ALLEGANY COUNTY BOARD OF LEGISLATORS
COMMITTEE OF THE WHOLE

June 15, 2010

** APPROVED **

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Legislators Present

D. Burdick, D. Cady, C. Crandall, P. Curran, D. Fanton, M. Healy, T. Hopkins, K. LaForge, A. McGraw, D. Pullen, F. Sinclair, N. Ungermann (Absent: G. Benson, T. O’Grady, D. Russo)

Others Present

M. Alger, K. Dirlam, J. Foels, J. Margeson, T. Miner, B. Riehle, T. Ross

Media Present

D. Roorbach – Olean Times Herald

Chairman’s Opening Statement

Chairman Curtis W. Crandall called the meeting to order at 6:36 p.m. and led the group in the Pledge of Allegiance. Chairman Crandall stated that he called the meeting to discuss the County’s financial position, and that this meeting is different from any meetings held in the past because we are in a better place financially than we have been in the past with our fund balance at its highest point in recent history. Chairman Crandall stated that we will have conversations on how we should maintain and use that fund balance. This meeting shows the responsibility of this Board, and we need to act upon that. We are not in a position to put our feet up or not concern ourselves with past issues. Unfunded mandates from New York State, cash flow issues, retirement contributions, and our weekly share of Medicaid costs put us in an unfavorable financial position in the past, and we do not want to end up there again. This meeting will deal with our financial position and what we can do to responsibly deal with it and move forward.

Report on Previous Allegany County Budgets

County Administrator/Budget Officer John Margeson stated that for the last seven or eight years the County Treasurer and he have been providing legislators with a report regarding the County’s financial position at the end of our fiscal year which ends December 31. A lot of administrative work needs to take place in the Treasurer’s Office after the fiscal year ends before we can figure our bottom line and determine how we actually fared. Once Allegany County has a bottom line, our books must be audited. Mr. Margeson stated that the basis of tonight’s meeting is to report how Allegany County did at the end of fiscal year 2009.

Mr. Margeson thanked County Treasurer Terri Ross and Deputy County Administrator Mitchell Alger for their assistance in preparing the PowerPoint presentation for tonight’s meeting. Mr. Margeson referred to the PowerPoint presentation (attached to original minutes) and provided a brief history of Allegany County’s past financial condition along with a summary of our current financial condition.

In 2001, Allegany County finished the year with a deficit of $254,000 and had an unreserved fund balance of $1,517,000. By the end of 2002, things had worsened considerably and Allegany County ended the year with an operating deficit of $6,733,000 and our unreserved fund balance had dropped to ($2,925,946). In 2003, although things had improved, Allegany County still ended the year with a deficit of $2,276,000, and our unreserved fund balance fell to ($3,846,043). Mr. Margeson stated that in 2000 and 2001 there was a recession brought on by a .com bubble, and that coupled with the events of September 11 participated in these deficits. From 2004 going forward our situation has improved. By the end of 2008, we had an unreserved fund balance of $9,309,000. In 2010 we used $700,000 of our unappropriated unreserved fund balance to balance our operating budget and lower taxes. Also in 2010, we used $1.3 million to pay off a bond anticipation note.

Mr. Margeson then referred to a table showing a 21-year history of property tax rates and changes in those rates and levies. Mr. Margeson noted that in 1990, the percentage of change in the tax levy was 7.62 percent, but there was a $14 decrease in the tax rate per thousand of assessed value because $2.8 million was taken from unappropriated unreserved fund balance to keep taxes down. Allegany County’s tax rate went down for 12 years in a row even though the tax levy increased every year but one because the Board decided to take money from the unappropriated unreserved fund balance and apply it to the operating budget as a revenue to keep taxes down. In 2003, the fund balance became depleted. In 2004, we were hit hard with unexpected and high expenses from the retirement system, child health plus, Medicaid costs, and health care for our own employees. In 2004, we passed along a tax increase of 22.47 percent ($2.42 increase in tax rate). The Legislature decided they needed to take drastic action to get back in the black, and this is when we increased our sales tax rate to 4.5 percent which resulted in approximately $1.8 million in revenue.

2009 Year-End Fiscal Presentation

The 2009 County operating budget called for $82.06 million and we spent $84.61 million. The revenues were budgeted at $82.06 million, and we received $90.03 million resulting in an overall surplus of $5.4 million at the end of 2009. This increased our unreserved fund balance to $12.71 million.

