Poughkeepsie. . Dutchess County Executive William R. Steinhaus announced Dutchess County’s 2004 year-end financial report has been forwarded to the Dutchess County Legislature by Finance Commissioner Rita Brannen. “Dutchess County’s finances remain sound, however, we continue to face significant fiscal challenges,” commented Steinhaus. “Our preliminary unaudited summary indicates the fund balance we have fought to protect increased by $10 million in 2004 compared to 2003. This is a result of growth in revenues, a reduction in the use of fund balance to offset budget spending and controlling expenditure growth. Our “rainy day fund” dwindled from a healthy $24 million just 5 years ago to just $7.6 million in our 2003 year end audited financial statements, our lowest fund balance in more than a decade and placing Dutchess dangerously below the 5% minimum threshold recommended by Moody’s. The replenishment of our “rainy day fund” is a positive sign Dutchess County’s finances have turned a corner. However, the state mandated Medicaid program as well as other Albany imposed mandates continue to challenge our ability to deliver core services important to our residents.
Year 2004 total revenues equaled $349.5 million. Sales tax income totaled $123.7 million, a 15.4% increase over 2003. Sales tax receipts for 2004 included a twelve month full year impact of the .75% rate increase compared to the seven months it was in effect beginning June 1, 2003.
Sales tax receipts for 2004 include an IBM payment in lieu of taxes payment of $2.4 million county share, $1.7 million more than the county received from IBM in 2003 and well above past average annual payments. It is not expected the payment will continue at this level. Total 2004 expenditures equaled $336 million. The attached chart summarizes the various categories of county spending in 2004. The county’s cash position improved from $18 million at the end of 2003 to $34 million at the end of 2004 as a result of stronger property tax collections and an increase in sales tax revenues compared to the same time the prior year.
State and federal revenue and reimbursements during 2004 increased 14% over 2003 due in large measure to formula-driven reimbursements of the increased cost of ongoing County/State programs.
Dutchess County ended its fiscal year at a very favorable 22.45% of its Constitutional Tax Limit and only 5.93% of its Constitutional Debt Limit reflecting the prudent, disciplined fiscal decisions made over the past years.
In December, Moody’s Investors Service assigned Dutchess County a bond rating of Aa2 just prior to our sale of $31 million in general obligation bonds. These bonds will fund more than 20 previously authorized capital projects and will be paid back over 15 years at an average interest rate of 3.5%. Moody’s Investors Service continues to recognize Dutchess County’s growing tax base, above average wealth levels, and our modest debt burden in assigning a December 2004 bond rating of Aa2. Dutchess has however been moved to the “Watchlist” for potential downgrade. This assignment to “Watchlist” reflected a significant depletion of county reserves over the last three fiscal years and the expectation that financial margins will not be substantially augmented in 2005. Moody’s notes due to the county’s greater reliance on sales tax as a revenue source, we must augment the current fund balance level to a point that reflects a greater than average percentage (5% to 10%) of operating revenues.
This depletion of county reserves is the result of planned draw-downs of fund balance to pay for union labor settlements, as well as unplanned sky-rocketing costs causing deficits in the state-mandated Medicaid program and other Albany imposed mandates. In 2004 it was necessary to draw down over $1 million from reserves primarily due to costs for housing out inmates in other county jails, Family Court attorneys and assigned counsel as well as county employee health insurance. In 2003, $8.2 million was used from reserves primarily due to Medicaid and other state obligations beyond our control as well as the Dutchess County Sheriff’s Employee Association (DCSEA) labor contract settlement, the employee union representing our correction officers. Union contract settlements for the CSEA and PBA which expired at the end of 2004 could potentially mean multi-million dollar future draw downs of fund balance.
While the Aa2 rating is slightly less than the County’s previous level of Aa1, it nonetheless confirms the County’s enviable standing in the Aa credit category. Dutchess County’s rating is still higher than 83% of Moody’s rated New York Counties with only two counties in a higher rating category.
