This business model will not fix itself

Paul Ericson//November 22, 2002//

Listen to this article

Would you put money into this business?
It’s in the red, with declining revenues and sharply rising costs. After years of operating in the black, surplus funds are gone and it has been forced to borrow to close the operating gap.
Income from the sale of properties and other special items has mitigated operating losses, but those won’t be available in the future.
On the cost side, increases-such as employee health premiums and other personnel expenditures-are likely to continue. To make matters worse, the business has little control over most of its costs.
Finally, management has no long-term plan in place to address the fundamental defects in its business model.
If you’re a Monroe County taxpayer, here’s the answer to the question: You already are putting money into it.
The “business” is the Monroe County government and, with the county Legislature’s recent approval of a 2.5 percent tax rate hike, you’ll soon be increasing your investment.
The lawmakers’ vote to raise the tax levy and restore millions of dollars in program funding cuts proposed by County Executive Jack Doyle brought an end to months of public alarm over the impact of a projected $45 million to $65 million county budget deficit next year. A fiscal crisis was averted.
But not for long.
That’s the warning implicit in the report to lawmakers by the blue-ribbon commission created to study the county’s finances. Delivered the morning of the legislature’s vote on the 2003 budget, the report-except for the section questioning the practice of maintaining a flat property tax levy-drew relatively little attention.
Now, the report appears at risk of collecting dust on a shelf. If that happens, one day someone will retrieve it and discover that everything that later occurred was predicted.
Specifically, they’d find a report warning that:
— “The revenue/expense imbalance that is creating the County budget deficits is real, substantial, structural and will not correct itself.” The growing gap by 2001 had wiped out the more than $50 million surplus that existed in 1997. The structural problems are so severe that “even a return to the more prosperous times of several years ago will not overcome the deficit.”
— The county’s continuing sources of revenue excluding state and federal reimbursements have declined. One factor is a sales-tax agreement that has shifted revenue sharing in favor of the city and suburban school districts-costing the county $17 million in additional revenue last year.
— Although federal aid to the county decreased from 1997 to 2001, combined state and federal aid posted a net increase of $33.6 million. But the total cost of mandated programs rose at an even faster rate. The largest increase in net county cost was in Medicaid spending, which jumped $20.2 million-or 25 percent-to more than $100 million.
— Fast-rising health premiums are driving up costs. Unlike most private-sector employers, Monroe County has been unable “to use employee health insurance contributions and co-payments to encourage more cost-effective use of health care.”
— Proceeds of property sales and tobacco-settlement funds have eased the deficit problem, but they won’t continue. In fact, the panel found at least $29 million in non-recurring revenues in the 2002 budget.
— The policy of keeping the property tax levy constant over the past decade means the tax rate has declined and the county has not gained additional revenue from the 30 percent increase in the full value of real property. “Had the county kept the rate rather than the levy constant since 1992,” the panel wrote, “it would have had approximately $54 (million) in additional revenue in 2001.”
A strong economy, combined with use of onetime funding sources, for a time covered up the problem of declining revenues and rapidly rising costs, but “the inevitable is now upon us with a vengeance.”
The individuals who wrote these words-former RGS Energy Corp. chief Thomas Richards, HSBC Bank USA regional president Kenneth Bell, former Time Warner Communications president Ann Burr and Charles Plosser, dean of the William E. Simon Graduate School of Business Administration-know something about how businesses should be run. They also think they know what steps must be taken to turn around the county’s finances.
Those measures include long-range cost and revenue planning, aggressive action to achieve operational efficiency and strong partnerships with non-profit agencies that provide county-funded services. In addition, the county needs to push for Albany to take responsibility for the local financial impact of state-mandated programs.
And, yes, county officials need to realize that “holding the tax levy constant has locked the County into a pattern of escalating costs and constant revenue that will inevitably exact too great a burden on reducing services.”
These days, investors confronted with a company whose future is written in red ink vote their shares in the market-swiftly and harshly. County taxpayers don’t have that option.
They can vote with their feet, however. And unless the county heeds the blue-ribbon panel’s urging to “realistically come to grips with the financial difficulties that have been plaguing it for most of the past decade,” a growing number of residents might choose to do so.