County's Financial Situation
An overview of the County's financial situation
It is time to focus on the long-term view for our financial future. The County’s commitment to long-term fiscal stability has been challenged over the past several years, due to the economic downturn and loss of property tax revenue, which makes up the largest percentage of the General Fund budget. The County has responded well, as reflected in the approval of a balanced budget for 2012/13, the retention of AA+ bond rating, a General Fund unreserved fund balance amount above Board of Commissioner adopted policy, and a projected year end surplus for fiscal year 2012.
The Preliminary Financial State of the County revealed a structural deficit still exists over the next four years. I have established a target of $6.88 million for 2014 – 2017. What does this mean? If reductions in the amount of $6.88 million are obtained in 2014, sustained and carried forward through 2017, the structural deficit will be eliminated. While we continue to have a structural deficit that needs to be resolved, it is a significant improvement over past years. While the sacrifices made by County Departments and staff begin to pay off, we have more work ahead to balance the budget.
On May 15th, the Board of Commissioners received a report on the Updated Financial State of the County. Though much outside of our control remains in flux, we now know that the County taxable value has increased for the first time in five years. Even with some of the positive news we have received in the last couple of months, we are still projecting a structural deficit for the 2014-17 budget. Administration has set our target at $6.99 million, not far from the $6.88 million target set during the Preliminary State of the County. This conservative approach is being taken because of our efforts to address long-term legacy costs associated with our Voluntary Employees Beneficiary Association (VEBA) and Washtenaw County Employees Retirement System (WCERS). Closing our plans helps to address these liabilities long term, but will require higher contributions in the near term. Debt restructuring for these liabilities is a solid strategy being investigated to mitigate short and long term budget impacts.
While we still face many challenges ahead with growing expenditures and liabilities, there are signs of a turnaround. For the first time in five years, the County taxable value reflected an increase (1.35%). This should result in additional revenues of $2.3 million for this year and $2.4 million for 2014-17, assuming property tax revenue increases at 1% per year. We also have 10 year labor agreements in place, which help us to better predict future liabilities. Employees in this organization have been a part of the solution, as sacrifices you all have made contributed to holding personnel costs nearly flat as property taxes took their dip. This additional revenue gives us the ability to use less of the County’s Fund Balance than previously estimated and has a compounding effect on the budget in future years.
Washtenaw County is entering a new era, one in which small, but steady growth, is being projected, and one that is going to cause us to face our unfunded liabilities head on. Employees, Department Heads, and Elected Officials are at the forefront of tackling these issues, while continuing to provide extraordinary service to the community. As always, thank you for constantly being mindful of the budget and continuing to stay informed on our financial situation.
Externally we are facing the Governor’s Reinventing Michigan agenda and the State legislature reform actions, which include revenue sharing and the personal property tax repeal & replacement. We also face an evolving economy, health care reform, and increased community need. Internally there is continued transition throughout the organization and we welcomed in a new Board of Commissioners.
The projections represent the estimated size of the budget deficit, assuming that all County services remain at their current service levels with existing staff and operating budgets. Projections include cost escalations for expenditures to accurately represent the reality the County will face if no further budget modifications are made. Administrator Verna McDaniel will present her Recommended Balanced Budget to the Board in September 2013.
Several resources are available to help you better understand the County's financial situation. Please take the time to review them and plug into the engagement opportunities over the next few months.