2015 Transmittal Letter

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
Email:  tdolehanty@ingham.org

Teri Morton, Budget Director
Phone: (517) 676-7218
FAX: (517) 676-7337
Email:  tmorton@ingham.org

 

    John L. Neilsen
Chief Deputy Controller
Phone: (517) 676-7209
Email:  jneilsen@ingham.org

Jared Cypher, Deputy Controller
                           Phone: (517) 676-7229
Email:  jcypher@ingham.org













December 10, 2014

Ingham County Board of Commissioners
Ingham County Courthouse
P.O. Box 319
Mason, MI  48854

Dear Chairperson Celentino:

I am pleased to present the 2015 Ingham County Budget as adopted by the Board of Commissioners on October 28, 2014.  The budget totals $226,585,926, an $11,030,088 (5.12%) increase compared to the amended 2014 budget.  The general fund budget is recommended at $78,659,017, a $1,500,813 (1.87%) decrease from the current year. 

Several budget considerations recently turned in the County’s favor including an increase in property tax values, an increase in state liquor taxes, reasonable increases in employee health care expenditures, and a substantial 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.  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 2015 budget (Resolution 14-177). Those priorities included promoting accessible health care, fostering economic well-being, providing a quality transportation system including roads, 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 10.6963 mills, which will generate $71.6 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.  In November, the voters approved a new Trails and Parks millage, which increased the tax levy by 0.5 mills, and will generate approximately $3.3 million.

The single largest contributor to reductions in the County’s general fund budget for several years was attributed to the loss of property tax values (see Figure 1).   As adopted, the 2014 budget anticipated an $891,779 reduction in general fund property tax revenue.  The 2015 budget proposal projects an increase of $2,394,261 (5.8%) in property tax revenue compared to 2014.  This represents the first increase in property tax revenue since 2008.

 Figure 1:  Property tax revenue trend, 2009 - 2015.  SOURCE:  Ingham County Comprehensive Annual Financial Reports and 2015 Controller Recommended Budget.

Relative importance of property tax revenue to the general fund can be gauged 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.  Counties that border Ingham[1] were slightly less dependent on property tax revenue in 2013 following three years of greater dependency (see Figure 2).

  Figure 2:  Property tax revenue as percent of total revenue trend, 2009 – 2013.  SOURCE:  Ingham County Budget Reports; Michigan Department of Treasury.


Counties typically report revenue in six other categories besides property tax.  Consistent reporting criteria nationwide allows for comparison to counties similar to Ingham County.  Figure 3 compares FY 2012 general fund revenue sources by percentage for Ingham County, adjacent Mid-Michigan counties, and 17 comparable counties from across the nation (FY 2012 is the most recent year reporting a complete data set).[1] Ingham County was more dependent on intergovernmental revenue (18.0%) than its counterparts, but less dependent on revenue from taxes (61.1%), investment earnings (0.5%), and fines and forfeitures (0.7%).  The County fell somewhere in between neighboring counties and comparable counties in its dependency on charges for service (17.1%), licenses and permits (0.7%), and uncategorized revenue (2.0%).

 

 
Figure 3: 
General fund revenue by source, FY 2012.  SOURCE: Comprehensive Annual Financial Reports.

A similar comparison to general fund expenditures is provided in Figure 4, on the following page.  Ingham County dedicated comparatively more general fund financial resources to judicial activities (25.5%), health and welfare (6.8%), recreation and culture (4.0%), and capital outlay (1.0%).  By contrast, fewer dollars were provided for public safety (36.3%), public works (0.5%), community and economic development (0.4%), and other uncategorized expenditures (0.4%).  Legislative and executive costs (25.2%) represented the only expenditure category where Ingham County fell between mid-Michigan counties and comparable counties.

 


Figure 4:  General fund expenditures by category, FY 2012.  SOURCE: Comprehensive Annual Financial Reports.


The Controller Recommended Budget for 2015 solved a projected $2.75 million general fund shortfall through use of uncommitted fund balance. The shortfall represents the difference between projected revenues and what it would cost to fund services at 2014 levels. Overall revenues are estimated to be $2.1 million greater than 2014 projections. This includes a $1.3 million increase in property taxes, a $1.2 million increase in state revenue sharing payments, a $130,000 increase in state liquor tax payments, and a $500,000 decline in department generated revenue. 

Overall expenditures are estimated to increase by $1.5 million in order to cover the cost of current services.  Expenditure increases include employee benefits (pension and health insurance); adjustments to personnel costs between the Register of Deeds General Fund and Automation Fund budgets; contribution to the parks fund; allocations to the Department of Human Services and the Health Fund; and proposed commitments to the Circuit Court Family Division Child Care Fund. These increases were offset somewhat by reductions in community health centers and elections.

Known adjustments to current services must be considered in the budget preparation process to assure forecast accuracy.  The proposed budget for 2015 does not anticipate the need for major adjustments to service levels. 

