Straightening out Lackawanna County’s deep financial troubles will take a lot of work.
It will take new spending and hiring controls, tough negotiations with employee unions, shifting employees to cheaper health insurance, borrowing and probably tax hikes, consultants told county officials Thursday.
The first tax hike should happen next year, but stabilizing the finances will take years, said Gordon Mann, the managing director of PFM Group Consulting.
Mann and two other PFM officials presented their analysis and a five-year plan at a public meeting in the County Government Center.
“I'm going to steal the analogy that this is a little bit like turning a battleship in a bathtub,” Mann said. “County governments are large. They're highly decentralized. They have multiple elected officials, most of whom are in this room. You cannot change things (just) like that, right?”
After years of relying on one-time revenue sources, the county entered 2019 with $18.5 million in unpaid bills and only $6 million to pay them. Mann likened that to carrying 13 months of spending into a 12-month budget.
An August PFM projection showed the county will end the year with an $11.3 million deficit unless the county borrows money to close the gap.
On Wednesday, the commissioners introduced a plan to borrow up to $12 million through the county Redevelopment Authority to cover that.
“If we don't do the transaction, we run out of money,” county chief financial officer David Bulzoni told the county commissioners at their meeting Wednesday.
Commissioner Bill Gaughan, who took office in January, has flatly said property taxes will rise next year, though no one has said by how much.
The previous Board of Commissioners raised property taxes by 5.9% this year, to 67.67 mills.
A mill is a $1 tax on every $1,000 of real estate’s assessed value. Someone who owns a home valued at $10,000 pays $676.70 in county property taxes.
Bulzoni said the county will need at least 1.75 mills more next year to cover the borrowing to pay the bills and for pushing part of this year’s existing debt payments into future years.
Another 1.75 mills would add $17.50 to the $10,000 home’s owner’s county tax bill.
After Mann’s August presentation on the financial state, the commissioners instituted freezes on non-essential hiring and spending.
On Thursday, PFM officials reviewed the county’s financial past, present and potential future before a room crowded with department heads and row officers.
PFM senior management consultant Lauren Sukovich said the county ran annual operating deficits of $500,000 to $6 million during the last five years.
An operating deficit refers to day-to-day spending that exceeds revenues. It does not count existing county budget reserve money.
The county covered much of that operating deficit with budget reserves instead of raising taxes, Sukovich said. Worse, the revenues included one-time sources such as money saved from refinancing existing debt, federal stimulus cash and a health insurance rebate.
“So structural (operating) deficit is saying I can't sell my car to pay for groceries every month. I got one shot at doing that. Once that's gone, what does the structural deficit looks like?” she said.
Based on rising costs and property tax revenues that barely increase each year, the operating deficit rises to $27.2 million next year and $41.8 million by 2029, according to a PFM document.
One factor in that is the loss of about $800,000 in revenues from the sale of Moses Taylor and Regional hospitals to a non-profit company.
These projections focus on what happens if the county does nothing, but Mann suggested major changes.
- He said the county must negotiate new union contracts with affordable raises. Without tax hikes, it can’t afford raises as large as 3% or 3.5% a year it has handed out in the past because tax revenues are projected to rise less than 1% a year. But inflation is projected at 2.5% a year over the five years, he said.
“This is why going several years without a real estate tax becomes really, really hard,” Mann said.
He pointed the county is about to negotiate a new contract with its second largest employee union – one representing clerical and maintenance workers – that will set the tone for the next contracts with other unions.
“This actually happens to be a moment when the county has a rare opportunity to make a change in the next three months that sets the pattern and sets the course for the next four or five years,” he said.
He said salary spending in certain agencies can be cut by changing work rules. He pointed to the sheriff’s office. Under the deputy sheriffs union contract, Sheriff Mark McAndrew must offer weekend shifts at overtime pay to full-time deputies.
If they all refuse, then he can use part-timers at regular pay. Changing that requirement could produce savings.
Sheriff Mark McAndrew said he’s willing to talk about the idea.
- Mann said most county employees are on the costliest type of health insurance.
“Why would you want to change it?” Mann asked. “Because you're spending way more on health insurance than other places.”
- On pensions, Sukovich said the county hasn’t made the minimum annual contribution required to properly fund its pension plans in at least a decade.
Because of that, annual required pension contributions keep rising, she said.
If the county makes the required pension contributions over the next five years, the minimum contribution will reach $13 million a year instead of the $17 million projected at its current contribution increase of $250,000 a year.
- Mann said the county must begin tying the budget to county jobs, what he called “position control."
“Position control is knowing these are the positions I have, these are the positions I've funded (in the budget), these are the positions I can fill. And if it's not on that list, it no longer exists,” he said.
Commissioner Matt McGloin, a former college and NFL quarterback, likened the presentation to watching film of games.
“Film doesn't lie. Well in this case, in our findings, and certainly today, numbers don't lie,” he said. “These are recommendations. We're currently reviewing every aspect of county government … to see where we can be more efficient and to really see where we can fix this reoccurring problem of the county rather than just trying to survive year in, year out.”
Gaughan used a train analogy.
“The train has been moving on the tracks, but nobody asked any questions, as far as I could see. So is the train moving fast enough? Is there oil in the engine?” he said. “There's no more can(s) to kick down the road. There's no more road left. Unfortunately, this is what Commissioner McGloin and I have inherited. But the good news is we're going to fix it.”
Commissioner Chris Chermak, who unlike Gaughan and McGloin was on the previous Board of Commissioners, said his colleagues, through PFM, are finally getting serious about finding savings.
“We, they have not made cuts like we should have. This didn't just happen. It's October. I've been saying this for four years. We need to control our spending,” he said.
Gaughan has questioned how seriously Chermak previously pursued spending cuts and better finances.
The county Home Rule Charter requires the county to unveil its 2025 budget by Oct. 15.