Spending exceeded the 2009 Budget in the following areas:

· Food Stamp Cash Out ($3,171,259)

· State Fuel Crisis (HEAP) ($3,110,505)

· Health – Nurses ($ 269,603)

· Medical Assistance ($ 240,265)

Mr. Margeson noted that no local dollar contributions were used for the Food Stamp Cash Out or State Fuel Crisis expenses because they were reimbursed at 100 percent. The overage for the Health – Nurses category occurred because there was a delay in the NYS Department of Health, and our CHHA (Certified Home Health Agency) license did not get transferred to the company that purchased it until mid-2009, and we continued to provide some services until the transfer was final. Under the Medical Assistance category, we pay for Medicaid on a weekly basis, and we budgeted with the assumption that we would make 52 payments, but we actually made 53 because of the way the calendar fell.

Spending was less than the 2009 Budget in the following areas:

· Special Education PHC $ 510,218

· Aid to Dependent Children $ 496,379

· Child Care $ 433,692

· Risk Retention (Insurance) $ 233,500

Revenues exceeded the 2009 Budget in the following areas:

· DSS FMAP (ARRA Stimulus) $1,753,068

· Refund Prior Year – DSS Medicaid $ 764,135

· Child Care $ 425,967

Mr. Margeson indicated that we did not budget anything for the DSS FMAP because we had no idea what the number would be. It is also impossible to predict what the Refund Prior Year – DSS Medicaid line item will be on an annual basis. Ms. Ross indicated that there was an equal reduction in expense for the Child Care item.

Mr. Margeson showed a pie chart summarizing how the $84.6 million in expenses was spent in 2009:

· Social Services $38,227,754 45.18 percent

· Public Works $10,229,134 12.09 percent

· Employee Benefits $ 8,514,568 10.06 percent

· Miscellaneous $ 7,917,974 9.36 percent

· Sheriff/Jail $ 6,819,150 8.06 percent

· Health Department $ 4,491,409 5.31 percent

· General Government $ 3,298,201 3.90 percent

· Debt Service $ 2,515,550 2.97 percent

· Mental Health $ 2,605,037 3.08 percent

Mr. Margeson also showed a pie chart summarizing where the $90 million in revenues was derived in 2009:

· Real Property Tax $25,019,762 27.79 percent

· Federal Aid $22,177,374 24.63 percent

· Sales Tax $17,067,776 18.96 percent

· State Aid $11,787,754 13.09 percent

· Miscellaneous-Other Revenue $ 6,794,777 7.55 percent

· Departmental Income $ 4,901,190 5.44 percent

· Housing/Transport Inmates $ 2,286,563 2.54 percent

Questions & Comments Regarding Budget Presentation

Legislator Norman Ungermann asked what year the County received money for selling the nursing services. County Treasurer Terri Ross stated that the $750,000 sale was booked in 2009; however, payments will actually be received over three years.

Legislator Ungermann stated that expenditures have gone up $20 million since 2001 so we ought to have some reserve. The tax levy has gone up approximately 75 percent, and the tax rate is up almost 50 percent over what it was in 2001. We collected a lot more money from the taxpayer, and there are a lot of disgruntled taxpayers who say enough is enough. Mr. Ungermann stated that we have the reputation of being the highest taxed county compared to assessed valuations in the country, and it’s nothing to be proud of. It all looks rosy, but there have been some huge increases that have hit the taxpayer awfully hard. Mr. Margeson stated that the tax rate went down for 12 years in a row, and you cannot do that without some type of backlash.

Budget Committee Chairman Theodore Hopkins stated if we had held our tax rate the same, we would actually be at $38 per $1,000 of assessed value, which is higher than we are now. Legislator Hopkins stated that it would be interesting to see what certain programs actually cost the taxpayer, and Mr. Margeson indicated that something could be put together. Legislator Dwight Fanton mentioned the increases in certain programs such as Medicaid and the retirement bill that we do not have any control over. Legislator Donald Cady mentioned that he believes some of the disparity between the tax rate and tax levy is due to the revaluations.

Mr. Margeson stated that one of the reasons the Chairman called the meeting was to develop a strategic plan for the use and maintenance of our fund balance. Mr. Margeson stated it would be wise for this Board to talk about ways in which we can prepare a strategic plan for the potential use and improvement of the fund balance. How much fund balance is enough?

