Here's the good news: The proposed Oneida County budget that is headed to the county board on Nov. 12 would reduce the property tax rate and only marginally increase the absolute amount of tax dollars flowing into county coffers.
Here's the bad news: The proposed draft budget would borrow $4 million for capital improvement projects that would have to be repaid over a term of as long as 10 years and result in more than $460,000 in interest costs, at least. While that won't affect the tax levy in 2020, it would do so starting in 2021.
And then there's questions about whether supervisors have used sound strategy in drafting the 2020 budget. For example, it again pulls money - $250,000 - from the general fund to help balance the budget, and also applies $300,000 from the sheriff's department's inmate revenue for the same goal.
That's using revenue sources that could go away to fund annual operating expenditures. If for some reason in future years the general fund pot isn't there because revenues take a dive, or state inmates disappear, that would leave a gaping hole in the county's budget.
There's also the mushrooming of capital improvement requests that led in part to the current proposal to borrow - and sets up the possible need to borrow even more down the road. All the while the county remains committed to supporting non-mandated programs that consistently rank low in efficiency studies, and at one point seemed poised to slash overall employee compensation to keep those programs up and running.
Looking good in summary
On its face, the budget looks like a good deal for taxpayers.
As it usually does, and as many counties do, the county will tax to the max of its state allowed levy, which generally speaking and with certain exceptions, is the amount of net new construction in the county.
New construction has been lagging statewide for some time, however - from 2018 to 2019, according to a report by the Wisconsin Policy Forum, the increase in net new construction amounted to just 1.6% statewide - and that means the allowable levy limit hasn't been increasing very much.
That puts most counties, including Oneida County, on the ropes from the get-go because in some years it doesn't exceed the rate of inflation, which makes it hard for counties to maintain current levels of service or to provide employees with cost-of-living adjustments.
To put that challenge in perspective, this year's Oneida County levy includes a 2 percent cost of living adjustment (COLA) across the board. Just half of that amount takes up the entire increase in the county's allowable levy increase based on net new construction.
In sum, in Oneida County for 2020, the allowable levy limit is $16,737,490 and that's what the draft budget proposes to levy. That's just an increase of $91,209 over last year's levy, or .5%, and that actually represents a smaller tax rate than last year, given a 4.2% increase in equalized property values.
In 2019, the tax rate is $2.42 per $1,000 of equalized property values; next year, under the draft budget, it would be $2.33 per $1,000 of equalized value, a drop of nine cents per $1,000 of equalized value, or 3.7%.
The thing is ...
So far, so good, but recently completed budget hearings exposed a number of long-term issues.
The first issue facing the administration committee was its starting point of being about $903,000 in the budget hole - basically the difference between what the county could levy and what various departments asked for, along with health insurance, personnel, and various other costs. For instance, in addition to the across-the-board COLA, the budget included funding a little less than half of the annual wage raises of $800,000 recommended in a study by Carlson Dettmann Consulting.
Finding cost cuts or revenue increases of nearly a million dollars might have seemed a daunting task, but right away the administration committee found a third of it by applying $300,000 in state prison inmate revenue to the operating budget.
The state pays more than $50 a day to Oneida County for housing state inmates, a fee that raked in about $1.5 million in 2017. It doesn't cost that much to house them, so the county budgets only the portion necessary to cover expenses, while the rest is returned to the general fund balance. There it bolsters the undesignated fund balance, which can be used for unforeseen emergencies or funding capital improvement projects.
Over the past three or four years, supervisor Billy Fried said at the hearing, the sheriff's department had returned in the neighborhood of $1 million a year to the general fund. He proposed taking $300,000 of next year's surplus and applying it to the operations budget.
That proposal comes with several cautions.
For one, when he was asked, Oneida County sheriff Grady Hartman said he was comfortable with the $300,000 number, and also said he was confident that inmate revenue was assured for next year, but whether it would be there in future years was not certain.
And if the revenue did go away, finance director Darcy Smith reminded the committee, the county would have to find the money elsewhere: "It's going to have to come from other budgets, probably it wouldn't come from theirs (the sheriff's department)," she said.
Supervisor Robb Jensen raised another issue.
"You have to remember that the overall profitability of the inmates builds up the general fund, and we've been able to do general fund projects and capital improvement projects, so you're shifting it," he said. "If we don't do this, a year from now we could have an additional $300,000 in capital improvements."
Still, Jensen said he saw the logic and no committee member opposed Fried's motion to apply the $300,000 to the operational budget.
