Harford County government posted operating deficits in its largest budgetary fund during the past three completed fiscal years, including more than $11 million in 2013-14.
The operating deficits, typically referred to as structural deficits, don't mean the county is going broke. It does mean, however, that a general fund cash hoard, or fund balance, that totaled more than $100 million three years ago has been whittled down to less than $73 million, and not all that money is available to be spent for ongoing operations.
If it continues, the structural deficit spending could pose a minefield for the new county administration that took over last month, midway through the 2014-15 fiscal year that doesn't end for another six months.
According to comprehensive annual financial reports the county prepares, that are in turn reviewed by outside auditors at the conclusion of each fiscal year on June 30, the accumulated general fund operating deficits from the 2012 fiscal year through the 2014 fiscal year exceeded $28 million.
The county last posted a general fund operating fund surplus – $3.4 million – in 2010-11.
The county's public school system has been beset by similar operating deficits the past few years, to the point where its chief financial officer warned in November that should the practice continue, the system would eat away at a reserve fund that is fast becoming depleted.
New Harford County Executive Barry Glassman has pledged to improve wages for county, sheriff's office and school system employees which have stagnated since the start of the 2008-09 recession, but the overall shape of county finances could make that plan difficult to achieve.
Glassman has announced an early retirement incentive aimed at paring down the county's workforce with the stated goal of making more money available in the future "to position the county to re-invest in our workforce and help you get back on your pay scales," as he explained in a November letter to county employees.
His retirement incentive plan had a hearing before the County Council Tuesday night.
When asked last month how much he thinks the county can save, Glassman declined to say what his target is in dollars. He said the specifics would be laid out in a fiscal impact note submitted for the public hearing.
"Of course, it depends on who takes it," he added, regarding any projected savings.
He also said he is aware of some of the financial issues facing the county and intends to address them more fully in his first state of the county address set for February.
The fiscal impact note states the actual cost of the incentive plan will depend on how many of the 120 eligible employees decide to take it. The administration, however, is seeking a $6.75 million supplemental appropriation to fund it, in addition to $1.8 million previously budgeted for normal retirement payouts. These funds are spread among the general, highways and water and sewer budgets, with $4 million coming from the general fund.
Total savings for the 2015-16 fiscal year are estimated at $8.6 million, county spokesperson Cindy Mumby said Wednesday, stressing the final figure depends not only on the number of employees who take the buyout, but also their positions.
Spending checked
Despite operating deficits posted in the general fund the past three years, the county did spend under final budgeted amounts across the board in most years, including 2013-14, when expenditures were $11.7 million under the $499 million final general fund budget, according to the annual report.
Revenue also came in at almost $1.3 million above projections, for a net saving of nearly $13 million of revenue versus expenditures.
The problem, however, was that total revenue received of $476.7 million was less than the $487.8 million that was spent, leaving a $11,154,570 shortfall, according to the audited financial statement. The fund balance was used to make up the difference.
According to the former county administration's discussion and analysis of the most recent annual financial report, "the county's governmental funds reported combined fund balances of $198 million, a decrease of $37.2 million from the prior year."
Higher costs for employee benefits and health care, $6.8 million, were cited as a reason for increased expenditures in the general fund from the previous fiscal year, offsetting a $5.2 million revenue gain.
Glassman's predecessor, David Craig, said the county was hurt by slow revenue growth during the latter half of his nine-and-a-half-year tenure that coincided with one of the worst economic downturns in history. For 40 years, county revenues have been closely tied to the land development and home-building industries which in Harford, as elsewhere, generally have rebounded slowly from the recession.
Not much revenue growth was anticipated in the current 2014-15 budget that was approved last summer. Shortly before she left office in late November, former treasurer Kathryn Hewitt said revenue was tracking on target through the first four months of the fiscal year.
Big bites
The operating budget for 2014-15 totals almost $627.5 million, almost $488.5 million of which is the general fund.
The majority of general fund revenue comes from property taxes, estimated at $250 million or 51 percent in the current budget, and local income or piggyback taxes, estimated at $198.7 million or 41 percent. This year's general fund budget is balanced with $2.3 million from the fund balance, less than 1 percent of total revenue.
According to the county financial report, there are significant obligations on the bulk of the fund balance, including $313,000 in loan receivables on the Bel Air parking garage, bond premium payments of $3.8 million used to reduce interest costs, $829,000 dedicated to the detention center, a $25 million reserve to solidify the county's credit rating (a practice begun nearly 25 years ago), $6.7 million for post employment benefits due retired employees, $4 million toward the closure of the Joppa waste to energy facility, $13.7 million set aside for the eventual closure of the county's remaining landfill and $1.8 million to deal with extraordinary health insurance costs.
The majority of those set-asides are designated as "assigned," meaning the money could be available for operations, if necessary. The net effect was the unassigned fund balance at June 30, 2014 was estimated at $4 million. Less what was used to balance the current budget, about $1.7 million was available to be spent in future budgets.
County Auditor Crystal Brooks said Wednesday, however, that the general fund's unassigned balance is about $8.4 million, which would be reduced by $4 million, if the retirement incentive passes. She also noted the $25 million reserve "for fiscal stability" could be used in an emergency, although those funds haven't been tapped in the past.
The general fund, which the annual financial report notes is the county's "chief operating fund," encompasses the basic government functions such as the office of the county executive and county council, planning and zoning, licenses and inspections, the sheriff's office's operations, funds for the libraries, community college and volunteer fire companies and more than $200 million annually provided to the public school system for its operations. Some general revenue is also used to provide pay-as-you-go funding for capital projects.
The fund also is used to pay down the principal and interest on bonds sold to finance a myriad of capital projects, including construction of school, library, public safety and recreation facilities. In fiscal 2013-14, general capital debt service cost $49.5 million.
About 77 cents of every dollar spent by the county out of almost $630 million in total operations in 2013-14 went to the general fund, according to the annual report.
Other funds slack
Excluded from the general fund are such activities as highways operations and maintenance and water and sewer operations and maintenance, both separate funds with their own dedicated revenue sources such as special property tax, or differential, imposed on non-municipal residents for the former and water and sewer user rates and a portion of real estate recording taxes for the latter.
The highway fund posted an operating surplus of almost $5.5 million in 2013-14, while water and sewer operations – accounted for on a profit/loss basis – posted an operating loss of $16 million, according to the annual report. Each fund's dedicated revenue sources pay the salaries and benefits of employees assigned to those operations.
The highway fund ended up eating into its fund balance because of a $9.5 million out transfer, the purpose of which is not stated in the financial report. Some administrative costs, however, are typically distributed to the general fund, as is the case with other dedicated funds. General fund transfers in totaled $14 million, while the highway fund's fund balance ended the year at $9.5 million.
Not alone
Harford isn't alone in posting deficits in its main operating budget.
Howard County overspent its general fund in 2014 by almost $2.7 million, according to its comprehensive annual financial report. The county's general fund spending totaled $929.6 million on revenue of $926.9 million.
Cecil County posted an operating surplus of $13.3 million on its general fund in 2014, according to its annual financial report. The county spent $155.2 on general operations against $168.5 million in revenue. The county, however, transferred $20 million from the general fund to other parts of its budget, causing its fund balance to decline $5 million to $40 million, according to the report.
Baltimore County's report for 2014 was not available from either the county's or the Maryland Association of Counties' websites; however, Harford's neighbor to the south and west posted an $82 million general fund operating surplus in 2013 on expenditures of $1.619 billion against revenues of $1.701 billion.