What is in a budget?
I once had a very smart boss tell me that if I really wanted to know what was important to an organization, look at its budget. People can say whatever they want to say, but they cannot hide the fact that they pay for what is important to them.
The problem we face with today’s economy and a contracting county is that often we find ourselves without even the money to pay for “essential” elements of our organizations. So, with all of the chatter the last couple of months about the county budget, what should we take away from this process?
First and foremost, we commissioners would like to thank and congratulate the county management and employees for their superb execution of this year’s budget. With all of Cambria’s challenges, our team managed to make it through another year. And, like last year where we managed to save more than $2 million, this year we will be in the region of $1.5 million in savings. This does not include the cost savings from the prior year that carry over into this year.
You might ask, “Then why are we not in better shape?”
An excellent question and one that needs to be answered in multiple ways:
First, the budget problems the county faces did not come about overnight, nor will they be solved overnight. This is a multiyear issue, and we continue to work on it every day.
Second, there is a difference between the budget and county cash flow. This year we specifically focused on correcting some of the cash flow issues while continuing to work on creating a budget (which includes “right-sizing” the county) that the county can actually afford.
Third, it is important to understand that in the 2010 census, Cambria’s population was found to be a fifth class county size (rather than the larger fourth class size we were). But, the law states that any county that becomes smaller has until the next census (2020) before conforming to all of the new rules associated with the new county size. So, we are essentially running a fourth class county on a fifth (and smaller) class county tax base.
Several more issues can impact the county budget, but we would like to focus on the cash-flow issue. Counties and other government entities have a unique problem with cash flow depending upon when their fiscal year begins.
Because counties in Pennsylvania have a fiscal year from January to December (the same as the calendar year) and their primary revenue is from property taxes, they do not traditionally have money to pay bills at the beginning of the year (until tax revenue begins to come in during the months of March and beyond). To get to March and continue paying the bills, counties traditionally take a tax revenue anticipation note (TRAN loan) and then pay it back once tax revenue begins to come in.
Cambria has not been paying off this loan mid-year when revenue begins to come in and thus has a cash flow problem at the end of the year when its one-year TRAN loan comes due.
To correct this, the county will be doing two things: taking out a $5 million loan and refinancing $19 million in debt.
This will prevent late penalties, extend interest payments, allow the county to pay off its debt two years earlier and save the taxpayers approximately $1.2 million. Not only will we be helping the businesses who do business with us by paying them more promptly at the end of the year, but we also will be saving taxpayer dollars and creating better functioning annual cash flow for the county.
Of course, there is some cost associated with this new $5 million loan. The fees will be about $80,000, but this and the additional interest will be more than offset by the amount of money the county saves in avoiding penalties and interest over the life of the loan.
Furthermore, we would like to address the controller’s offered solution: using bonds. While the interest rate was going to be comparable, the fees were initially quoted as high as $800,000, or a complete order of magnitude higher than the solution the county finally adopted.
This solution does not fix the budget issues we continue to face such as the approximately 23 percent union pay raises voted for just prior to our coming into office, but we will continue to work on these issues.
Merry Christmas and may you have a joyous new tear.
The Cambria County Board of Commissioners includes Doug Lengenfelder, Mark Wissinger and Tom Chernisky.