In 2004, we made significant progress toward achieving the requirement to replenish and stabilize our “rainy day funds” by continuing to apply fiscal restraint, aggressively pursue state and federal aid reimbursements and promote economic development. As a result, Dutchess County has begun to rebuild our fund balance. We have also weathered the lingering NY economic slump better than most. Current NYS Dept. of Labor figures show unemployment remained stable for Dutchess County at 3.6% in December 2004 and was substantially lower than New York State’s 5.2% for that same period. 2300 jobs were added during 2004. This reflects positive outcomes of the county’s continued economic development blueprint and various initiatives. Unlike other counties around the state, we have successfully managed to keep property tax increases below double-digit and have avoided laying off our valued county employees.
While our increased fund balance and cash position are encouraging, it’s important to note our 2003 unaudited financial statements released last April reflected a year end fund balance of $12.7 million compared to the $7.6 million figure reflected in the final financial statements audited by PricewaterhouseCoopers. There could be additional information received from the state after the April release as well as subsequent adjustments for the application of GASB principles, self-insurance and uncollectibles similar to those adjustments made by PricewaterhouseCoopers last year which may cause the 2004 year end fund balance of $22 million to drop significantly.
By focusing on Dutchess County’s core mission, reining in spending, and maintaining an efficient and effective workforce, our goal has been to position Dutchess to face upcoming challenges. There will be many. Through the external pressure of increased pension and health insurance costs, ever-increasing unfunded state imposed mandates, and uncertain sales tax revenues one thing is certain. The decisions that are made now will impact how well Dutchess will be able to deal with the uncertainties, which loom on the horizon.
The 2004 cost for the County’s annual pension contribution was $11.4 million, an increase of $7.2 million over 2003. This is yet another example of the state mandates over which the county has no control. The cost to Dutchess County residents for the Medicaid program increased $4.2 million in 2004 over 2003. Medicaid costs are projected to increase at least another $3.3 million in 2005 to a total of $50.5 million. While the 2005/2006 state budget finally includes some Medicaid reform through a limited increase on new Medicaid spending, taxpayers will still pay more than $20 million in new Medicaid costs by 2010 even with this plan in place. This challenge does not include other fiscal uncertainties such as employee health insurance and labor contracts.
Health Insurance costs, while not a state mandate, continue to be driven by the soaring industry costs over which we have no control. In 2004, Health insurance costs totaled $16.1 million, an increase of $2.8 million over 2003. The County Executive’s Health Insurance Task Force will soon be releasing recommendations to address health insurance costs while continuing to provide quality benefits to our employees and retirees.
Dutchess County’s fiscal pressures are further compounded by a potential jail expansion. The NYS Commission on Corrections is demanding Dutchess build a new 300 bed facility which would cost county taxpayers an estimated $13 million in the first year of operation representing a potential increase of nearly 20 % in the county tax levy. While this will reduce the cost of housing out inmates in other jails, the expense would be dwarfed by staggering increases in staffing, facility operating costs and debt service for an expansion. A new jail of any size will have a colossal fiscal impact on county government leaving a multi-million dollar gap in the operating budget and jeopardizing the valued programs and service provided to our resident taxpayers. We have already pushed some capital projects out to future years and will continue to prioritize and refine our costs and timeline in 2005 and beyond to position ourselves for what would be by far the largest capital project in county history.
Although there are numerous external impacts which are uncontrollable and uncertain, there are other areas where the administration can exercise control, and take decisive action to ensure fiscal and programmatic stability and efficiencies. Steinhaus commented, “My recent appointment of Betsy Brockway as Director of the newly created Health and Human Services Cabinet is another example of how we constantly strive for innovative and creative ways to provide services. The cabinet, an outcome of our Health and Human Services Task Force, will work with the Health and Human Services departments to improve cross-departmental performance, streamline the decision-making process, and foster more collaborative problem solving within County government.
As the new year unfolds, Dutchess County government will continue to maintain our strong fiscal stewardship and budget management to safeguard our “rainy day fund” and insure the taxpayers’ money is spent in the most responsible and prudent manner. We must maintain a solid fiscal foundation to position our county for the future.
The Annual Financial Report was released April 29th by the 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.
 Sales tax receipts are subject to retroactive adjustments by the State of New York based upon audit and filing of amended returns