Not the Time for Business as Usual

From Commissioner Jeff Rader:

The more things change, the more they stay the same.

A year ago, I publicly expressed my disappointment in the budget process for DeKalb County. The process, as described in my formal remarks in February 2009, is subject to political considerations and short-term gains at the expense of tough decisions and long-term sustainability. [To read my commentary on 2009 budget, see link at the end.]

It was my hope then that the new county CEO and the new governing structure for the county Board of Commissioners (BOC), each with a full year under its belt, would lead to improvements in the preparation of this year's budget. Sadly, the process seems to have gotten worse, not better.

While major changes may not happen overnight, my recommendations last year included simple, incremental steps to ultimately create a budget that is inclusive and forward thinking. The first and easiest step is to add transparency by sharing the departmental budget requests, typically submitted in late summer, with the general public and BOC. [To read my commentary on suggested transparency, see link at the end.]

The requests would be used as a starting point for public and ongoing discussion among various constituencies, notably the BOC, to establish funding priorities for the coming year. Instead, the administration elected to keep the specific departmental requests under wraps. Thus, the BOC is flying blind if it attempts to cut spending because it has limited information on how such cuts impacts each department.

Further, because the departmental requests were not shared with the BOC, the latter did not develop the urgency to finalize its priorities for the coming budget. For what it's worth, my top budget priorities are public safety and infrastructure. The first is self-explanatory and the second is needed to address an enormous backlog of deferred maintenance, which threatens the functionality of county services.

As in years past, the public's and BOC's first look at the proposed 2010 budget was mid-December, the constitutionally mandated date for the CEO to formally present a budget. The BOC, in turn, is mandated to approve the budget by March 1, leaving a mere two months to debate possible revisions, a timeframe that makes it difficult for substantive deliberations.

The CEO's proposed budget is based on questionable assumptions and actions.

Perhaps the most misguided assumption is that the county tax digest (aka property taxes) will remain the same as it was in 2009. A reasonable person knows the national economy's downslide was precipitated primarily by the implosion of the real estate market. The general consensus is the real estate market shows signs of, at best, a weak recovery in 2010. The county's Board of Tax Assessors, in two separate memos this January, estimates the tax digest will decline by nearly seven percent in 2010.

Even if the administration's revenue forecast is accurate, it still has a roughly $60 million deficit relative to its spending requests. The CEO proposes to close that gap roughly in half by raising the millage rate 1.86 points, and the other half by reducing the labor force through an early retirement offer.

Given the current economic climate, it is not prudent to burden the taxpayers with a tax increase. So a tax increase is not a viable option to address a budget shortfall.

The logical alternative is to reduce expenses by trimming positions from the county work force because labor costs (wages and benefits) comprise roughly 80 percent of the county's budget. While no one wants people to lose their jobs due to layoffs, the county's fiscal situation creates the necessity to right size the workforce now. Such a move is an economic necessity when there is not enough money in the financial coffers.

But offering early retirement is not the most efficient method to reduce the labor force, because the employees, rather than the employer, dictate the staff reduction. As a result, the county could end up losing its most talented, experienced and critical employees, creating a deleterious effect on county services.

That in turn could force the county to hire back those employees, or someone else to fill those positions, thus diminishing the financial savings from the initial staff reduction. The worse scenario would be to lose a disproportionate number of employees from public safety departments, which I, again, consider to be the top priority.

Ideally, the administration would identify those positions that could be eliminated with the least impact on county services. That can be done after a careful performance audit of each department to evaluate the correlation between quality of services and its staffing levels. [To read my commentary on performance audits, see link at the end.]

While the CEO's budget proposes a reduction in force of 400 employees, it does not propose a comparable reduction in scope of services provided to the county. If the county is able to provide the same scope of services with fewer employees, that will be an indication it has been operating inefficiently in past years. If the county is not able to do so, then the public will suffer from the decrease in quality of services.

Early last year, in anticipation of the tough budget currently facing the county, the BOC considered contracting with Georgia State University to conduct a staffing study to identify excess and redundant positions that could be cut. The administration protested, saying that it would conduct its own study. But the administration did not follow through.

