Story originally printed in the Vernon Broadcaster or online at www.vernonbroadcaster.com
Published - Thursday, August 14, 2008
Revenue can’t keep up: County’s woes being felt by many entities
Vernon County is in a downward spiral when it comes to having enough money to cover its budget, the county's auditor reported last week.
County auditor and financial advisor Jack Vig of Vig and Associates warned the county board, Tuesday, Aug. 5, the 2009 budget will be difficult.
Vig said the county, like all other units of government dealing with levy caps, can't raise enough revenue. Vig said the county gets 73 percent of its revenue from two sources, state aid and local property taxes.
"The cumulative effect is that expenses are going up faster than revenues," Vig said. "You may have had some reserves and flexibility in the past to help cushion the adjustment. A lot of those abilities are used once, used twice and are no longer available to the county."
Vig gave an estimate of what the end-of-the-year deficit will be and 2009 might look like. Vig estimated the county will be able to raise the levy about $176,000 if they are allowed a 2 percent increase based on the 2007 levy. Health insurance is estimated to increase $225,000.
Vig gave a hypothetical department budget as a way to illustrate the difficulty in balancing the upcoming budget. If a department has a total budget of $800,000 and gets $200,000 from grants and $600,000 from the local tax levy, that department would end up having to find $60,000 in savings with a zero levy increase. Vig said that is assuming costs such as wages, health insurance and variable costs, like fuel, all go up.
"Maybe they could create a new revenue source," Vig said. "Where would that come from? I think this is real typical the way this current year problem is shaping itself."
Vig assured the board tight budgets are common in county government throughout the state and some of the common ways of dealing with shortfalls are layoffs, not refilling positions, consolidating departments, reduced services, increasing charges for services, cutting capital budgets and using fund balance to offset deficits.
"The problem is so much of your revenue comes from state aids or taxes that unless there are some major policy changes, what you are going through is not a one-time event," Vig said. "You are going to deal with this annually and the budgets will get increasingly more painful to find ways to balance, and the choices will get harder with each year it goes on. It is very important that a culture gets developed that anticipates negative trends in the budget and try to see if revenues match expenses and if corrections need to be made mid-stream."
Vig said there are some bright spots in the local economy.
"The equalized valuation in the county is a barometer of the overall valuation of the county," Vig said. "The county's valuation over that seven-year period has increased 59 percent."
Vig said as of 2001 the county's valuation was listed at more than $1 billion and as of 2007 it increased to about $1.8 billion. The increased value of county property has been one way the county has gotten around the 2 percent tax levy cap. The county is allowed by the state to increase the local tax levy by either 2 percent, or the rate of growth if it is higher then 2 percent.
Last year, that growth rate meant the county increased its levy by 3.4 percent instead of the 2 percent. Vig said the 2009 numbers on growth will be out in the next few months and will give the county a better idea of what the amount of local tax levy money will be available.
"One of the trends you can see is that the property values have grown at a rate faster than the levy," Vig said. "Therefore the overall mill rate has gone down."
Finance committee chairman Brian Richardson gave his explanation of why the county ended up with a deficit for 2008.
"As everyone knows, the state did not get done with their budget until late in October, leaving us to guess with our budget," said Richardson.
Richardson said the county started the budget process with a $600,000 deficit. Richardson said the committee decided not to contribute an annual amount to the contingency fund, which reduced the deficit to $400,000. The county learned it would be able to exceed the 2 percent cap, because the local new construction was higher than expected. The county was allowed to increase the local levy cap to 3.6 percent and reduced the deficit to $308,000.
"This we had to submit to the state," Richardson said. "Rather than go back and do everyone's budget over, we decided to put on a hiring freeze."
Richardson said normally the county sees about 30-40 jobs turn over in a year. Richardson said if the county froze 10 positions, they estimated a $500,000 savings (based on an estimated $50,000 for a full-time position). Richardson said county department heads got together in January and February and came up with ways to save about half of the $308,000.
"The finance committee didn't want to drop the freeze," Richardson said. "We decided there might be some misunderstanding on the freeze."
The board then decided to rescind the freeze and implement a moratorium requiring a six-month wait on filling job vacancies.
"The same day, we ignored the moratorium and hired someone immediately," Richardson said. "Again the finance committee lost faith with department employees and department heads."
Richardson said there is a projected $600,000 deficit for 2009.
"This means layoffs, less services or whatever it takes," Richardson said. "We want the department heads to make the decision as to what they will do to reduce the budget."
Richardson said the committee has instructed department heads to come back with a zero percent increase in their budget for the local tax levy. Richardson said other options include early retirement packages or using some of the contingency fund or reducing the number of county supervisors.
Vig said by the end of August, the county will have an idea of how much it can increase the local levy and will have until the November county board meeting to finalize its budget.
Money from the county farm, highway department and Vernon Manor have been transferred in past years to balance the budget, Vig said. The county fund balance is at around $4.5 million and that "sounds like large amount," but only equals two-and-a-half months of operating expenses, Vig said.
Vig said other pressures are making 2009 look like a very difficult budget year. Vig said revenues for services are down, expenses for two floods in 10 months and fuel costs are all adding pressure to the budget.
Supervisor Karen Dahl asked if there has been an investigation into the possibility of everyone tightening their belt instead of layoffs through shorter working days. Personnel director Linda Kica said that has been discussed, but any change in working conditions would need to be negotiated with each individual union and that has not been pursued yet.
Supervisor Geoffrey Banta, a member of the finance committee, said he would like to give the departments time to work on the issue.
"Let's not get the cart before the horse," Banta said. "We made this presentation to the department heads, let's see what they can do."
Supervisor Todd Overbo asked what will happen with the $308,000 deficit from this year (2008).
"I think it's too late to do anything," Banta said.
"I don't think it's too late," supervisor Kevin Gobel said. "I think we need to look at everything. With five months left, I guess I would ask our department heads to start looking at this thing. We need to whittle it down, or it will hurt us even more next year."
Finance committee member Ole Yttri said there may be a surplus of $100,000 at the end of the year that may be available to cover some of that deficit. Vig reminded the board that with the economy slowing the deficit may be $500,000.
"That's why we need some cuts now from the department heads," Overbo said.
"We have to remember we have cut the fat already, and we are skin and bones now," Dahl said. "There is no bloated government bureaucracy. We have a fiduciary responsibility, but we also have quality of life and life and death issues to our constituents, too."
Dahl asked Vig for his advice.
"In the present model there isn't an answer," Vig said. "It's almost a downward spiral to be very honest with you. You have to look at revenues and expenses. The cause of the problem is very simple to understand. You are not allowed to raise enough revenues to make their growth rate equal to what is happening to your expenses. You can do that for a couple of years, but then you run out of options."
Banta said eliminating the existing budget deficit was one way to start planning for 2009.
"We have to get rid of the $308,000 or it will follow us into next year," Banta said. "I know you don't like to hear me say it, but let's take it out of the general fund and start next year and sit with the department heads and work this out."
All stories copyright 2006 Vernon Broadcaster and other attributed sources.