said. “It’s the only other option beside bankruptcy that is available to us.”
He said the county must continue to look for ways to generate revenue “so we can give back to the taxpayers in the future. This is their money.”
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