Written by THOMAS H. KOVACH
Published May 22, 2010 – The News Journal
Unless significant changes are implemented within New Castle County government, the unsustainable burden on our citizens and employers will continue to grow. We cannot continue to increase spending and future liabilities, while failing to take advantage of the many opportunities to retool and refocus a government full of redundancy and inefficiencies.
The proposed budget offers no “vertical cuts” of departments, no consolidations or mergers, no public-private or public-public partnerships and no service eliminations. It is imperative for the economic sustainability of our county to start making tough decisions and address long-standing fiscal problems in the county.
In tough economic times, developing a budget is no easy task. I recognize that the county executive has proposed a budget for fiscal year 2012 that appears to be balanced, and I give him credit for not dipping into dwindling county surplus funds for the first time in years.
However, this proposed budget results in more than $57 million in deficit spending over the next five years. Further, the proposed budget only masks underlying fiscal problems by enlarging our ever-expanding county debt, again raising our sewer rates and increasing the sewer capital budget beyond the established debt ceiling and increasing personnel costs.
Payment toward debt service, which is what the county pays to borrow money, has increased by 80 percent over the past five years. Despite debt service being capped, the proposed budget exceeds the debt limit for the sewer fund and is nearing the limit for the general fund. In the next fiscal year, total debt service is budgeted to increase an additional $3 million. The county cannot continue to run over its credit limit, no more than a business or individual can, without serious adverse consequences.
If the decision is made that additional funds should be spent on capital improvements for our infrastructure, we cannot just borrow more money, even at low rates. The county should act with fiscal responsibility, using funds from our operating budget. Instead, the county plans to borrow more money and increase sewer rates.
To reduce expenses, county personnel costs must be carefully examined, as they account for approximately 75 percent of the operating budget. Despite this, the proposed budget actually increases the county’s cost per employee. Two years ago, a 5 percent downward adjustment was made to county salaries due to the economic downturn.
In the private sector over the past two years, salaries and benefits have been slashed, while unemployment has grown dramatically. Ignoring this reality, the county executive proposes to now give a 5 percent salary increase to county employees. Instead of spending limited resources proactively by repairing infrastructure and boosting private-sector employment, the current budget proposal uses limited funds to increase employee wages (on top of normal step increases), resulting in increased costs that will have to be absorbed each and every year.
The cost of employee benefits poses enormous problems now and into the future. The ratio of benefits to salary for county employees is disproportionate, almost 50 percent. This means for every dollar in salary, an extra 50 cents is spent on employee benefits. In the private sector, the goal is 30 percent, and anything above 40 percent is financially devastating.
Unfunded liabilities for retirees’ benefits are a staggering $239 million. In the coming years, a growing number of retirees will add pressure to the system. It’s past time to require increases in the contribution level for the current employees’ pension plan and to introduce a defined contribution plan for new employees. In addition, the county should consider reducing or eliminating retiree health care coverage for new hires and future retirees and consider increasing the contribution rate for current retirees.
To reduce the costs of health benefits, the county could increase co-pays for non-generic drugs, encouraging the use of more affordable medicines; increase deductibles, coupled with the use of health savings accounts; and increase the minimal employee contribution for health care coverage, which is at a level substantially below the private sector.
I cannot support the proposed budget when the above issues remain unaddressed. I have consistently heard from residents who are ready to support efforts toward consolidation, reprioritizing capital investment and reworking the county compensation system — changes necessary to adjust to our fiscal reality.
These actions will give us a much better chance to become a sustainable government without requiring the “revenue enhancements” of further tax increases.
Making tough decisions now is hard, but our work will be even harder facing a $57 million shortfall.
Thomas H. Kovach is the president of the New Castle County Council.
