panel seeks to
rein in county spending
pay raises for county employees would be tied to increases in
the cost of living and the growth of county government's revenue
if one of the new recommendations likely to be put forth by the
Financial Future Taskforce is accepted by County Executive
Christopher Coons, County Council and, perhaps more
significantly, the labor unions which represent an overwhelming
majority of the workers.
The taskforce also is preparing
to recommend coupling a change in the proportion of the budget
that must be set aside in a 'rainy day' fund to meet
unanticipated emergencies with a limit on how much of
anticipated revenue can be appropriated in a given year. County
government already is required by law to operate within a
A third recommendation would
limit budgeted spending of revenue from the volatile real estate
transfer tax to the amount actually generated from that source
during the previous year. If a higher amount is realized, the
excess could be spent only on a one-time basis for extraordinary
While those recommendations,
presented to the taskforce by the Coons administration, are
still being put into final form before being adopted, the panel
did agree at its meeting on July 30 to recommend that the county
establish a standing numbers-crunching committee of government
officials and volunteer public members to objectively determine
on a long-range basis the parameters within which the budget may
be crafted. It would parallel the unique and highly successful
Delaware Economic & Financial Advisory Council.
Chief financial officer Michael
Strine said he will revise the draft recommendations he
presented to the taskforce to incorporate points raised at the
meeting and circulate the revision via e.mail to taskforce
members for their comments. A final version will then be
circulated in the same way for their approval. Strine told
Delaforum that the public will not have access to that
electronic discussion. Taskforce meetings have been publicly
noticed and open to public attendance.
When the recommendations are
made, that will wrap up the taskforce's assignment. It
previously issued an interim report, but held off completing its
work until receiving a consultant's study of employment
practices. Strine said he waited until after the fiscal 2008
budget was crafted and enacted by County Council before
reconvening the panel. He said many of the earlier
recommendations were built into the executive's budget proposal,
which Council enacted without any significant changes, or are in
the process of being implemented.
McGlinchey, legislative chairman of the state A.F.L.-C.I.O.,
told the other members of the taskforce at the meeting that he
could "accept from a labor perspective" a generalized statement
in the draft recommendation to index pay raises. For that to
work, it would have to be accepted -- at least in principle --
by union negotiators in bargaining sessions leading up to new
contracts to succeed those which expire in April, 2008.
Taskforce members were split on
whether to include in the recommendations a specific percentage
for an acceptable annual growth rate for wages and fringe
benefits. Five-year projections of general- and sewer-fund
spending developed monthly by the finance department and based
on current policies have been using a 6% growth rate. Some
members seemed to favor recommending one in the range of about
According to data Strine
presented to the taskforce, that would be a significant comedown
from what has happened in the recent past.
County workers' average
compensation increased at an annual rate of 7.77% between fiscal
2001 and 2006. That compares to 4.13% in state and local
governments nationally and 3.61% in private industry as
calculated by the U.S. Bureau of Labor Statistics. New Castle
County salaries and wages grew by 5.79% and benefits by 14.58%.
Comparable rates for state and local governments were 2.98% and
6.95%, respectively, and for private industry 2.96% and 5.40%,
respectively. The consumer price index, the generally accepted
measure of inflation, increased nationally at an annual rate of
"We're in the top 10 of U.S.
counties in employee compensation growth rate," Strine told the
Moreover, growth in the size of
the county's workforce has acerbated the situation in that the
averages are applied to a significantly larger number of people.
Total spending for salaries and benefits in fiscal 2006 was
$130.5 million, up more than 50% from $67.3 million in fiscal
2001. Average salary during that time increased 28.96% from
$43,933 to $56,658. The value of benefits went up 72.92% from
$12,774 to $22,089.
Personnel costs represent about
three-fourths of the county government budget.
The draft recommendation proposes
that future changes in automatic annual 'step' increases, merit
increases and escalations in the cost of health care, pensions
and other fringe benefits be brought into line with those of
other government and private industry.
Strine cautioned, however, that
"competitive factors" will have to be taken into consideration.
The county police department, for instance, competes with the
state and other forces in attracting and retaining officers.
Strine, Council president Paul
Clark and Councilman George Smiley agreed that county employees'
pay and pay raises were not voiced as a crucial issue in civic
and other public meetings during the weeks leading up to
approval of the current budget, which included a 17% increase in
the county's property-tax rate.
The public "didn't begrudge them
what they were making," Smiley said.
Strine said that objections at
gatherings he attended were selective both geographically and by
relative affluence. "You heard Astra Zeneca and Du Pont folks
saying they don't get raises like that. ... You heard it mostly
in Brandywine Hundred and Hockessin and below the canal; you
didn't hear it so much in Wilmington or the Route 7 and 40
area," he said.
Smiley attributed that to a large
extent to the attitudes of Council members. "Some made wages the
sole focus in their district," he said without specifically
identifying to whom he had reference.
Clark said that opposition to the
tax increase from south of the Chesapeake & Delaware Canal
probably was not so much conditioned by employees' pay as by "a
strong belief that they don't get their share of county
Strine said that when it comes to
obtaining favorable bond ratings, the size of the 'rainy day'
fund was not as important as the existence of such a fund and
the government's willingness to keep spending in line. "There is
nothing magic about 20% or 15% or any other figure. ... They're
looking at your ability to pay back what you borrow," he said.
New Castle County bonds have for several years been rated
triple-A, the highest level, by all three major bond-rating
That is significant not only
because it favorably impacts debt-service spending but also
because it serves as a sort of general credit rating for county
government and its fiscal responsiblity.