Financing of Courthouse Project

Mr. Margeson introduced the County’s financial advisor, Jeff Smith, President of Municipal Solutions. Mr. Smith congratulated Mr. Margeson, Ms. Ross, and Mr. Miner on marketing bonds for the Courthouse Project. Mr. Smith stated if you can get yourself in better financial condition, money will follow money. The Courthouse Project was very controversial, and we wracked our brains on how to finance the project at the least cost to the County. We investigated various options. We heard about a county bond pool which used some of the stimulus program on a pool basis for counties across the state. We watched as that program evolved, and things worked out perfectly for Allegany County to go this route. Mr. Smith read the following statement: “On May 14, 2010, Allegany County issued $13,715,000 Local ARRA Bonds through the New York Municipal Bond Bank Agency (MBBA).  The issuance of its Bonds through MBBA allowed the County to take advantage of interest saving debt vehicles provided through the American Recovery and Reinvestment Act (ARRA).  Of the $13,715,000 Bonds issued, $3,055,000 were issued as tax-exempt bonds, $8,980,000 were issued as taxable Build America Bonds (BABs), and $1,680,000 were issued as taxable Recovery Zone Economic Development Bonds (RZEDBs) in the amount of the County's allocation.  In issuing BABs, the County receives a 35 percent interest subsidy from the federal government.  In issuing RZEDBs, the County receives a 45 percent interest subsidy.  The issuance of tax-exempts, BABs and RZEDBs were optimized on a maturity-by-maturity basis.  When compared to the issuance of 100 percent tax-exempt bonds issued competitively, it is estimated that the County received a net present value benefit of $804,911.  The all inclusive cost of borrowing through MBBA was 3.99 percent versus an estimated 4.52 percent for issuing through 100 percent tax-exempt competitive means.”   Mr. Smith indicated that Allegany County was able to borrow at a much better rate than he first anticipated, and the deal has just been finalized. Mr. Smith again commended the work of Mr. Margeson, Ms. Ross, and Mr. Miner.

Financial Ratings

Mr. Smith stated that because of the County’s past financial position, he thought we may have to buy bond insurance which would have cost about $65,000, plus the County would have to pledge as backup security our federal and state receivables. Mr. Smith indicated in previous years, Allegany County was one of the few counties that were required to get a letter of support or credit in order to close a bond anticipation note. Ms. Ross and Mr. Margeson prepared the financial analysis for the rating agencies, and the rating was an A+ from Standard and Poor’s which represents a jump in three categories from our previous rating. We also had a Moody’s presentation, and we are now rated an A-2, which is also a jump of three categories. These new ratings are a direct result of the Board’s efforts to bring the County back into good financial standing. In spite of being subject to the State of New York, and Mr. Smith stated that the County has been able to manage and manage well.

Now that Allegany County is in a better financial position, how do we maintain that level and improve it. Allegany County’s A+ rating and stable outlook reflects the County’s good overall financial position with operating surplus for five consecutive audited fiscal years, a stable property tax base, and diverse revenue base. Offsetting these positive factors are the County’s limited local economy and below average wealth and income standings. The local economy is limited and largely comprised of services. It is very important for the County to maintain frugal fiscal practices moving forwarding. One of Allegany County’s biggest problems is our heavy reliance on single family homes and farms, and the lack of a commercial and industrial tax base. Mr. Smith remarked that a commercial and industrial tax base does not send anyone to our schools yet they pay huge taxes.

Financial Planning

Mr. Smith talked about five-year planning and budgeting. Mr. Smith stated that we will also need to determine how the health care bill will impact future budgets.

Mr. Smith suggested using our fund balance for tax stabilization, economic development, and a strategic investment in infrastructure. Mr. Smith talked about the importance of letting Senator Schumer know the needs of Allegany County. We may be able to use some of our money to leverage additional money from the federal government. We have to learn how to get spin on the dollar – where we spend a dollar to get $1.50, $2 or $3 in return. We need to look at opportunities. If Allegany County can get some of the preliminary work done, we will be ready to act when something comes our way.

Chairman Crandall stated that Allegany County is in a position we have never been in before, and we want to maintain our good financial position. The Chairman noted that the cap on Medicaid, FMAP, planning ahead, conservation measures, and selling our CHHA have all contributed to where we are at today. Those present briefly discussed the contingency and tax stabilization fund which was created back in 2000 when we received tobacco settlement money. The fund was created as a financial resource to be used to prevent an increase in the real property tax rate of greater than 5 percent in any given fiscal year.

Mr. Smith suggested that a fund balance should be a minimum of 10 percent with a goal of 20 percent of total operating appropriations minus debt service. Mr. Smith stated that when you do long-range planning, you set goals and strive, and once you start visualizing, you start actualizing. Legislator Hopkins stated that 20 percent is a noble place to go, but we have to look at investing money to make more revenue. We want to maintain our current bond rating, and also be able to invest some money so we are not counting on property owners to pay the way. We have to look at investing because we will not get to 20 percent unless we have money coming in from places other than property tax. Legislator Donald Cady remarked on how hard small businesses have to work to just pay property taxes.

