News

June 30, 2005

New Castle County government took in about $6.2 million more than expected and spent $3.1 million less than budgeted during the fiscal year now ending, but still ran a $6.3 million general fund deficit. The sanitary sewer service fund showed a $9.7 million deficit.

That data, which is still based on projections, albeit rather accurate ones because they are predicated on actual results for most of the year, was contained in a summary report which Michael Strine, chief financial officer, presented to County Council's finance committee.

It was the first time within the memory of current observers that such a public accounting has been made. In the past, the earliest that such information was generally made available to the public has been with the publication in autumn of a comprehensive financial report. Strine and the executive administration have agreed to provide the committee with a running account of the county's financial picture periodically throughout the year.

Strine told the committee on Jun. 28 that the county's share of tax on real estate transactions contributed most of the higher-than-expected revenue. Those collections totaled a projected $34.8 million, which was 22% ahead of budget. A booming real estate market also has been a key component of increases in state revenue this fiscal year. State government collects that tax and shares part of it with the counties in which the transactions take place.

Income from property tax, which brings in about twice as much as the transfer tax, was slightly below expectations. Most other sources of income ran fractionally higher than budget while a couple were fractionally below budget.

Revenue from sewer fees was $3.4 million less than expected. That, Strine said, reflected a not-unexpected continued decline in manufacturing activity and the bankruptcy of a major manufacturing operation. Sewer rates are based on water consumption. He said the county expected sewer feel revenue to be 87% lower than in fiscal 2004, but is ending up taking in about 80% less revnue.

Strine's report showed that the county used $28.3 million of accumulated reserves to cover the operating deficit and other commitments and $11.7 million of sewer fund reserves to cover the sewer service deficit. That resulted in the balances dropping to $84.1 million and $69.7 million, respectively, at year-end. Both figures are exclusive of the respective 'rainy day' reserves to meet unexpected emergencies.

The report confirmed previous calculations that continuation of present fiscal policy coupled with anticipated annual growth rates will result in general fund reserves running out in the fiscal year which begins on July 1, 2008. That would indicate the need for enacting a property tax rate increase before that date.

The already approved sewer rate increase in the coming fiscal year is intended to put financing that service on a public utility-like cost covering basis.

In another matter having to do with county financial reporting, the committee was told by county auditor Robert Wasserbach that K.P.M.G., l.l.p., has been selected to audit this year's comprehensive financial report. That firm had the contract to do so for each of 15 fiscal years before Ernst & Young was hired for the past two years.

Chief procurement officer Yvonne Gordon said K.P.M.G. was the only one of the 'big four' national accounting firms to submit a timely proposal for the business this year. A proposal by Price Waterhouse was received after the deadline and returned unopened, she said. Two local firms, which she did not identify, submitted proposals which fell far short in the proposal-evaluation process.

Responding to some behind-the-scenes rumblings to the effect the Ernest & Young was caught short by the request-for-proposal process, Councilman George Smiley said, "They knew their contract was up [but] did not make a move [to seek its renewal]."

Wasserbach said Ernst & Young has just begun the preliminary stages of conducting a risk assessment, which originally had been expected to be completed during the summer. Referring to that project, Council president Paul Clark said, "It's running way too long. ... I don't have a lot of confidence in Ernst & Young."

Because of consolidations in the auditing business, which has cut the number of major firms in half, it has become a sellers market, the committee was told. Contract negotiations with K.P.M.G. are not completed, but it appears the firm will be paid $210,000 to conduct the audit. That compares to $170,000 paid to Ernst & Young last year and $180,000 budgeted for the work. Wasserbach said K.P.M.G.'s proposal included a $225,000 fee, which has been reduced through negotiation.

2005. All rights reserved.

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