The county's fund is pegged at
20% of budgeted spending; the state's is 5%. Since providing
that reserve is mandatory and it necessarily requires
consideration when setting tax rates, some people have
questioned the size of that difference and advocated lowering
the county's requirement. Its size has been further questioned
in light of the fact that neither county nor state government
has ever had to tap into their funds.
"When people hear of a budget
crisis, they think it's raining," McGlinchey said. If the fund
is not used at such a time or during other occasions that might
be considered 'routine emergencies', "they think you're hoarding
Strine has frequently said that
that the county's 20% reserve is justified by the fact that its
sources of revenue are virtually limited to real estate and that
makes it far more vulnerable to the vicissitudes in the economy
than the state, which has a variety of income sources.
Coupling the size of the reserve
with a mandated spending limit, however, would significantly
reduce the danger and most likely satisfy the bond raters. The
draft recommendations he presented suggest either a 15% reserve
and a 95% appropriations limit or a 98% limit with a reserve
equal to about two months worth of spending. State government
has a 98% appropriations limit.
Pete Ross, who formerly was a
state budget director, strongly endorsed a spending limit,
saying that "it forces government to correct itself every year"
and continually adapt spending to income. Adhering to a limit
provides a safety net to deal with an economic recession.
Strine said that even with the
tax increase and significant cost-containment, the county is
expected to spend $8.3 million more than it takes in during this
fiscal year. The gap will be financed by drawing down part of
the $78 million reserve with witch it began the year on July 1.
Existence of the reserve also
would complicate implementation of an appropriations limit,
requiring that it be phased in over the five years that the
reserve is expected to last.
Ross said the reason the state's
limit has worked well is the complete acceptance the financial
advisory council has received. "We no longer argue about the
numbers. [Spending] policy is what to do with the numbers. Most
states spend a lot of time making up numbers," he said.
The advisory council is a
nonpartisan panel consisting of representatives of the executive
and legislative branches of government and private citizens with
recognized financial acumen. A Delaware innovation more than a
generation ago, it meets periodically to develop a revenue
projection. Although its projections do not have the force of
law, the General Assembly has never deviated from them when
enacting the state budget.
Albeit with frequent revisions,
the council has amassed a good track record for the accuracy of
its projections. Even while several other states have had major
fiscal problems in the past couple of years, Delaware has not
had a genuine state budget crisis since the 1970s.
The New Castle taskforce agreed
unanimously that Ross's proposal that the county establish a
comparable arrangement be included in its recommendations.
With a view toward enforcing
fiscal restraint those recommendations also will propose that no
more than 90% of the yield from the transfer tax during the
previous year be applied to the revenue side of the county
budget. If more than that is actually received, the excess could
be used only for such extraordinary things as debt reduction, a
tax rebate or reducing the real estate tax rate.
A sharp falloff in transfer tax
receipts -- 12.6% on fiscal 2007 and an anticipated 7% this year
-- was deemed largely responsible for what the Coons
administration has called a looming budget crisis.
That tax is a state levy
established in 1970. Since 1991 New Castle and the other
counties have received half of the proceeds. In 1999 the initial
2% rate was raised to 3%. With the real estate boom, which began
in 2001 and peaked in 2003, the tax proved to be a bonanza. New
Castle County's take in fiscal 2006 was $40.6 million. The
projection for this year is $33 million.
Strine told the taskforce that
the property-tax increase staved off the budget crisis but
didn't end it. "The anticipated deficit [by 2012] was cut in
half but not eliminated," he said. "Our rate of revenue growth
is still half of our spending growth."
Clark questioned whether the
county and its taxpayers are better served by delaying tax
increases or imposing them on a regular basis. "If we wait until
2011, we're looking at 10 or 12 percent. ... Are we better off
doing minor course corrections [in the interim]?" he said. "For
X-number of years we've been living on borrowed time."
Taskforce members agreed that
property reassessment -- now being discussed in some circles --
is not a likely rescuer waiting in the wings. Ross said flatly
that the current level of discussion falls well short of what
would be required to secure the political will in Dover to agree
to a state-financed reassessment.
Nevertheless, Strine said, county
government has taken a small step toward possibly going it alone
and reassessing. It has asked an assessment firm, which he did
not identify, for a cost estimate.
A political problem that would
arise if the county were to conduct even a revenue-neutral
reassessment is that adjusting values would open some property
owners to significant increases in their taxes while others
could see actual reductions. Condominiums, for instance, are
currently 'overassessed' relative to their market values, Strine
So-called 'rolling' reassessment
-- where properties are valued on a rotating basis every few
years -- would, on the other hand, produce the equivalent of tax
increases without the administration or Council having to raise
the tax rate.
Clark cited the recently enacted
ordinance requiring every firm and individual engaged in any
aspect of construction to be licensed is a significant step in
the direction of permanent enhancement of county revenue.
On the other side of the ledger,
Strine said the county has begun negotiating with Wilmington
city government to deal with a proposed 20% increase in its
charge for processing sewage. The county's position is that the
city must justify the increase. "We've told them 'prove to us
that you need the increase; don't just send us a bill'," he
Strine did not comment on a
previous proposal by Councilman Timothy Sheldon that the county
seek to buy the city's sewage-treatment plant as a
less-expensive alternative. New Castle County accounts for about
70% of the flow going through the plant.
Nor did Strine talk about the
county's apparent failure to obtain authorization from the
General Assembly to impose a 2% tax on hotel and motel bills and
enactment of other unspecified revenue-diversification measures
before it adjourned in June.