Legislator Donald Cady also expressed concern about budgeting for union contracts. Ms. Ross stated that a liability is booked so that if contracts are settled the County will be able to meet its obligations.

Chairman Crandall stated that Mr. Smith talked about leveraging dollars for infrastructure and economic development, and he wonders if there is a good systematic way of leveraging funds for projects or investments. Mr. Smith stated that capital budgeting is a good way to start. Mr. Smith suggested getting together and identifying what is out there and what Allegany County’s priorities are. Mr. Smith stated the County should talk to towns, villages, and citizens to see what they think their needs are too. Scan the environment and put priorities on what the needs are, and see if there are any programs available that could fund these projects. You need to know what you want to ask for. Mr. Smith also suggested watching and learning what is happening in the federal arena for new programs and dollars. Work as a group, get consensus and work the angles. Planning and Economic Development Chairman Frederick Sinclair asked what types of structures Mr. Smith sees in counties to go after these goals. Mr. Smith stated that he sees lots of committees that are focused on individual projects and a county manager or chairman will set up a schedule with deadlines. Quite often it is incorporated as a pre-budgeting process.

Chairman Crandall asked if there is a reasonable formula or thought behind what kinds of reserves, or monies should be kept. Mr. Smith indicated that adequate reserves should be established for the nuts and bolts reserves like compensated absences and retirement costs. The economic development reserves are more of a consensus and working with your local communities. Mr. Smith stated that the Board as a group must come up with goals that can be focused on. Mr. Smith recommended using any available resources that can be mustered stating that the County should look for partners and linkages. Sometimes towns can pitch in, and inter-municipal cooperation agreements sometimes work.

County Treasurer Terri Ross talked about putting money in a capital account for specific projects and then building on it. There is currently a capital account for Crossroads, but other projects can be established. There was a brief discussion on how capital and reserve accounts are established and the limitations and flexibility different types of accounts offer.

Legislator Pullen expressed concern about the likelihood of a surplus going forward because some of our revenues were one-time, non-recurring, and we will be facing some increases in other areas like pension costs and health reform costs as well as sudden turnarounds that we have not anticipated. County Administrator/Budget Officer John Margeson cautiously predicts that we will have a budget surplus in 2010 based on what we are seeing half way through the year. There was a brief discussion on the uncertainty of the state budget. Mr. Smith indicated that he could convert our 1989 dollars to current-year dollars so that a more accurate comparison can be made between the two years. Mr. Smith stated that taxes are going up too much – it’s New York State, and it’s very frustrating. The real property tax burdens that local governments put on the taxpayers are many times a direct result of the New York State budgets and mandates. If we benchmark NYS with other states in the nation, it’s not good, but it’s not all bad either, and we need to not be so hard on ourselves. Mr. Smith said to get ready for when the rest of America “loses its water.” Allegany County has to have infrastructure ready and change the way we think and manage. New York State is in the business of transferring wealth, whereas some states are in the business of creating wealth. They are investing their money for spin. They invest tax dollars in infrastructure, education, and good government; here we redistribute income, and that says a lot.

Legislator Pullen stated that our taxes are way too high, and everyone agrees, but what do we do about it? Legislator Hopkins brought up that we are now paying for things as we go. Money was never actually placed in the tax stabilization fund that was created back in 2000 because things came up and we always had to use that money, but now we are in a place where we may be able to put a little away. Legislator Cady commented that keeping things paid up and staying out of debt is crucial to remaining in good financial standing. Mr. Smith said to maintain our current bond rating, we should probably have 8 to 10 percent in reserve, but they are looking at some things a little differently now. Management is what makes the difference, and as long as Allegany County continues the trends of positive movement, we should remain in good standing and protect our bond rating. The focus is now more on things like how often we report our financial condition, if we have a fund balance policy, if we have a capital plan, if we have a five-year budget. Ms. Ross stated that it is very rewarding to see the improvements and huge changes that Allegany County has accomplished. Spending money for a specific reason that results in economic development or infrastructure according to a plan is an investment and shows responsible management. Having a comprehensive plan has also proven to be a huge benefit. A zero tax rate increase is usually not realistic and can often be looked at unfavorably. Financial raters will look to see what you are using to balance the budget especially if you are just using fund balance and not cutting expenses. When you have to use some of your reserves or fund balance, there needs to be a plan for returning the money.