Certain expenses previously associated with the Juvenile Justice Millage totaling $330,000 were placed back in the general fund.  Similarly, some expenses previously associated with the Register of Deeds Automation Fund totaling $213,845 were placed back in the general fund.  A large number of capital improvement projects are included in the budget proposal amounting to a $422,000 increase over the 2014 appropriation.  Several months of study and analysis of Health Department finances led to an appropriation reduction of $760,336.  Though substantial, this decrease reflects the most realistic projection of Health Department expenditures and does not result in a service reduction.  This budget proposal continues to phase in reestablishment of full IT chargebacks to various departments, after several years of drawing down accumulated fund balances.  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 increases in utility costs for Animal Control, District Court and the Sheriff’s Office ($81,300), an increased contribution to the Metro Squad ($50,000), and restoration of permanent wages through the parks operating fund ($46,000).

The 2015 budget includes an increase in costs associated with providing health care to active employees.  Void of any change in coverage, analyses conducted by Cadillac Insurance Center Benefit Consulting Group (CICBCG) projected an increase cost of 3.1% per premium. 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.  No significant changes to health insurance coverage options are anticipated, but it is anticipated that implementation of certain administrative approaches and application of consumer-driven options will help to stabilize premium costs.

Legacy costs include the unfunded portion of employee pensions and retiree health insurance obligations.  According to the 2013 Comprehensive Annual Financial Report (CAFR), the County’s unfunded liabilities in these two areas totaled $172.4 million, including $89.4 million in pension obligations and $83.0 million for Other Post-Employment Benefits (OPEB). Please refer to pages 86 - 88 of the 2013 CAFR for a more in depth discussion of our pension and OPEB obligations.

In 2013 the County should have contributed approximately $6.58 million toward OPEB expenses but instead contributed only $3.41 million, thereby leaving $3.17 million unfunded. Please note that an OPEB funded ratio of only 4.5% equates to an unfunded promise that the County has made to employees and retirees. In order to address unfunded OPEB and pension obligations the County must commit to a long-term funding strategy. A long-term cost reduction strategy was implemented in 2013 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.

In order to begin to meet our fiscal obligations in this area the recommended 2015 budget includes an allocation of $2.1 million (3.65% of payroll) for OPEB contribution. This is an increase over the 2014 allocation of $1.5 million (2.65% of payroll).  Ideally, and 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. 

It is essential that Ingham County maintain adequate levels of fund balance to mitigate current and future risks (such as revenue shortfalls and unanticipated expenditures) and to ensure stable tax rates. Fund balance levels are also a crucial consideration in long-term financial planning.  Credit rating agencies monitor levels of fund balance to evaluate creditworthiness. Those interested primarily in a government’s creditworthiness or economic conditions (such as rating agencies) are likely to favor increased levels of fund balance. Opposing pressures often come from those who might view high levels of fund balance as “excessive” (GFOA, 2009). 

The unassigned fund balance in the general fund was $19.1 million, or 33.4% of total general fund expenditures, at the end of 2013.  County policy sets the desired minimum unassigned fund balance at 5% of total general fund expenditures, or $3.6 million.  Current models project an unassigned fund balance of $15.8 million (20.5%) at the end of 2014, an amount well above the established minimum.  The Board recently approved a long term advance of $6 million to the Revolving Drain Fund, which decreases this projection to $9.8 million. 

The Government Finance Officers Association (GFOA) recommends, at a minimum, that general-purpose governments maintain an unrestricted fund balance in their general funds of no less than two months (16.6%) of regular operating expenditures (GFOA, 2009).  To that end, it is worth noting that Ingham County does not depend solely on unrestricted or uncommitted fund balance for financial reserves.  A $10.56 million balance was reported in the Budget Stabilization Fund (BSF) at the close of 2013, amounting to 18.4% of the 2013 expenditure budget.  The Public Improvement Fund (PIF), established to fund major capital improvements to county facilities, held another $2.3 million.  The combined total of all three reserve funds amounted to 55.9% of actual expenditures at the end of 2013, a figure well above the GFOA-recommended minimum amount.

The 2015 Budget calls for use of $2.75 million in unassigned fund balance.  While significant, use of fund balance at this level is reasonable when measured against current reserve levels.  Furthermore, it is not logical to disrupt continuity in service levels through reductions in 2015 only to reinstate those levels in 2016.  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 2015 Budget is balanced based on a logical set of assumptions.  While less than ideal in some instances, this proposal does not project 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 budget.  

Sincerely,

 

 Timothy J. Dolehanty

 

Timothy J. Dolehanty, ICMA-CM, AICP

Ingham County Controller/Administrator



[1] Border counties include Clinton, Eaton, Livingston, Shiawassee and Washtenaw

[2] “Comparable” counties were determined through analysis of population, population density, total county government expenditures, general fund revenue and expenditures, and total property value as reported by the Bureau of the Census and Government Finance Officers Association (GFOA).  Counties determined most comparable to Ingham County include: Beaver (PA), Brown (WI), Butler (OH), Cumberland (PA), Erie (PA), Genesee (MI), Hamilton (IN), Kalamazoo (MI), Lane (OR), Leon (FL), Mahoning (OH), McHenry (IL), Ottawa (MI), Paulding (GA), St. Lucie (FL), Warren (OH), and Weber (UT)