Poughkeepsie... Dutchess County Executive William R. Steinhaus announced the County’s 2006 year-end financial report has been completed. “The 2006 year end closeout of Dutchess County’s finances shows the county government to be in good financial condition but we still have work to do to strengthen our financial position.”
“We had to absorb a huge loss of $11.3 million in sales tax revenue in 2006 due to the return of the sales tax exemption on clothing and footwear under $110 coupled with a softening in the economy. However, we were able to soften the shock of that unexpected lost revenue by aggressively capturing one-time revenue of $4.8 million owed to us by New York State. But we also strictly controlled expenditures to absorb this loss of sales tax revenue,” commented County Executive Steinhaus. Highlights of the year-end financial report are outlined below:
- 2006 revenues of $376.2 million exceeded expenditures of $365.6 million by $10.6 million, demonstrating the Steinhaus administration’s controlled spending growth and fiscal stewardship.
- One-time unanticipated revenue due to a $4.8 million settlement with New York State for medical costs incurred for Mental Health clients and a savings of $3.3 million due to a change in the state’s Medicaid funding methodology for a total one-time benefit of more than $8 million but which will not reoccur in future years.
- The 2006 fiscal year ended with $21.8 in available fund balance. Fund balance would have been $33 million, or $11.3 million more, without the reduction in sales tax collections.
- The $21.8 million available fund balance positions the county at 5.7% of budget, barely above the minimum range of 5% to 10% recommended by Moody’s Investors Services.
Total 2006 expenditures equaled $365.6 million. The attached chart summarizes the various categories of county spending in 2006. “While the county’s financial position is encouraging,” Steinhaus commented, “we must continue our commitment and discipline to maintain our fiscal stability moving forward. As felt by most public and private organizations, the county continues to struggle with the basic costs of doing business. However, while struggling with balancing our finances, we continue our mission of being a principle funder of health services, public safety, law enforcement and highway infrastructure.”
$6.8 million was spent from the fund balance in 2006 due to union contract settlements for CSEA, the county’s largest union, and the PBA, the union representing the county’s sheriff deputies. The contract for county correction officers is currently being negotiated and could potentially mean another multi-million dollar draw down of fund balance in 2007 further reducing the modest amount available. Costs for the state mandated Medicaid program will continue to grow. However, the Medicaid Stabilization Plan initiated by Steinhaus in 2006 will help the County absorb these increased expenses in 2007 and beyond.
Year 2006 total revenues equaled $376 million. Sales tax, the county’s largest source of revenue, totaled $121.2 million. The shortfall of $11.3 million compared to the 2006 adopted budget estimate of $132.5 million was due to the unexpected return of the sales tax exemption on clothing and footwear. The state reinstated the year-round exemption from New York State sales tax on clothing and footwear under $110, effective April 1, 2006.
Moody’s reports Dutchess County’s “Aa2 rating reflects the county’s growing $33.9 billion tax base with above average wealth indicators and modest debt burden.” Dutchess County’s rating is higher than all but two counties in New York. In December 2006, Moody’s confirmed the Aa2 bond rating to Dutchess County’s $24 million Public Improvement Bonds saving county taxpayers significant dollars in interest costs over the life of the borrowing.
The Executive emphasized, “In order to ensure the county maintains or improves its credit rating and its overall financial condition, the fund balance must be strengthened toward the higher end of the 5% to 10% recommended range. If the year end fund balance had included the $11.3 million in lost sales tax revenue, this would have placed the county’s available fund balance at 8.6% of budget, more in line with the targeted goal of 10%. This 10% threshold positions the county to better face future unexpected fiscal challenges which almost always occur.”
“To prove why it is so critical to maintain “reserves,” the county’s “rainy day fund” had dwindled from a healthy $24.3 million just six years ago to a mere $7.6 million at the end of 2003, demonstrating how quickly uncertainties facing county government and escalating state mandates can impact its finances,” said Steinhaus. If Dutchess County had not received these one-time revenues, the county’s fund balance would have been reduced to $13.7 million, a mere 3.6% of operating budget and well below the targeted goal of 10% and below Moody’s minimum level of 5%. Through controlled spending, growth in revenues and some one-time revenue benefits, the county was able to end the 2006 fiscal year with modest growth in available fund balance, yet there are exposures in 2007 which could again threaten the county’s financial structure.
Two financial exposures could potentially have a devastating impact on the county’s fiscal stability in 2007 and in future years. The 2007 budget adopted by the county legislature includes $2 million in revenue for the continuation of the existing sales tax rate beyond the November 30, 2007 sunset and a $4.3 million mortgage tax based on a June 1, 2007 implementation date.
Just last month, the county legislature adopted a resolution requesting the state legislature enact the required “home rule” legislation to permit Dutchess County to continue the existing sales tax rate. Similar “home rule” legislation is required for the mortgage tax revenue already counted on in the 2007 budget to pay for services to residents. The county legislature has not yet acted to request the mortgage tax authorization from the state legislature required to support the balanced budget adopted by the county legislature last fall. If the “home rule” legislation for both the continuation of the existing sales tax rate and the mortgage tax is not obtained from Albany, the 2007 budget will face the daunting impact of a total estimated shortfall of $6.3 million. This failure will cause the county to fall short of its revenue to pay for existing services already committed and prevent us from strengthening our fund balance.
On an annual basis, this amounts to a devastating $31.3 million funding hole or nearly $38 million for 2007 and 2008 combined, undermining the growth in fiscal stability demonstrated over the past three years and causing a major structural imbalance to county finances now and in future years. Without the revenue generated from maintaining the current sales tax rate and adopting the mortgage tax, Dutchess County will face a property tax levy increase of more than 40% for 2008!
Steinhaus concluded, “I have directed my staff to exercise tight controls to ensure fiscal and programmatic stability and efficiencies. I will insist we continue to maintain strong fiscal stewardship and budget management to safeguard our “rainy day fund” and insure the taxpayers’ money is spend in the most responsible and prudent manner. Maintaining a solid fiscal foundation is critical to the county’s long-term fiscal strength and stability.”
The Annual Financial Report was released May 1 by Pamela Barrack, County Finance Commissioner and is required by law to be forwarded to the State Comptroller, the County Comptroller and the Dutchess County Legislature. It includes the operating results and balance sheets of all funds and account groups. The statements included in the report are reviewed in the annual comprehensive audit of county finances conducted by an independent accounting firm whose report will be issued later this year. There could be additional information received from the state after the May 1st release of the preliminary report as well as subsequent adjustments for the application of GASB principles, which may cause the 2006 year end fund balance to change.