Legislator Healy indicated that he would like to see us hold our increases below the national average of what costs are. Legislator Fanton commented that with Medicaid and retirement costs, to realistically think you can keep the levy below CPI would require layoffs. Legislator Cady commented that if you have money in reserves, you do not need to be as concerned about a favorable rating to borrow.

Development

Mr. Smith encouraged the Board to get some things done at Crossroads. A truck stop is like a godsend; revenues that come in from field tax are phenomenal. Allegany County needs to pound water and sewer out so that we have the potential of bringing someone in. Mr. Smith stated that the Crossroads Project may be one of our most valuable pieces. Legislator Healy stated that the Crossroads Project has a lot of potential, and most of that business will come right off of I-86 which doesn’t come out of the pockets of Allegany County. Legislator Healy stated that he believes the Crossroads Project is so important because of the potential for increasing the tax base and generating more sales tax. There was a brief discussion about putting water in first as businesses can start with onsite sewer systems.

Chairman Crandall stated that a list was established when we were looking for projects for stimulus funding. County Planner Kier Dirlam stated that he is working on the project list the County put together last year along with a list that STW has been using and combining it all to tie it in with the Comprehensive Plan.

Legislator David Pullen stated that less than 19 percent of Allegany County’s revenue comes from sales tax, and in some counties, 50 percent of their revenue comes from sales tax. If we generate more sales tax, real estate taxes will go down. We need something where our citizens will spend their money locally or coming down the highway – something that will generate revenue. Mr. Smith suggested getting together with Steve Hoover and Joe Sartori from Chemung County as they have been doing a tremendous job, and they are willing to share information and ideas.

Highway Infrastructure and Bridge Program

Legislator David Pullen stated that under the County’s Bridge Program, it costs approximately $400,000 for each bridge that needs to be replaced. The average useful life of a bridge is approximately 40 years. To keep up, we need to do about eight bridges a year, and we have not been keeping up with that. We should be budgeting approximately $3.2 million every year to keep up with our bridges. This is going to catch up with us and bite us. We need to restructure and look at some things. If we are going to be putting something in to help local communities, it is not inappropriate to ask local communities to also increase their commitments.

Legislator Sinclair stated that there may be programs down the pike that we should be ready for, so it could be very important to have our bridges prepped and ready to go so that we could compete for federal programs if they become available. Perhaps we may be able to make up some of the projects that have been neglected. This makes sense and would be a good solid investment. Legislator Fanton stated that he certainly thinks it’s a good idea to talk with the Highway Association. We must also look at the usage of bridges and how many people they are serving.

New York State Mandates

Legislator Fanton stated that the state mandates were never made public so that people realized the increases we were faced with. Those mandates should be made public so people know where the real problems are. Legislator Cady indicated that when we begin developing the 2011 budget, the public may insist we take money from our fund balance to lower taxes, but if we have the funding of reserves marked for different things, it will be easier to justify.

Federal Highways

Legislator Pullen stated that we do not have roads that are eligible for federal funding, and we cannot even afford to design the roads according to federal regulations let alone build them. To qualify for funding, you usually have to have a federally qualified road. No town or village roads would qualify. How can we get ourselves on those lists? Mr. Smith stated that Allegany County needs to develop a capital plan and make contacts with regional DOT offices to get on those lists. After you have identified your goals, you talk to congressmen and ask them to set up a meeting with the highway administration so that they can get our roads on those lists. Counties that got on those lists were making plans four and five years in advance. Strategic planning is what needs to be done.

NYS DEC Public Hearing on Wood Burning Furnaces

Kier Dirlam reminded Legislators that the Department of Environmental Conservation will be conducting a hearing on Wednesday, June 16, in the Legislative Board Chambers regarding new regulations for outdoor wood burning furnaces. There will be an informational session from 5 to 6 p.m., and the public comment period will be from 6 to 8 p.m.

Future Meetings

Chairman Crandall summarized that in talking about capital project budgeting, we need to also talk about economic development. Part of this is already being worked on, and it just needs to be firmed up and put in presentable form. We need to identify projects and prioritize, establish funds for projects, and identify the impact of projects. On the infrastructure side, our Public Works Department already has a list. For tax stabilization, we need to set goals and look at three and five years out. We can do some projections, and see how we want to fund things. Committees can start to gel some things up and bring them back for further discussion.

Adjournment

A motion was made by Legislator Fanton, seconded by Legislator Burdick, and carried to adjourn the meeting at 9:07 p.m.

Respectfully submitted,

Brenda Rigby Riehle, Clerk of the Board

Allegany County Board of Legislator