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Mark C. Poloncarz, Comptroller
01/06/09
POLONCARZ ISSUES WARNING ON COUNTY FINANCIAL SITUATION FOR YEAR END 2008

Comptroller Notes Negative Variances May Lead to 2008 Year-End Budget Deficit

Erie County Comptroller Mark C. Poloncarz today expressed his concerns about Erie County's ("County") financial position at year-end 2008.

In his Third Quarter 2008 Financial Report to the Erie County Legislature and County Executive, Poloncarz identified a number of negative variances that were negatively impacting the 2008 Budget and issued a warning about the significance of these variances. Following completion of the year, Poloncarz today updated his warning with additional data.

Poloncarz said, "On October 24, 2008, I warned County officials and the public about my concerns that the County could possibly end the 2008 fiscal year in deficit due to significant negative variances in a number of accounts. Now that the calendar year has ended, the County is commencing the year-end closing process and determining the final status of the 2008 budget. Accordingly, I am reporting my office's concerns about a number of issues that are negatively affecting the County's fiscal situation and which could likely lead to ending 2008 with a slight deficit."

"Unlike the 2005, 2006 and 2007 fiscal years, my office projects that the County is unlikely to end the 2008 fiscal year with a surplus. However, I have to caution that until final sales tax data and receipts for 2008 are received from the State in February 2009, final year-end determinations cannot be made, including a quantification of a potential dollar impact," noted Poloncarz.

Sales Tax:

Due to robust sales tax receipts in early 2008, the County is on track to end the year with a multi-million dollar positive variance on sales tax receipts.

However, after up-and-down sales tax receipts throughout the year, the County began to clearly see the effects of the overall decline in the US and Canadian economies in late 2008, principally from a reduction in sales tax due to less consumer spending. Sales tax receipts were down 2.22% in October 2008 compared to October 2007. More disturbingly, the County saw an 11.1% drop in sales tax receipts (County share) for December 2008 compared to 2007 in its initial receipt of sales tax revenue, pursuant to the cash received from the New York State Department of Taxation and Finance on January 2, 2009, although final sales tax revenues for December will not be known until February. As a result, some accounts with negative variances that have been traditionally been addressed by the significant positive variances in sales tax in recent years are unable to be covered by this revenue.

Poloncarz said, "This late 2008 double-digit drop in sales tax receipts portends potential problems for the County's 2009 budget, notwithstanding its assumption of no growth in sales tax receipts." He added, "Given the County's disproportionate reliance on sales tax as revenue to support County operations – a factor I have repeatedly warned about – I am extremely apprehensive about this trend for 2009."

IGT/DSH:

On December 30, 2008, the County was required by the New York State Department of Health to pay $6,239,902 associated with Intergovernmental Transfer/Disproportionate Share ("IGT/DSH") expense associated with Erie County Medical Center Corporation ("ECMCC"). This expense, which Poloncarz first warned of in October 2008, was not budgeted or provided for in the County's 2008 budget. This payment, along with a separate unbudgeted $2,049,667 IGT/DSH payment in February 2008 was a significant negative variance affecting the County's financial position at year-end 2008.

"Though I have been warning since 2006 about the dangers of not budgeting for IGT payments, County policymakers continue to not heed these warnings and fail to budget for IGT payments related to ECMCC. These multi-million dollar payments continue to be a significant annual negative variance for the County, and in all likelihood will be in 2009 as well now that the Collins Administration and Legislature failed to budget for this expense. Unless measures are taken by the State or County policymakers to address IGT/DSH expense, this account will continue to negatively affect the County's bottom-line," Poloncarz noted.

Overtime:

Due to higher than budgeted overtime expense in the Sheriff's Department Division of Jail Management, the Department of Social Services ("DSS"), and the Department of Public Works' Division of Buildings and Grounds, the County will end 2008 with a negative variance of nearly $4 million in the General Fund in this account (partially offset by increased federal/state aid for DSS). The Comptroller's Office has warned about overtime problems in its last three annual budget reports.

Investment Income:

The County will not meet budget in 2008 on investment income due to negative market conditions including sharply lower interest rates and less cash available for investment for much of the year, creating an approximate $2.5 million negative variance in 2008.

Community College Chargebacks:

The County will be required to pay approximately $550,000 that is not provided for in the 2008 Budget to community colleges in New York for the costs of Erie County residents attending those other counties' community colleges.

Sale of Tax Liens:

The 2008 Budget included one-shot multi-million-dollar revenue from the sale of tax liens. Since the sale of tax liens never occurred, a negative variance will be realized in 2008.

Bethlehem Steel Assessment Settlement:

In May 2008, the County, which was not a party to the litigation, was notified that a legal settlement involving the property tax assessment of the Bethlehem Steel site in Lackawanna would make the County potentially liable to refund property taxes totaling $2.1 million ($1.5 million from the General Fund).

Fund Balance:

The Comptroller also noted that the County Executive's proposed 2009 Budget and the Adopted 2009 Budget as amended by the County Legislature included a budget resolution authorizing the Division of Budget and Management and Comptroller's office to utilize undesignated General Fund balance to eliminate or reduce the negative fund balance in the Road Fund. That deficit was $7 million at the end of 2007 and the deficit is expected to increase by approximately $500,000 due to 2008 operations. The Comptroller is concerned about the legality of the budget resolutions and the County's ability to currently appropriate fund balance under the Erie County Charter ("Charter") as revised in 2006. He noted that he has requested a formal legal opinion from the Erie County Department of Law regarding significant legal ambiguities in Section 2605 of the Charter governing fund balance.