OFFICE OF THE INGHAM COUNTY CONTROLLER
County Courthouse, P. O. Box 319, Mason, MI 48854
Phone: (517) 676-7206 FAX: (517) 676-7306
Timothy J. Dolehanty, ICMA-CM, AICP Controller\Administrator
Teri Morton, Budget Director
Phone: (517) 676-7218
FAX: (517) 676-7337Email: firstname.lastname@example.org
John L. Neilsen, Chief Deputy Controller
Phone: (517) 676-7209
Jared Cypher, Deputy Controller Phone: (517) 676-7229
December 9, 2013
Ms. Deb Nolan, Chairperson
Ingham County Board of Commissioners
Ingham County Courthouse
P.O. Box 319
Mason, MI 48854
Dear Chairperson Nolan:
I am pleased to present the 2014 Ingham County Budget as adopted by Board of Commissioners on October 22, 2013. The total recommended budget is $209.5 million, a $3.75 million decrease or 1.76% from the 2013 amended budget. The general fund budget is recommended at $74.1 million, a $632,000 or 0.85% decrease from the 2013 amended budget.
Several budget considerations recently turned in the County’s favor including a slower decline in property tax values, an increase in state liquor taxes, reasonable increases in employee health care expenditures, and a small increase in state revenue sharing.
Similar to most units of government, a significant portion of the County’s budget is used to support employee compensation costs. In Ingham County, approximately 65-70% of the general fund budget is personnel related. Unfortunately it was not possible to balance the declining general fund budget in prior years without significant reductions in employee compensation costs. Many departments lost portions of their labor force but continue to perform their core functions at reduced staff levels. This proposed budget assumes departments will maintain current authorized staffing levels over the ensuing fiscal year.
In April the Board passed a resolution setting priorities for the 2014 budget (Resolution 13-187). Those priorities included promoting accessible health care, fostering economic well-being, an ongoing capacity for intergovernmental collaboration /cost effective delivery of county services, providing appropriate evidence based sanctions for adult offenders, providing appropriate evidence based treatment and sanctions for at-risk juveniles, and providing recreational opportunities.
The total property tax levy is recommended at 10.1963 mills, which will generate $65.6 million in property tax revenues. The levies for County operations, 911, juvenile justice, Capital Area Regional Airport Authority, Potter Park Zoo, indigent veterans support, Farmland and Open Space, health care services and transportation remain unchanged. The proposed budget acknowledges the loss of approximately $330,000 to state-mandated changes in the personal property tax structure. The State intends to completely phase out personal property taxes over the next decade which means losses to Ingham County would continue to mount over the phase-out period. However, voters will be asked to affirm the State’s plan in the primary election scheduled for August 2014. If voters reject the plan, this loss of personal property tax revenue might be reversed in future years.
The single largest contributor to the County’s general fund budget reduction for several years was attributed to the loss of property tax values which declined by 13.1% ($1.04 billion) since 2008 (see Figure 1). As adopted, the 2013 budget anticipated a $1,386,000 reduction in general fund property tax revenue. Mid-year budget amendments included an upward adjustment in property tax revenue, providing further evidence of a slower-paced decline in overall property value. While the 2013 budget still projects a loss of $685,000 in property tax revenue, this adjustment marks a 51% improvement over initial projections. The 2014 budget proposal projects a decline of $318,000 (0.8%) in property tax revenue compared to 2013.
Figure 1: Property tax revenue trend, 2008 – 2014. SOURCE: Ingham County Comprehensive Annual Financial Reports.
Relative importance of property tax revenue to the general fund can be gaged through comparison to total general fund revenue. Property tax revenues traditionally represent more than half of all general fund revenue in Ingham County and other counties across the entire state. Except for 2011, property tax revenue collected in Ingham County represented a larger portion of the total revenue stream when measured against the average of all Michigan counties (see Figure 2).
Figure 2: Property tax revenue as percent of total revenue trend, 2008 – 2012. SOURCE: Ingham County Comprehensive Annual Financial Reports; Michigan Department of Treasury.
In addition to losses attributed to reduced property values, Ingham County will lose property tax revenue to eleven tax capture districts scattered throughout the County. A myriad of downtown development authorities, local development finance authorities, tax increment finance authorities, renaissance zones and brownfield redevelopment authorities will collectively claim about $2.8 million in property tax revenue otherwise intended for county services. Governing bodies (cities, villages and townships) may abolish their respective districts upon finding that the purposes for which the districts were established are accomplished. Municipalities are required to return surplus funds captured by these districts (MCL 125.1665(2)). Delhi Township, for instance, returned just over $400,000 to the County in 2012. Tax capture trends since 2008 are shown in Figure 3.
Figure 3: General fund tax capture trend, 2008 – 2012. SOURCE: Ingham County Financial Services Department.
The 2014 budget includes solutions to an initially projected general fund shortfall of $3.1 million. The shortfall represents the difference between projected revenues and what it would cost to fund services at 2013 levels. Overall revenues are estimated to be $530,000 greater than 2013 projections. This includes a $317,753 decline in property taxes, a $142,900 increase in state revenue sharing payments, a $55,000 increase in state liquor tax receipts, and a $650,000 increase in department generated revenue.
