May 1, 2003

County Executive Announces Year End 2002 Financial Condition
 

Poughkeepsie... Dutchess County Executive William R. Steinhaus announced Dutchess County’s 2002 year-end financial report has been forwarded to the Dutchess County Legislature by Finance Commissioner Rita Brannen. “While still sound, Dutchess County’s finances like local governments all across New York State, faced a difficult year,” commented Steinhaus. “The unappropriated fund balance we built and continue to fight hard to protect was lower by $5.4 million in 2002 compared to 2001. This is a result of planned draw-downs of fund balance during 2002 to pay for CSEA and CWA labor settlements, as well as unplanned sky-rocketing costs causing deficits in the state-mandated Medicaid program.

Year 2002 total revenues including the planned allocation of fund balance equaled $313 million. The county’s General Fund, in which the finances for the majority of county services and facilities are recorded, ended the year with revenues of $285.3 million. Sales tax income totaled $90.7 million, a 2.6% increase over 2001.^[1] Sales tax receipts were strong in the first quarter of 2002, fell sharply by mid-year and then rose slightly in the third quarter with a slight downturn at year-end. Total expenditures equaled $307.4 million. The attached chart summarizes the various categories of county spending in 2002. General Fund expenditures totaled $280 million.

State and federal support and reimbursements during 2002 increased 13.4% over 2001 due in large measure to formula-driven reimbursements of the increased cost of ongoing County/State programs. However, all indications are that county governments stand to lose significant state aid revenue in the current state budget process. Potentially, Dutchess County’s 2003 impact could be several million dollars.

Dutchess County ended its fiscal year at a very favorable 23.1% of its Constitutional Tax Limit and only 7.6% of its Constitutional Debt Limit reflecting the careful, disciplined fiscal decisions made over the past years.
 

Moody’s Investors Service in January 2003 once again recognized Dutchess County’s high level of financial competence when it rated Dutchess County’s bonds Aa1 – one of only two counties in New York State to achieve this enviable rating.[2] Moody’s cited Dutchess County’s general obligation pledge as well as a sizable and growing tax base, satisfactory financial position and modest debt burden. They also pointed to Dutchess County’s expanding economy and renewed job growth. Each of these is a significant achievement demonstrating how Dutchess County stands out when compared to other New York Counties.

Current NYS Dept. of Labor figures show unemployment has decreased from 4.7% in February 2002, to 4% in 2003 and reflects positive outcomes of the county’s continued economic development initiatives. It has been recently reported that half of all the new jobs created in the Hudson Valley Region this year were created here in Dutchess County.

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However, while Moody’s once again assigned a Aa1 bond rating, they assigned a negative outlook. Moody’s cautioned that going forward,
 

Moody’s Investors Service issued a special report in late December entitled “Budget Imbalances Could Place Credit Pressure on Some New York Counties.” Moody’s concluded the report with its expectation that financial pressures that began to impact counties in 2001 will continue for the foreseeable future. They also concluded that counties will continue to struggle to achieve structural balance unless the economy begins to recover and changes are made to the State’s Medicaid funding system. “That said,” the report continues, “Moody’s believes management’s ability and willingness to take proactive steps in initial stages of a downturn is a key indicator of long-term credit strength. The political ability to raise taxes and make difficult service decisions is also critical.”

The administration recognized the challenges facing Dutchess County and took immediate action during spring 2002 by restricting hiring, implementing spending controls, and obtaining predictability and stability in employee salary and benefit costs. Compared to the rest of our state and much of the nation, Dutchess County has weathered the lingering economic slump better than most. Dutchess County’s $16.4 million fund balance exceeds Moody’s recommended threshold of 5% of budget, while many other counties across New York State have depleted their “rainy day funds”. 28 of New York State counties have double-digit property tax increases. Unlike many other counties, Dutchess County has distinguished itself by being able to avoid layoffs and significant program reductions.

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By focusing on Dutchess County’s core mission, reigning in spending, and maintaining an efficient and effective workforce, our goal has been to solidly position Dutchess to face upcoming challenges head on, and there will be many. Through the external pressure of ballooning pension costs, ever-increasing unfunded state imposed mandates, an uncertain state budget, and stagnant sales tax receipts, only 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 latest information from the State Comptroller proposes a revamp of the retirement system identifying Dutchess County’s liability this year to be 4.5% of payroll or $5M and will likely stabilize the amount going forward relinquishing the tie to the stock market and providing Dutchess with a reasonable basis to budget. Although the Budget Office projected a likely increase in Dutchess’ obligation and proposed budgeting $5.2M accordingly, the Legislature’s consultants Bennett Kielson Storch DeSantis & Company LLP did not foresee this increase. They instead recommended, and the Legislature decided the appropriation be reduced to $3.6 million, no doubt requiring that the appropriation be increased when the bill becomes due.

Our fiscal realities are negatively compounded by an ever-increasing unfunded state mandated Medicaid obligation, which is currently tracking at an unbelievable 22% growth rate YTD against the same period last year. Although it is early in the year, if this growth rate continues at the current pace, actual expenses will exceed current budgeted appropriations towards the end of the year. Should that occur without state reforms in Medicaid, our county budget will face a significant year end challenge.

Although it is impossible to predict the outcome of the State budget process, we can be sure that as the State faces harsh obstacles with limited funds, it is probable that Dutchess will lose some State funding, through decreased grants, lower reimbursement rates and changes in state laws and regulations that will cause greater financial burdens and responsibilities.

Current sales tax analysis shows that after accounting for the exemption on clothing, which took effect March 1, 2003, actual receipts are tracking almost 2% lower than last year.

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Although the above external impacts are uncontrollable and uncertain, there are other areas where the administration can exercise control, and take swift, decisive action to ensure fiscal and programmatic stability. Steinhaus commented, “I have directed executive department heads to constrain external spending, limit spending to mission critical items, tightened hiring restrictions and made recommendations to continue mission critical investment in capital projects that take advantage of an incredibly low bond rate. As the year unfolds there will be two certainties on which Dutchess County businesses and residents can depend. I will continue to have the political courage to implement tough spending and taxing decisions in order to maintain a healthy balance between services and the fiscal impact on Dutchess residents and businesses. Further, we will continue to maintain strong fiscal stewardship and examine all aspects of County governance to maximize efficiencies.”
 

^[1] Sales tax receipts are subject to retroactive adjustments by the State of New York based upon audit and filing of amended returns.

^[2] Ratings as of January 2003. Only Westchester County, where local municipalities guarantee the county property tax levy, holds a higher Aaa rating.  

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