Bob's Update - August 3, 2009

I recently received updated financial projections that indicate that our 2010/2011 deficit, which earlier this year was estimated at $26 million, has now grown to $30 million - further illustrating the unstable nature of this unprecedented economic decline.

Washtenaw County Administrator Bob Guenzel Throughout the budget process we monitor national and local economic indicators and have periodically revised our assumptions to incorporate the best available data. A mid-year review of these assumptions revealed a greater deficit than originally projected. These problems are manifested in further declining revenues and increased expenditures.

Further Declining Revenues: Property tax accounts for nearly 70% of the General Fund Revenue. Recently updated financial information has indentified three significant changes to our revenue assumptions:

CPI (rate of inflation) will be close to 0% or possibly even less than 0%. Remember that Proposal A limits the annual assessment increase for each property parcel to 5% or inflation rate, whichever is less. Good news for consumers and homeowners but bad news for county government tax revenues. This essentially means we will retain our assumed taxable value resulting in zero revenue growth.
General Motors, the 2nd largest tax payer in the County, recently announced that the Willow Run plant will close in 2010 – significantly reducing tax revenue starting in 2011. The future of this property is uncertain but the county will definitely experience a loss. The General Motors plant closure, the Pfizer closure and further decline in property revenue have led to a projected reduction of 7.5% in property tax revenue for 2010 and 8.5% in 2011.
A significant decrease in the number of transactions and the value of each transaction in the Register of Deeds office (transactions related to real estate transfers in Washtenaw County), has led to $1 million less revenue this year than anticipated – essentially fewer people are buying property.

Increased Expenditures: The mid-budget review has also revealed an increase in several major expenditures.

As real estate values drop nationwide, the number of home owners and business owners appealing their assessments has increased. If a property owner successfully appeals their assessed value, the county (and other taxing authorities) must repay taxes collected that exceeded the value set through the appeals process, therefore it is an expenditure, but it also hits us in the future because of the lower taxable value.
Historically, we have projected $100,000 annually for tax appeals. Earlier this year we increased that amount to $500,000, but it still wasn’t enough. We have over $900 million in commercial tax appeals under consideration, plus residential appeals, which forces us to assume an expenditure closer to $1.5 million.
The Washtenaw County Employee Retirement System (WCERS) actuarial report, an annual report on which the organization can estimate needs for funding future retiree pensions, calculated an increased employer cost of $830,000 predominately due to the decline in the stock market.
Our initial projection related to medical expenditures for employees and retirees predicted an annual employer cost of $22 million, but it’s trending higher, and is now expected to approach $23.5 million, an increase of $1.5 million.

We are experiencing the most challenging financial collapse since the Great Depression, and the reality is that for Washtenaw County it will get worse before it gets better.

"Bob's Update" is a weekly message to Washtenaw County employees from County Administrator Bob Guenzel. eWashtenaw publishes these columns when they are deemed timely and useful to the wider community. Please contact Administrator Guenzel with your comments.

In July the Board adopted $14 million in adjustments for the 2010/2011 budget. This week the board will begin considering options for the remaining $16 million. While we continue to be open to any viable option, we have narrowed the list of things that we are evaluating and will be presenting those to the Board of Commissioners at the Ways and Means meeting this Wednesday for their feedback.

Phase II Budget Options: I will present the 2010/11 Phase II Budget Options with the Board of Commissioners at the August 5th Ways and Means meeting. Please remember that these are options not my recommendations. The presentation and support document are now available online and I hope that you will take some time to review the information and discuss it with your coworkers and/or supervisors.
Update on Economic Discussions with Unions: Human Resource Director Diane Heidt and the negotiating team continue to meet with our labor partners to discuss the economic challenges that the County must address. We remain hopeful that these discussions will yield the savings necessary to help balance the budget and of course, the challenge that we face is the short timeline. We need to have agreements from our labor partners by mid August in order to prepare my recommendation for Phase II 2010/11 budget adjustments.

During these times we must confront the most brutal facts of our current reality no matter what they might be, and retain faith that we will make good decisions despite the seemingly insurmountable circumstances. These are uncertain times, but the one thing is clear to me, we have built the type of organization that will get through this. Thank you for all you do and thank you for staying informed.

Have a great week and stay in touch here or by email.

Bob