Not long after that action, the administration committee voted to take $250,000 from the general fund for operations. That's a practice that in recent years the county has grown accustomed to use to balance its budget, though in 2019 only $49,062 is being used, and the general fund has the cash to accommodate it, but it is a practice that is viewed with suspicion by many because the money does not represent ongoing revenues that can sustain the ongoing expenditures it funds.
In fact, many local governments have policies that prohibit the use of general fund balances from funding operating expenses, mandating that any excesses over minimum balances go to fund capital projects, other one-time projects, or to pay various accrued liabilities, including debt service and pensions.
Many governments do dip into their general fund reserves to balance the budget, though, and philosophies vary, but the Government Finance Officers Association says such a practice should only be used to achieve a structurally balanced, or sustainable, budget.
"Most state and local governments are subject to a requirement to pass a balanced budget," the GFOA states in its best practices. "However, a budget that may fit the statutory definition of a balanced budget may not, in fact, be financially sustainable. For example, a budget that is balanced by such standards could include the use of non-recurring resources, such as asset sales or reserves, to fund ongoing expenditures, and thus not be in structural balance."
A true structurally balanced budget is one that supports financial sustainability for multiple years into the future, the GFOA states.
"A government needs to make sure that it is aware of the distinction between satisfying the statutory definition and achieving a true structurally balanced budget," according to the group's best practices. "(A) government should adopt a formal policy calling for structural balance of the budget. The policy should call for the budget to be structurally balanced, where recurring revenues equal or exceed recurring expenditures."
The use of general fund revenues to balance the budget is especially questionable in a time when capital improvement expenditures in the county are skyrocketing, putting pressure on the general fund reserve.
The bottom line is, the county needed to pare $903,000 from its budget or increase revenues to meet its allowable levy limit, and the administration committee wiped away $550,000 of that amount with revenues that might not be there in the future, rather than cutting expenditures.
Capital improvement projects
Then there is the capital improvement program (CIP), which brings up two central issues - whether those are growing beyond what the county can afford and whether they are needed, and the ultimate impact of the 2020 budget on taxpayers.
For 2020, the draft budget proposal includes funding capital improvement projects at around $6.3 million. That's too much for the general fund to absorb, so the budget proposal would expend around $2.3 million from the general fund, with the county borrowing $4 million.
First, there's the impact to taxpayers to consider. The proposed budget showing a rate decrease and a minimal increase of .5% in the total levy does not include any debt service on that borrowing because the actual terms of any debt have yet to be negotiated.
However, that debt service - which is exempt from levy limits - would kick in in 2021 and continue until the loan is repaid.
The exact impact would not be known until the actual terms are settled, but, according to finance director Darcy Smith, based on the current equalized value, the impact to the levy would be 1.4 cents per $1,000 of $100,000 of tax levy for debt payment.
"Borrowing $4 million would result in an estimated annual payment of $446,000 to $473,000 over 10 years," Smith said in an email to The Times. "The interest rate could range from 2% to 3.25%. The impact on the levy could range from 6.25 to 6.62 cents per $1,000. This would be $6.25 to $6.62 on a $100,000 home."
Besides the looming increase in future years to repay the debt, there's the specter of runaway spending for capital projects in a county where "no" is not an easily used word. This year, for example, the original CIP requests totaled an unusually high $7.9 million, of which $7.3 million was slated to come from the general fund.
While the administration committee decided to fund only $6.3 million of the $7.9 million, it did not say no to the others as much as it simply pushed the requests - about $1 million - to 2021.
To be sure, the unusually high $7.9 million proposed price tag was due in part to a $3.3 million project to replace existing public safety radio infrastructure located at each tower site and the E911 Center/Minocqua dispatch. The public safety radio system was installed in 2008, runs continuously 24 hours a day every day of the year, and has reached "end of life" stage.
It was universally acknowledged that the project was unavoidable and immediately needed, and could not be done in stages.
Still, that project aside, the number of capital improvement requests is growing by the year, and many of the requested CIP projects for 2020 were new, despite the existence of a five-year plan.
"Ten of the 23 projects that you are going to see today are new to the CIP," Smith told the capital improvement project committee in August. "You did not see them last year."
Smith also pointed out to the committee the trend of higher and higher CIP costs.