So last November, the BOC approved the staffing study initially proposed early that year. Regrettably, the results will be available towards the middle of February, extremely late in the annual budget process. The sad truth is that more budget cuts will likely be necessary to compensate for the revenue shortfall noted above, and the county may end up cutting the budget all year long.

Either way, it seems counterintuitive that in this economic climate, the administration has passed up this opportunity for fundamental restructuring of its operations. Aside from the consolidation of two development departments and the outsourcing of another development department, there is no significant shrinkage of scope of services outlined in the proposed budget.

In the private sector, companies and entrepreneurs have, out of necessity, discovered new ways of doing business that should reap benefits as the economy recovers. Families and individuals have fundamentally altered their way of life, out of necessity, such as giving up cable television, and eating dinner at home more often. But the administration has declared its intent to conduct business as usual.

The more things change, the more they stay the same.

In my budget commentary last year, I called attention to the county's inadequate funding for capital maintenance. Historically, the county government has been enamored with the creation of new facilities rather than the maintenance of existing ones.

Last year's budget set aside 10 percent of HOST (Homestead Option Sales Tax) for capital maintenance. This year, five percent, which projects to $4.4 million, according to the administration. To put that number in context, this time last year, the county was 60 years behind schedule on needed street repaving and had total deferred maintenance liability of more than $260 million. Business as usual.

The administration also proposes business as usual for those employees still in place after the reduction in force. In fact, the CEO's budget proposes a one percent, across-the-board merit increase. While there are many county employees who are exceptional performers, the economic reality dictates that DeKalb does not have the luxury of offering pay increases, no matter how deserving.

Nor does the CEO's budget propose any changes in the benefits programs -- health, retirement -- for county employees. The county, which is self-insured, pays 70 percent of all medical expenses for its employees. With medical costs rapidly escalating nationwide and an aging workforce, the county can not sustain that 70-30 ratio without raising taxes or requiring its employees to contribute more.

The county continues to operate a defined-benefit retirement plan, while the private sector predominantly offers defined-contribution plans. To maintain the promised benefit, the county's actuaries advise that contributions to the pension fund should be increased to 15 percent of payroll in 2010 ($50 million) all the way up to 25 percent of payroll in 2020 ($105 million), which is a significant cost increase even before factoring the early retirement program.

The county currently pays about 67 percent of contributions to the employees' retirement plan. That financial obligation is unsustainable. If the county wishes to save its defined benefits program, the beneficiaries must pay a larger share.

Nor does the CEO's budget propose any changes to the number of paid holidays for county employees. Eliminating a paid holiday saves money and probably has the least impact on county services because government is considered closed that day.

The BOC has two choices to rectify the CEO's proposed budget. One, it can save money by unilaterally reducing the scope of county services. Two, it can save money by improving the cost efficiency of its current scope of services. Both are difficult tasks because of the limited time frame and information provided to the BOC in this budget process.

In the short term, the latter seems to be the best option, specifically reviewing the compensation structure for county employees, as highlighted in this commentary. This means the budget would be balanced on the back of good county employees. That would be regrettable, but preferable to balancing it on the back of taxpayers.

The CEO describes the proposed budget as "bare bones," one that provides little more than the essential, required county services. In 2001, the first year of the former CEO's administration, DeKalb County had a $420 million budget. If that budget was sufficient to fulfill the county's mandate at that time, then it should have continued to be the benchmark in the subsequent years while allowing for inflationary and population increases. Based on those two statistical factors, today's budget would be $563 million rather than the $583 requested by the CEO. The numbers suggest there are ample opportunities to make significant cuts in government spending.

The CEO and his team are honorable and well intentioned, but regrettably they have not been able to keep ahead of the extraordinary economic and organizational challenges we are now facing. But it's not too late to start. Crafting this year's budget is not a one-time challenge. The county tax base is expected to remain flat for a significant period into the future. The administration needs to reject the premise of relying on short-term fixes in order to resume business as usual.

2009 Budget Commentary
http://www.commissionerrader.com/news/news239.html

Budget Transparency
http://www.commissionerrader.com/news/news270.html

Performance Audit
http://www.commissionerrader.com/news/news291.html

(Commissioner Jeff Rader represents District Two on DeKalb County's Board of Commissioners. He was elected to the position in 2006 for a four-year term.)

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