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"Things are okay now, but the trajectory the county is on needs
urgent attention," Howard Brownstein, a principal in Nachman
Hays Brownstein Inc., a Philadelphia-based financial turnaround
and crisis management firm, told County Council's finance
committee.
He
referred specifically to a widening gap between revenue and
spending which, if not corrected, will result in a cumulative
shortfall of $304.8 million by fiscal year 2011. That does not
account for inflation between now and then. The total is nearly
half again the proposed $214.5 million fiscal 2006 budget now
pending before Council.
If the
present trend is allowed to continue, for every dollar of
increased expense, the county will take in 73¢ of general fund
revenue. The gap is more startling in the sewer fund, where each
dollar would be matched by only 16¢, he said.
David
Singleton, the county's chief administrative officer, endorsed
Brownstein's report. "Some of the next steps have already been
taken ... [but] clearly more has to be done," he said. "We're
committed to keeping up with this."
Brownstein
said that County Executive Christopher Coons's proposed budget
for next year, which includes a 28% increase in sewer fees while
using some of the county's accumulated reserves to maintain the
current tax rate -- 45.5¢ for each $100 of assessed property
value in unincorporated areas -- is on the right track, but is
not sufficient to do the job.
The
proposed sewer rate increase, for instance, "begins to adjust
the problem, but it's not a permanent fix," Brownstein said.
Possible scenarios could include "phased multi-year [sewer] rate
and [property] tax increases;" and curtailing growth in the
county workforce by a hiring freeze, elimination of positions
and, possibly, offering a combination early-retirement and
resignation buy-out
incentive.
He
said those ideas "did not consider political factors" and should
be regarded as guides for what he referred to as "difficult
[policy] decisions that have to be addressed now."
"We
don't recommend that you do any of these [specific] things," he
said. "All we can tell you is that [something] has to be done
now."
"The
longer you wait to handle it, the harder it will be. ... It's a
lot easier and less costly to do it sooner rather than later,"
he added.
The
study leading to the report, which Brownstein's presentation to
the Council committee on Apr. 26 made public, was
conducted before the budget proposal was completed. The report backs
up many of the things Coons has been saying since he took office
in January and confirms some previously reported findings
concerning the condition of county finances while County
Executive Thomas Gordon was in office.
It
concludes, for instance, that the $230 million reported as a
surplus at the end of fiscal 2004 last June 30 "was not [a] true
'surplus' in [the] ordinary meaning of the word." Even if
viewed as 'reserves' rather than as a 'surplus', the actual
amount that was available was $29 million -- $10 million in the
general fund and $19 million in the sewer fund. The balance was
either in statutory 'rainy day' reserve accounts or earmarked
for various specific purposes.
Brownstein said his firm's assignment was not to review history.
"Surpluses at the end of [fiscal] 2004 are irrelevant today. The
immediate [need is] to eliminate the [projected] shortfall," he
said.
However, at several points in the report and during its
presentation there were implicit criticisms of the Gordon
administration. Tax and sewer rates "were frozen during [the]
prior administration, [but] obviously it didn't take steps to
freeze expenditures," Brownstein said.
The
report cited, for instance, a 20% increase in the number of
county employees since county government was restructured in the
late 1990s, along with wage and salary increases, as key causes
of the "disconnect" between revenue and spending.
It was
specifically critical of even larger growth -- 25% -- in the
Department of Special Services, which it cited as having a
significant impact on the gap in the sewer fund. Special
Services is the county's public works unit, with
responsibilities for sewer service. The report calls for a
"top-down job-by-job review of all positions" in the department
and a review of its "managerial structure."
Coons
recently fired Joseph Freebery, brother of former chief
administrative officer Sherry Freebery, who was general manager
of that department.
Also
critically cited were some past practices reflecting on internal
financial controls. The study found a "lack of third-party
oversight [which] allowed for [the] possibility of collusion"
when a county employee requested a check to pay a bill or make a
reimbursement. Also, it found that some workers compensation
claims were often "handled outside of established processes" and
some indication of there having been duplicate claims processed
as a result of limited oversight.
"When
claims receive too little scrutiny, future abuse is encouraged,"
Brownstein said. He added that he was not alleging dishonesty or
illegal activity, but noted that "large amounts of money [have
been] spent and not receiving any audit."
Singleton said policy has been changed to better control bill
paying and the issuance of checks.
In
contrast, the report said that the Coons administration "is
exercising proper care managing the stewardship of public
funds."
Brownstein added that, while conducting the study, his firm
found county employees it interviewed to be more cooperative and
candid than has been its more common experience during studies
of other government and corporate organizations. "When you deal
with {New Castle] County employees, you'll get an honest answer
even when it might not reflect well on their department," he
said.
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