"When we look at 2019 and at the general fund, we used $2 million of the general fund for projects and in 2018 we used $1.3 million," she said then. "In 2017 we used about $886,000 from the general fund, $906,000 in 2016, and $309,000 in 2015. The number is increasing significantly compared to any other year that we've used funds from the general fund for CIP."
The spending is not likely to recede to those lower levels any time soon, though they won't likely be as high as this year. Still, by pushing $1 million of the 2020 requests to 2021, the county is already facing $3.6 million for capital improvements for next year.
That led Smith to propose using only using $2.3 million of the general fund for CIP projects, and borrowing $4 million to cover CIP costs for 2020 and 2021, rather than using $4.1 million from the general fund and borrowing in the neighborhood of $2.2 million, as had originally been discussed.
If the county opted for the latter scenario, the undesignated general fund would land in a deficit in 2021 (restricted funds and the 3.5 months of operating expenditures that auditors like to see on hand would still be there), instead of having about $2 million that Smith would like to see left over for unforeseen events and emergencies.
At the budget hearings, Smith projected that the excess general fund balance at the end of this year would be about $7.5 million, based on underspending on this year's capital improvement projects of about $293,000, the majority of that from a law enforcement center roof project, as well as estimated returns to the general fund from prisoner revenue, sales tax, and interest income totaling about $1 million.
"So the estimated general fund balance, if we were to look at everything we know right now, is going to be about $7.5 million," Smith told the administration committee. "If we take that $4.1 million that we recommended last week and also $250,000 for operations, that would leave us with a fund balance of about $3.2 million, and then we look at our projects that we didn't do in 2020 that we're pushing forward to 2021 and the projects that are coming forward based on the five-year plan for 2021, and that's another $3.6 million."
That would leave the county in the red, Smith said.
"So next year we would have a deficit in the general fund, and we wouldn't have any excess, which I was recommending that we keep at least $2 million," she said. "So we'd be looking at borrowing this year and again next year if we're only looking at the level of about $2.1 million (to borrow for this year)."
What's more, even if the draft budget proposal to borrow $4 million now and use only $2.3 million in general fund dollars is passed in November, the $3.6 million in 2021 CIP costs would leave the excess balance in 2021 at only $1.3 million, far below Smith's comfort level of $2 million.
To be sure, next year's CIP funding levels are not etched in stone - they could be pared - and new revenues from such things as prison inmates, sales taxes, and others are likely to renourish the general fund, but it's also worth noting that the estimated excess general fund balance of $7.5 million at the end of 2019 is $1 million less than that balance at the end of 2018, and there's nothing to say new capital improvement project requests won't show up on the table, a possibility Jensen raised at the hearings.
"From 2018 to 2019 in capital improvement, we were in no way estimating $7.9 million," he said. "How confident are we, when they looked at 2021-2024, that it is accurate. It seems as if a year from now, when we get into August and we're anticipating $2.6 (million), we're looking at 4-something. So when we look at 2019 and what might be returned to the general fund, we have to be careful with that. ... It's a five year process and sometimes I think we pay attention to the upcoming year and forget about the next four, so I'm OK with (borrowing) four (million), but I think we need to send a message that we try to come in where we expect to come in next August when we do our capital improvement."
Supervisor Bob Mott said the county could put its foot down.
"The other side of the story is that we can just say we can't afford it," he told his fellow administration committee members at the budget hearings. "We can look at the project and say we don't have the money to do it."
Other long-term issues arose during the budget hearings.
For one, the county continues to cling to various continuing appropriations - what officials call the county's tin cans.
For example, a continuing appropriation for economic development survived, though it was cut by $10,000, even though supervisor Billy Fried underscored that recent county policy has been to get rid of such accounts.
Fried also objected to continuing funding for non-mandated and low-ranking programs such as the UW Extension, which costs the county around $200,000 a year. The original budget proposal was to maintain that program, even as it proposed to whack employee benefits county-wide by more than $287,000.
The county also kept those programs and positions even as it eliminated other positions, including a custodian who provided both custodial and maintenance services at the ADRC building, which not only includes a kitchen that must be maintained to commercial standards and not only provides ADRC and community members recreational, educational, social events, and activities but also houses the county's public health department.
Finally, the budget did not address several festering issues, such as swelling Paid Time Off benefits and the amount of overtime used as some departments switch from 37.5-hour workweeks to 40-hour workweeks, a theme picked up by Jensen.
"The departments, when they look at overtime, are unwilling to say, 'Well OK I think we can reduce overtime by 10 percent,'" he said. "I'm not seeing that."
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