Allegheny County Controller Chelsa Wagner today highlighted her concerns about the County’s long-term fiscal health, while recognizing some improvement to current conditions and calling for leadership to protect future generations. Despite short-term successes, trouble remains on the horizon. Debt remains at nearly $1 billion, which breaks down to $700 per resident; pension contributions increased slightly, but the fund remains severely underfunded; the fund balance increased, but there is more work to be done; and State and Federal funding continues to be speculative, leaving the County to potentially be in the position to have to fund human service mandates. These observations were part of Wagner’s release of the County’s 2013 Comprehensive Annual Financial Report today.

“The checkbook looks good this year, but if we do nothing, our kids will be far worse off,” Controller Wagner said. “While our cash position has improved, the County faces long-term, structural challenges that must be dealt with through foresight and planning. Its current state is not unlike that of an older home. Putting on a new roof and bright paint are good improvements. However, if your foundation and plumbing are faulty, the new roof and paint won’t help. Eventually, the day of reckoning will arrive, and it is incumbent on leadership to lead for the future.”

Last year, revenue increased because residents and visitors are paying more taxes and fees, resulting in a fund balance more than double the previous year’s. The County raised its millage in 2012 and increased deed filing fees in 2013, which resulted in $50 million of additional property tax revenue and $11 million in filing fee revenue. Furthermore, the region’s flourishing economy has helped drive revenue, such as the County’s sales tax, hotel tax and drink tax, which all posted increased revenue.

Another positive development for County government in 2013 was that, despite serious challenges, progress in its fiscal position resulted in Standard & Poor’s rating agency upgrading the County’s debt one grade from A+ to AA-. Wagner is proud that her prior recommendations to increase the fund balance, decrease debt and create pension reforms have helped support the rating change. Additionally, jobs increased more than 20,200 from 2012 and a record number of 1,264,640 people are employed in the region.

CONCERNS

The areas of greatest concern, identified by Wagner, include:

Debt
The County’s long-term debt obligations amount to $859,534,858. Total long-term debt decreased by $1.8 million in 2013, but this still leaves each County resident accountable for $698. Last year, total annual debt service payments increased by $10.5 million to $75 million. The Controller pointed out that at the end of 2009, the County’s annual debt service requirements, to maturity for all general obligations bonds, was $970.8 million. At the end of 2013 – only four years later – they totaled $1.3 billion, or 33 percent higher.

“Excessive debt service poses a challenge to providing quality services and necessary investment in our communities. The County’s current debt, at nearly $1 billion, falls into the laps of County taxpayers, their children and their children’s children, who will be tasked with paying it off over the next several decades.”

Pension
Typically, a healthy pension has a funded ratio of at least 80 percent. Despite increased contributions, the County’s funded ratio is only 59.5 percent, meaning the liability for all current retirees and active employees is not fully funded.

Overall, the County’s unfunded actuarial liability is $498.5 million as of January 1, 2014, of which $203 million is recorded. Furthermore, the annual contribution that should have been made in 2013 was $52.5 million; the annual contribution that actually was made was $27.6 million. Each year the County is only paying half of its bill and falls deeper into the hole of debt. This is astonishing to think about when considering that as recently as 2002, the pension was fully funded and, in fact, had more assets than liabilities. Furthermore, the funded ratio is expected to worsen with new accounting standards that will go into effect this year.

In addition to a chronically underfunded pension plan, the County’s inadequately funded other post-employment benefit obligations drive it further into debt. At last year’s end, its unfunded actuarial accrued liability stood at $57.4 million, of which $30.7 million is recorded. The County should have paid $4.1 million during 2013, however, the annual contribution that actually was paid was only $1.4 million.

Fund Balance
While the County’s fund balance is currently $28 million, an increase of $15 million from last year, it is still alarmingly low. Ratings agencies recommend 5 percent of the operating balance, which would be $40 million for Allegheny County.

The Controller stressed that even at $28 million, the fund balance doesn’t rest on a solid foundation, due to the County’s property reassessment. The County’s fund balance is in limbo; $6 million is collected from property taxes for new construction, many of which are still under appeal (and can therefore be refunded), and $7 million has been reserved for potential refunds for properties under appeal. As such, the fund balance is not as strong as it appears.

A low fund balance means the County has little financial cushion, is unable to invest in the future and must rely on debt and short-term fixes, causing cash-flow shortages, which result in decreased ability for the County to pay its bills and commit to public works or capital improvement projects.

Decreasing State and Federal funding
Chronic uncertainty over State and Federal reimbursement for mandated health and welfare services continues to harm Allegheny County. State revenue has decreased by $10 million from 2009 to 2013, including its refusal to fund a $4.3 million criminal justice grant or a $1.1 million crime lab grant, both of which were present in 2009. The State continues to cut funding and shift costs to local government and taxpayers. Furthermore, Governor Corbett’s 2013 budget continued to inadequately fund mental health and other human services. Irresponsible cuts in funding of mandated services compromise a large portion of the County’s budget, and result in more addictions, more incarcerations and more costs endured by the County.

Controller Wagner also noted additional challenges that financially stress the County, including the Port Authority and growth of public transit, the Airport and its struggle to increase passenger counts and attract flights, and ALCOSAN’s planned infrastructure improvements, which will more than double in the next four years.

“These challenges may not affect us today. Some may think that since it doesn’t impact us immediately, it is not an immediate concern. But what about our future – the County’s future and our families’ futures? We need to take action today for a better tomorrow.”

RECOMMENDATIONS

Wagner’s recommendations include:

You can access this year’s Comprehensive Annual Financial Report here.