Overall expenditures are estimated to increase by $1.65 million in order to cover the cost of current services. Expenditure increases include employee benefits (pension and health insurance); drain tax at-large; election year expenses; contribution to the parks fund; reinstatement of departmental “charge-backs” related to the computer network; and community health centers. These increases were offset somewhat by reductions in cooperative extension and community corrections. State financial settlements for services provided by the health department in past years resulted in a substantial revenue boost.
Certain expenses previously associated with the Juvenile Justice Millage totaling $262,277 were placed back in the general fund. This budget proposal also includes an additional $250,000, which represents the first phase of reestablishing full computer/technology chargebacks to various departments. Chargebacks were reduced in prior years because of extreme revenue challenges and a large fund balance in the equipment revolving fund. Phasing in chargebacks over a two to three year period will help to assure availability of funds for future replacement of obsolete computer equipment. Other new expenses include a shift in personnel expense from the Register of Deeds Automation Fund to the general fund ($59,517), a general fund contribution to the Tri-County Metro Narcotics Squad ($25,000), and funding for Mason Courthouse security ($8,000).
The general fund appropriation to the capital budget was reduced by $25,000, and use of Community Corrections fund balance for tether expenses resulted in a reduction of $40,000. Reduced central services expenditures were gained through line item reductions in the Facilities budget ($50,000) and consolidation of fuel purchasing with the Road Department ($26,000).
Health Department budget reductions are mostly attributable to ongoing restructuring processes. Changes in eligible grant expenses, federal and state-level reimbursement criteria, and program usage all contribute to this perennial effort. Positions removed from the budget were tied to expired grant programs, those left vacant because of internal restructuring, and a few that were simply left unfilled for more than a year.
The Parks budget was reduced by $10,943 through elimination of irrigation and reduction in fertilizer expenses. Controllable expenses for the Register of Deeds, Treasurer and Drain Commissioner were reduced by $30,127.
Notable changes in revenue include projected increases in revenue sharing ($172,000) and the court equity fund ($60,000). The 2014 recommended budget also projects department generated revenues will increase by $400,000, with jail bed revenue adding another $250,000.
The 2014 budget includes an increase in costs associated with providing health care to active employees. Void of any change in coverage, analyses conducted by Buck Consultants projected an increased cost of 8.9% per premium. However, under current funding formulas, much of this increase would be borne by employees.
Provisions of employee health care are a mandatory subject of collective bargaining. Responsibility for review of benefit packages is delegated to a Health Care Coalition composed of administrative and union representatives. During budget development, the Health Coalition met to review health insurance options with our health care consultant. Upon consideration of these options, Coalition members voted to recommend changes in prescription drug coverage in order to reduce the impact of projected increases. A majority of premium costs will increase from 4.9% to 5.6%, depending on plan selection. Employees will still pay most of this cost through payroll deduction, but required dollar amounts will be considerably less.
The 2014 budget was also increased to address the County’s legacy costs. Legacy costs include the unfunded portion of employee pensions and retiree health insurance obligations. According to the 2012 Comprehensive Annual Financial Report (CAFR), the County’s unfunded liabilities in these two areas totaled $169.7 million, including $87.4 million in pension obligations and $82.3 million for Other Post-Employment Benefits (OPEB).
Aware of the situation, Ingham County is taking strides to meet our fiscal obligations in this area. A long-term cost reduction strategy was implemented last year through collective bargaining provisions that place new hires into a less-costly hybrid pension plan. Investment of Retiree Health Care Trust Fund dollars following an approved asset allocation and diversification plan was initiated in 2012 in order to maximize return on investment. This strategy resulted in a gain of $201,000 in assets after one year. Finally, the 2014 budget includes an allocation of $1.5 million for OPEB contribution, which is an increase over the 2013 allocation of 1.75% of payroll to an allocation of 2.65% of payroll. Ideally, as funds allow, the County would continue to increase its annual contribution each year until it reaches the 9% of payroll necessary to fully fund this liability.
The 2014 Budget calls for use of $3.25 million in unassigned fund balance. While significant, use of fund balance at this level is reasonable when measured against current reserve levels and projections that calendar year 2013 will be the last year of property tax revenue decline. Furthermore, it is not logical to disrupt continuity in service levels through reductions in 2014 only to reinstate those levels in 2015. This recommendation falls within established parameters of Ingham County financial policies that establish appropriate levels of uncommitted reserves to protect against emergencies and economic downturns.
The 2014 Budget is balanced based on a set of assumptions that can be accomplished with a relative sense of certainty. While less than ideal in some instances, this budget does not project the necessity for dramatic expenditure reductions experienced in the recent past.
I would like to thank the county employees, elected officials and judges, department heads, agency directors, budget staff and all others involved in the budget preparation process for their assistance and cooperation in the development of this transition year budget as we anticipate property tax revenue to increase slightly in 2015 for the first time in several years.
Timothy J. Dolehanty
Timothy J. Dolehanty, ICMA-CM, AICP
Ingham County Controller/Administrator