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March 24, 2011

Addressing Budget Issues

Blaine R. Young

How to Balance a Budget 101 is a course that should be required of all elected office holders when entering public service and every year of their term.


Now, I am sure you’ll ask what the heck I’m talking about because – on the state, county and municipal level – a balanced budget is required. We know all too well the problems on the federal level; and, thank God, we can not print money as they do in Washington.


But many of us do not look at how our budgets are balanced. On the state level, we see how they constantly raid various funds – such as the Transportation Trust Fund, the Chesapeake Bay Restoration Fund – putting the money into the General Fund to be spent is ways divergent from what was intended.


We know about the unfunded mandates and cost-shifting that the federal and state governments do to expand government and pass the problem onto someone else to balance the books. Taxpayers always focus on the deficit at hand because no one wants to pay more taxes and/or fees.


It is rare to hear a discussion about the structural deficit most governments face; most citizens do not know what this is, and do not care because it is the problem of tomorrow and not today.


In laymen’s terms, a structural deficit occurs when you are spending more in projected reoccurring expected expenditures than you are receiving in projected reoccurring expected revenues.


Now, how do governments present a balanced budget when they have this problem? Well, they find one time fund balances – not surpluses – and/or raid pots of money generated for other purposes and use them to balance the budget. They are hoping for tomorrow and do not want to make the decisions to live within their means.


We all know where this kind of hope has gotten us – in a world of trouble at the federal level.


Here’s a simple example: when a married couple has a household income of $80,000 net and they have $90,000 in household expenditures, instead of cutting $10,000 in expenditures (spending) they find an additional $10,000 to balance their budget.


Now, if they find a way to generate the $10,000 by something that is reoccurring, then it is okay – like an additional job. If they borrow it, take it from savings, or sell an asset, they know that if their expenses that total $90,000 will definitely reoccur, they have a problem that they are only putting off into the future.


Now, either they do not want to deal with it now, or they just hope revenue and expenditures will straighten out on their own.


In 2002 Frederick County started having a structural deficit problem, and when the current commissioners entered office, not only did the county have to deal with an $11.8 million projected deficit for Fiscal Year 2012, but also a $31 million projected structural deficit.


Now, what the commissioners have proposed is a balanced budget without raising property taxes or the fire tax. Also, the budget is balanced without robbing Peter to pay Paul. The recordation tax, the fire tax and OPEB (Other Post Employee Benefits) were not raided or short changed to balance the budget. The five-year ramp up of the OPEB Trust Fund was fully funded in next year’s budget, which will save the taxpayers millions in the long run.


The cost shifting that the previous board did in the fire tax funds was corrected in the commissioners’ proposed 2012 budget, which balances the fire tax districts. In addition, the recordation tax fund was not robbed.


The proposed new structural deficit is around $19 million. However more work has to be done to correct this serious structural budget problem.


I want to make it perfectly clear that this proposed budget does increase by about $10 million the county’s spending over the current fiscal year budget, but that is mainly correcting the problem created last year, such as a $4.5 million shifting of money from the general fund into the fire tax districts and to fully fund OPEB.


This additional revenue came mainly from a fund balance created by the decisions to cut, reduce, eliminate and freeze positions within the current FY2011 budget.


Also, taxpayers should know that – for the first time in recent memory – the constant yield is upside down. In other words, we are generating less money from property taxes in the FY2012 budget than we did currently – to the tune of almost $6 million. (The current tax rate is 93.6 cents per hundred of assessed value. The constant yield rate is 96.6 cents per hundred for next year.)


To correct this, the commissioners would have to raise property taxes to generate the same amount of revenue as in FY2011. The majority of the current commissioners would never think of even proposing to do this. We not only have put together a budget that is balanced without raising property taxes, or the fire tax, but we have started to correct the structural problems and put the county in a position of strength.


There is more to come as we are just getting started. We intend to stop nickel and diming our county residents to death and plan to reduce taxes.


Have faith, not hope, that with strong leadership and the ability to make tough decisions, it can be done.


Yellow Cab
The Morning News Express with Bob Miller
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