Boone County Financial Analysis
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NOTE: This Boone County Financial Analysis was completed by Watchdog Indiana on April 19, 2012.
Two documents were used to help analyze the financial health of our Boone County government: (1) the 2011 Annual Financial Report published in The Lebanon Reporter on March 22, 2012; and (2) the August 11, 2010, Boone County Comprehensive Financial Plan prepared by H. J. Umbaugh & Associates (a PDF version can be E-mailed to you on request).
The Comprehensive Financial Plan considered revenue forecasting, operations management, debt management, and capital management. Potential funding gaps were identified, and revenue increases, debt financing, budget reductions, and use of existing cash reserves were considered as possible funding solutions for any shortfalls. The Comprehensive Financial Plan focused on "Controlled Funds" and "Selected Funds."
The eleven Controlled Funds referenced in the Comprehensive Financial Plan include the County General Fund #101, Property Reassessment Fund #123, 2017 Property Reassessment Fund #124, Highway Fund #702, Local Road and Street Fund #706, Cumulative Bridge Fund #790,Health Fund #801, Mental Health Fund # 823, Cumulative Hospital Fund # 890, Park and Recreation Fund #1312, and County 4-H Fund #2003. The remaining seven Controlled Funds listed in the 2011 Annual Financial Report do not include the Mental Health Fund # 823, Cumulative Hospital Fund # 890, Park and Recreation Fund #1312, and County 4-H Fund #2003.
The 96 Selected Funds referenced in the Comprehensive Financial Plan include all the Controlled Funds except the 2017 Property Reassessment Fund #124. The 2011 Annual Financial Report lists 79 of the Selected Funds included in the Comprehensive Financial Plan.
This Boone County Financial Analysis was completed from the viewpoint of how our Boone County Council can avoid imposing tax and fee increases through 2014.The six Analysis findings listed next support the objective of avoiding Boone County tax and fee increases for the foreseeable future.
BOONE COUNTY FINANCIAL ANALYSIS FINDINGS
1. Our Boone County Council does not need to impose a Wheel Tax if the county budget is properly managed.
1.1. See http://www.finplaneducation.net/wheel_tax_.htm for an explanation of the Wheel Tax and how it is unneeded if our Boone County Council manages its budget properly.
1.2. The cumulative ending cash balance in the Highway Department Fund #702 and Local Road & Street Fund #706 on December 31, 2011, was $1,366,468.75. As a point of comparison, 2011 disbursements from these two funds totaled $3,173,010.93.
1.3. Two of the uses allowed for the county’s Cumulative Capital Development Fund #2391 are the maintenance and construction of streets and other public ways – the December 31, 2011, ending cash balance in this fund was $1,855,663.72.
1.4. Cumulative total 2011 receipts in the Highway Department Fund #702 and Local Road & Street Fund #706 was $3,624,624.62. If the General Assembly adopts the Indiana Gas Tax Reform Plan, annual cumulative total receipts in the Highway Department and Local Road & Street funds would increase 45% or about $1.6 million: see http://www.finplaneducation.net/gas_tax_reform.htm.
2. Boone County total annual receipts are expected to increase modestly each year after the significant total revenue decline in 2011.
2.1. The recent history of actual County Option Income Tax (COIT) Certified Shares included in the Boone County budget is a follows: $7,964,251 in 2007; $7,741,243 in 2008; $7,655,205 in 2009; $7,207,247.16 in 2010; and $5,756,937.12 in 2011.
2.2. The state recently corrected a COIT distribution error that shorted Boone County’s 2011 COIT Certified Shares about $93,000 a month.
2.3. The Comprehensive Financial Plan assumes that the 2012 COIT Certified Shares will be the same as 2011. Factoring in the $93,000 a month error for the 2011 year, the corrected 2012 COIT Certified Shares estimate is $6,872,000.
2.4. For years 2013 and 2014, the Comprehensive Financial Plan assumes that the COIT Certified Shares will grow by 5% each year. The corrected COIT Certified Shares estimate is $7,215,000 for 2013, and $7,575,000 for 2014.
2.5. Anticipated population growth in Boone County supports the conclusion that Boone County’s COIT Certified Shares will increase. According to an April 7, 2012, story in The Lebanon Reporter, Boone County was one of Indiana’s fastest growing counties in 2011. Boone County’s population growth rate of 1.2% from 2010 to 2011 was exceeded only by Hamilton County (2.3%), Hendricks County (1.4%), and Bartholomew County (1.3%).
2.6. A relatively low unemployment rate in Boone County supports the conclusion that Boone County’s COIT Certified Shares will increase. The February 2012 Boone County non-seasonally adjusted unemployment rate of 7.4% was less than both the Indiana rate (8.8%) and the U.S rate (8.7%), and was lower than all but 12 Indiana counties.
