Why does Luzerne County government keep running out of money at the end of the year?
In some years budgets with unrealistic revenue and excessive spending were to blame.
That scenario prompted some prior commissioners to resort to outside loans to pay bills, which helped balloon the county’s outstanding debt to $430 million. The county borrowed a combined $71 million in 2004, 2005, 2008 and 2009 solely to fund deficits and operating expenses, records show.
But county Manager Robert Lawton said it’s not his budget that’s causing this year’s cash shortfall, because both spending and revenue are on target.
The problem, he says, is that some of the revenue owed to the county for 2013 won’t come in until 2014, and there’s no savings or reserve to cover expenses until that cash arrives.
It’s like a snowball effect, he says.
The county borrowed at least $6 million from the funds of various county agencies at the start of this year to cover prior-year expenses until money came in. Those internal loans had to be repaid early in the year, reducing this year’s available cash, Lawton said.
“If I didn’t have to borrow to cover last year’s cash flow, I’d have that money in hand now and wouldn’t have a cash-flow problem. We find ourselves in a position of constantly having to chase ourselves,” Lawton said.
He compared the situation to a freelance writer who has several stories published in December but isn’t paid until January, with no cushion to cover December cost-of-living expenses.
The county faces about $29 million in payroll and debt repayments through the end of the year in addition to bills from vendors who supply goods and services to the county, such as insurance, county Interim Budget and Financial Services Division Head Donna Magni told council Tuesday.
The county has about $15 million in the bank and is expecting $857,000 from back-tax collections, she said. Another $4.3 million or so could come from a cash advance on back taxes owed to the county — an option called monetization that was factored into the 2013 budget but not yet executed, she said.
That puts the cash shortfall at a minimum of $9 million if the county monetizes without including bills beyond payroll and debt.
Lawton said he’s confident the county will receive $6 million in state reimbursement for Children and Youth and $4 million in property taxes from people who wait until the end of the year to pay, but this money may not arrive until early 2014.
Property tax revenue — the county’s largest income source — was at 95 percent as of Sept. 30, with $86 million of the budgeted $90.5 million received.
To end cash shortfalls, the county must spend less than it brings in — for several years, Lawton said.
“That’s what we’re going to have to do,” he said. “It will take years and years and years of saying no and saving money. That’s how you develop a cash reserve.”
As of Sept. 30, the county spent $72.7 million, or 59 percent of the $121.9 million budgeted for the year, he said. The county received $101.7 million, or 83 percent, of budgeted revenue during that period.
The county is spending about $2 million less in wages and benefits than it did last year, he said.
“In the big scheme of things, we are careful with money going out. We continue to pay the price for prior decisions and will do so for some time to come,” Lawton said, referring in part to the county’s debt repayments.
Past county budget division head Vic Mazziotti told council last year that he expects year-end cash shortages for years until the county is able to build a cash reserve that may be tapped for temporary borrowing. He cited cash reserves of $25 million in Northampton County and $20 million in Lehigh County.
Taxpayer Ed Chesnovitch, who attends most county meetings, said he believes a ban on all non-essential spending is warranted, including any usage of outside consultants for work that could be completed in-house.
Chesnovitch has long been calling for the county to live within its means. In October 2008, he and former Controller Walter Griffith volunteered — with no attorney representation — to challenge the county’s court filing to borrow $17 million to cover unpaid bills. Their objections helped to convince former county Judge Ann Lokuta to lower the county’s permissible borrowing to $5.3 million.
“We need to stop spending if the money to cover these bills won’t be coming in this year,” he said.