L.BROOKS PATTERSON, OAKLAND COUNTY EXECUTIVE
The Business Leaders for Michigan (BLM) recently issued a “Michigan Fiscal Scorecard” report for the purpose of “assessing the financial management of Michigan governments.” The BLM report is designed to help Michigan’s residents understand the sobering financial realities facing most Michigan governments. While undoubtedly accurate when considering Michigan governments in general, the BLM Scorecard is not accurate when applied to Oakland County.
To help Oakland County residents assess the financial management of Oakland County government, we present the following “Oakland County Fiscal Scorecard.” The Oakland Scorecard follows the format utilized by the BLM report so that readers can easily compare Oakland’s performance to that of Michigan governments in general.
County Budget Gap
||Is Oakland County covering current year expenditures and other obligations with current year revenues?|
Yes. In September 2011, Oakland County adopted a 3-year rolling budget that is balanced for Fiscal Years 2012, 2013 and 2014. Each year's budget utilizes the current year revenues and a planned-for, nominal amount of accumulated equity that already exists in excess of the levels needed to maintain a reserve of at least 20% of operating expenditures. The available equity comes from savings that have accumulated over the past several years as a result of our long-term financial focus and planned, accelerated budget reductions. The County Executive has already prepared his fiscal year 2013-2015 recommended budget, which is balanced through September 30, 2015. This recommendation will be in consideration by the Board of Commissioners later this summer.
In addition, unlike the state and the other Michigan governmental units, Oakland County’s budget recognizes and funds its pension, health care and other post-employment benefit (i.e. “retiree’s healthcare”) obligations. These County obligations are actuarially funded on an annual basis. In short, the County has fully-funded its pension and health care obligations within our balanced budgets while maintaining a low 4.19 mil property tax rate.
||Is Oakland County paying current bills with cash on-hand?|
Yes, Oakland County maintains responsible cash balance reserves and pays its bills on time using its cash on-hand. Unfortunately, as an adverse consequence of an accounting gimmick the Granholm Administration and State Legislature imposed on all Michigan counties in 2004, (often called the “Shift and Shaft”), all Michigan counties are now required to collect taxes in arrears. This means that taxes used to pay for current year expenses are not billed until 9 months into the fiscal year and are not due until 11 months into that year. (Think of not being paid at your job until after you have incurred 11 months of expenses. No one keeps 11 months of revenue [92% of operating expenses] on reserve.) Effectively, this means county governments have to operate for 335 days before they receive the tax revenue to support those operations. In the near future, this state-mandated system will cause cash-flow shortages that will almost certainly require every county government in Michigan to use short-term borrowing to insure bills are paid on time.
||Does Oakland County have reserves or a Rainy Day Fund equal to at least 10% of operating expenditures?|
Yes, Oakland County maintains responsible reserves well-above 10% of operating expenditures to protect and maintain stable service delivery. At the September 30, 2011 fiscal year close, Oakland County’s General Fund had unreserved (meaning available) equity (fund balances) totaling $201,161,884. This represents well over 20% of FY 2012 expenditures.
The County has deliberately grown its equity during the past several years in anticipation of using a portion of the savings to stabilize service delivery while thoughtful restructurings of operations are implemented. This allows citizens to receive services that would otherwise be adversely impacted by shortfalls expected in FY-2013 and FY-2014. By FY-2015, the County is planning for the General Fund equity position to be stable at 20% of expenditures.
||Is Oakland County Government fully funding its pension and other post-employment benefit obligations?|
Yes, Oakland County fully funds its pension and other post-employment benefit obligations. These expenses are included in our annual operating budgets and are not pushed off onto future generations.
Long the leader in curbing the cost of these benefits, Oakland County Executive L. Brooks Patterson, in partnership with the Board of Commissioners and the other County-wide elected officials, has structurally reformed Oakland’s benefit plans to make them sustainable and less costly for taxpayers.
Oakland County closed the traditional defined benefit retirement plan to new hires in 1994, replacing it with a fair, but far less costly, defined contribution plan. The defined contribution plan benefit is fully funded on an annual basis. In 1997 new hires began mandatory contributions to their healthcare coverage. By 2003 all employees were paying mandatory contributions to their healthcare coverage.
Similarly, in 2006 Oakland County terminated the traditional retiree health care benefit and replaced that with a Health Care Saving Account, for employees hired after January 1, 2006. The Health Care Savings Account is a benefit that gradually vests over an employee’s career. This benefit plan is also fully funded for each member employee on an annual basis.
In 2007, Oakland County became the first and only Michigan governmental unit to fully fund the traditional retiree health care benefit obligations incurred before adoption of the Health Care Savings Account Program. Oakland County started actuarially funding its retiree health care obligation in 1987. In 2007, the County issued “Certificates of Participation” (COP’s), a type of bond, and established a source that fully-funded its existing retiree health care obligation for current and future retirees. The annual cost of that benefit, both for the current year’s expenses and the actuarially determined amount for the future years’ costs, are accounted for in each year’s operating budget. None of the costs are hidden and none are pushed off onto future generations.
Are incomes growing faster than public debt levels?
Oakland County government’s per capita public debt level in 2011 was $495.76, or 21% of the 2011 State average of $2,310. This includes general obligation debt, backed by the full faith and credit of the taxpayers, and revenue-dedicated debt that is repaid through specific revenue associated with the projects that it funds. The debt was incurred primarily to support water, drain and sewer projects, and includes the Certificates of Participation discussed previously. Oakland’s debt level has remained essentially level since funding the 2007 COP’s Program and the per capita income has risen from $46,679 in 2000 to $50,334 in 2011. (Source: Department of Commerce, Bureau of Economic Analysis.)
It is important to understand that while some Michigan governments have borrowed and owe amounts close to their maximum constitutionally-authorized debt level, Oakland County is nowhere near to that situation. Oakland County is constitutionally authorized to incur over $5.2 billion in debt, yet its actual debt is only $799 million, about 15% of what is Constitutionally Authorized.
Oakland County taxpayers can be proud that even after a decade of recession, Oakland County remains an AAA rated county.
The primary reasons for this continuing achievement include:
- The County’s on-going commitment to live within its means while maintaining its low tax rate.
- The County’s utilization of a rolling, 3 year budget that allows early recognition of budget challenges and provides time to thoughtfully restructure operations while maintaining stable service delivery.
- The County’s preservation of responsible levels of cash reserves.
- The County’s low debt level.
- The County’s full funding of pension, health care and other post-employment benefit obligations today, within its budget, and not at the expense of future generations.