2.7. Annual increases in the Boone County operating property tax levy are subject to a state-wide growth factor, where the annual increases are restricted to the six-year average of statewide personal income growth. The 2011 certified growth factor for property taxes was 2.9%. The Comprehensive Financial Plan assumes that the certified growth factor will be 2.4% for 2012 and 2013, and 1.9% for 2014.
2.8. The December 2011 Circuit Breaker Report from the state’s Legislative Services Agency projects that the effect of property tax caps will amount to only 1.7% of the estimated budget for those county funds with property tax levies in 2011, 1.5% in 2012, and 1.4% 2013: see http://www.in.gov/legislative/pdf/CircuitBreaker_BASELINE_20111231.pdf.
2.9. The Comprehensive Financial Plan assumes no growth in miscellaneous revenues for years 2011 through 2014.
2.10. Receipts in the Inheritance Tax Fund #1412 totaled $3,513,068.23 in 2011. Starting in 2013, the Inheritance Tax will be phased out by providing an increasing credit against a beneficiary's Inheritance Tax liability ranging from 10% for 2013 to 100% for 2022 and thereafter. (NOTE: The Comprehensive Financial Plan does not include the Inheritance Tax in the Total Receipts for the Selected Funds).
2.11. The Comprehensive Financial Plan lists the following Total Receipts for the Selected Funds: $23,164,060 for 2007; $36,725,536 for 2008; $31,987,135 for 2009; $33,013,000 for 2010; $23,345,000 for 2011.
2.12. Factoring in the 2012, 2013, and 2014 corrected COIT Certified Shares estimates, the Comprehensive Financial Plan Total Receipts for the Selected Funds are projected to be $24,725,000 for 2012; $25,155,000 for 2013; and $25,626,000 for 2014.
3. The amount of Boone County government cash reserves is currently satisfactory.
3.1. The following county funds are non-dedicated and can be used to pay for the management, maintenance, operating costs, and other costs associated with providing County services: County General #101, Rainy Day #61, Economic Development #2500, Food & Beverage Tax #231, Excess Tax Collected #256, Inheritance Tax #1412. The cumulative ending cash balance in these six funds on December 31, 2011, was $16,463,504.72. As a point of comparison, 2011 disbursements from the County General Fund totaled $14,709,343.27.
3.2. The Comprehensive Financial Plan suggests that minimum end-of-the-year Boone County government cash balances equal at least 15% of the operating funds disbursements.
3.3. Average cash reserves in the County General Fund over the 2007, 2008, and 2009 years were 18%. The Comprehensive Financial Plan estimated that a 2011 County General Fund ending cash balance of $2,435,000 would be needed to maintain a minimum cash reserve of 15%. The actual 2011 County General Fund ending cash balance of $4,413,828 is somewhat more than the $2,435,000 target in the Comprehensive Financial Plan.
3.4. The actual 2011 Controlled Funds ending cash balances total of $10,764,217.04 is somewhat more than the $7,588,000 target in the Comprehensive Financial Plan.
3.5. On April 10, 2012, our Boone County Council allocated $1 million cash reserves from the Economic Development Fund and $500,000 from the Food & Beverage Tax Fund for the county’s Highway Department to use for road repairs this summer.
3.6. Boone County decided to hold in reserve the estimated $1.4 million that was recently received from the state to correct COIT distribution errors.
3.7. The cumulative ending cash balance in the Enhanced E-911 Fund #1156 and Wireless 911 Fund #1157 on December 31, 2011, was $1,000,506.38. As a point of comparison, 2011 disbursements from these two funds totaled $851,762.97.
3.8. Even though the Boone County’s available statutory debt limit is more than $24 million (based on pay 2010 certified assessed value), the county only has two leases outstanding – E-911 Equipment Lease of 2005 and a Voting Machine Lease – and lease payments will total a manageable $548,000 in 2012; $512,000 in 2013; and $477,000 in 2014.
4. The use of existing cash reserves as funding solutions for revenue shortfalls cannot continue indefinitely.
4.1. Cash reserves totaling $5,700,333.43 from five of the county’s non-dedicated funds were used to balance the 2011 Boone County budget: $778,689.17 from County General Fund #101; $4,014,815.64 from Rainy Day Fund #61; $21,569.46 from Economic Development Fund #2500; $608,818.21 from Excess Tax Collected Fund #256; and $276,440.95 from Inheritance Tax Fund #1412.
4.2. The Comprehensive Financial Plan assumes a 1% growth in operating expenditures for 2012, and a 3% growth for 2013 and 2014.
4.3. To maintain a minimum County General Fund cash reserve of 15% in future years, the Comprehensive Financial Plan estimates that the following budget reductions would be needed to generate the targeted ending cash balances: $4,420,000 in 2011; $151,000 in 2013; $134,000 in 2014. However, the actual 2011 County General Fund ending cash balance of $4,413,828 is somewhat more than the $2,435,000 Comprehensive Financial Plan target. Also, the actual 2011 County General Fund receipts of $13,930,654.10 were only $778,689.17 less than the actual 2011 County General Fund disbursements of $14,709,343.27. Therefore, the County General Fund budget reductions needed to generate the targeted ending cash balances will be somewhat less than what is estimated in the Comprehensive Financial Plan.
4.4. Permanent budget cuts from several of the county’s operating areas totaling about $2 million will probably be needed through 2014 to maintain the targeted overall 15% cash reserve level. Permanent budget cuts of $2 million would be less than 7% of the actual 2011 disbursements total of $29,606,976.29 from the 79 Selected Funds.
5. Unless county employees can find additional non-personnel budget savings, a significant portion of any needed future cost savings will likely have to come from an employee hiring freeze where full-time employees who leave county employment are not replaced unless approved by the Boone County Council.
5.1. The Operating Disbursements for Personal Services of $35,902,225 were 50% of the Total Disbursements of $71,723,944 for the Controlled Funds during 2007-2009.
5.2. The Operating Disbursements for Personal Services of $37,192,910 were 42% of the Total Disbursements of $89,503,113 for the Selected Funds during 2007-2009.
5.3. A county employee hiring freeze will probably be unnecessary if the General Assembly adopts the Indiana Gas Tax Reform Plan that would increase annual cumulative total receipts in the county’s Highway Department and Local Road & Street funds by 45% or about $1.6 million: see http://www.finplaneducation.net/gas_tax_reform.htm.
5.4. County employees can avoid a hiring freeze if they find additional non-personnel budget savings from cost efficiencies, cost sharing with other taxing units, and reduction of public services that are not state-mandated.
6. The Boone County Council needs more "political will" to make the decisions necessary to avoid imposing tax and fee increases for the foreseeable future.
6.1. Our current Boone County Council failed by a 3-3 vote to pass the August 9, 2011, motion stating, "If a full-time position is vacated an offer of employment to fill the position shall not be extended until approval from the County Council." Steve Jacob, David Rodgers, and Gene Thompson voted Yes for this Taxpayer Friendly county employee hiring freeze. Debby Shubert (a municipal employee), Walter (Butch) Smith (a public safety employee), and Brent Wheat (a public safety employee) voted No against the county hiring freeze. Marcia Wilhoite was not present to vote on the August 9 motion. It will be a problem for taxpayers if the Boone County Council is reluctant to implement a county employee hiring freeze during this time of recovery from the Great Recession.
6.2. The alternative to Taxpayer Friendly permanent county budget cuts is the imposition of one or more of the following local option income taxes by our Boone County Council: (a) Levy Replacement LOIT up to 1% requires the state Department of Local Government Finance to freeze property tax levies and fund future levy growth as allowed by the statewide growth factor, (b) Property Tax Relief LOIT up to 1% in increments of 0.05%; (c) Public Safety LOIT of up to 0.25% may be adopted if enacted with either a Levy Replacement LOIT or a Property Tax Relief LOIT providing an equal amount of revenue for property tax relief.
6.3. The County Sheriff, Ken Campbell, proclaims that he needs to have our Boone County Council impose a Public Safety LOIT so his department can function effectively as an "economic development" tool. He asserts that his budget has been cut to the bone. He implies that any further budget cuts will endanger public safety causing major crime statistics to worsen and emergency response times to lengthen. As a point of comparison, Governor Mitch Daniels reports that the state has reduced its employee count to 1970’s levels without reduction in service delivery measurements. Sheriff Campbell should be able to use his considerable management skills to absorb additional budget cuts in his department up to 7 percent without a significant public safety impact – otherwise, Sheriff Campbell needs to show exactly how specific additional budget cuts will result in worsening major crime statistics or lengthened emergency response times.
6.4. An example of responsible county budget decision making is provided by our new Highway Department Superintendent, Rick Carney. Superintendent Carney has decided to NOT fill the recently vacated position of Assistant Highway Department Superintendent. Instead, he created a second Working Foreman position that he filled with an employee already on the county’s Highway Department payroll. The end result is that the county’s personal services expenses are reduced because a middle management position is eliminated in the Highway Department.
6.5. Permanent county tax increases to alleviate temporary and manageable revenue reductions resulting from the Great Recession are Taxpayer UNfriendly.
6.6. Modest permanent county budget cuts to avoid imposing tax and fee increases are Taxpayer Friendly.
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