County looks at 'status quo' budget for fiscal 2006

Flathead County's financial situation isn't likely to improve in the next fiscal year, but it shouldn't deteriorate much either, according to the new county administrator.

Mike Pence, previously the city administrator in Kemmerer, Wyo., began his new duties on Feb. 22.

The preliminary 2006 budget, covering the period from July 1 this year to June 30, 2006, is nearly ready for review by the county commissioners.

The final budget won't be adopted until August, when the Montana Department of Revenue provides taxable valuations for the area. A public hearing will be held at that time as well, and the annual property tax levies will be established.

"I think we're talking a status quo approach with this budget," said Pence, who has almost 30 years of experience in local government administration. "We're looking at very minimal increases."

Preliminary revenue and expenditure figures for the 2006 budget aren't available yet.

However, barring any significant changes in the county's fee-for-service programs, Pence said projected revenues are expected to increase no more than 3 percent.

The county took in $48.7 million during fiscal 2005, including $16.8 million in local property tax revenue and $31.8 million in grants, fees, special assessments, federal payments and other non-tax revenue.

That was offset by $55.3 million in budgeted expenditures, including $23.8 million in personnel costs, $14.1 million in purchased services, $4.4 million in supplies and $5.8 million in capital outlays.

The $6.7 million gap between revenue and expenses was bridged by capital reserves and cash drawdowns. Managers also were asked to monitor their expenditures, specifically because of concerns that the county would run out of money.

Consequently, several departments didn't spend everything they had budgeted; capital outlays in particular were put on hold.

"By imposing a [hiring] freeze and eliminating most capital outlays, it looks like the county did a pretty good job" of conserving cash and other financial resources, said Pence, who was only on board for the last third of the fiscal year.

"What we're facing this year is pretty much the same scenario," he said. "It will be difficult to approve any additional personnel, except if there's a critical need. I think the commissioners will also continue to approve only the most critical capital outlays."

Pence estimated that it will take two or three years for the county to get back on reasonably solid financial footing.

"What that's saying is, we aren't in dire straights," he said. "We just need to improve our situation and have a well-charted course for the future. By establishing a capital improvements program and working

with the department heads to conserve resources, I think we can get there."

Some of the specific fiscal challenges and opportunities facing the county include:

-Personnel - County staffing levels have ballooned in the last few years, from 379 employees in fiscal 2000 to 477 in fiscal 2005, according to figures from the county finance office.

There's some confusion regarding the accuracy of these numbers - for example, they indicate that 59 employees were added during fiscal 2003 alone; at least part of this 15 percent jump is probably due to a change in accounting methods, rather than a true increase in personnel.

Nevertheless, the change in staffing is clearly one of the primary reasons behind the county's current weak financial condition.

Based on the average per-employee expense in fiscal 2005, the 98 people added since 2000 now cost the county roughly $4.9 million per year - almost as much as the entire general fund budget.

-Cash reserves - Although this isn't a huge concern, the county's overall cash reserves aren't quite where they need to be.

The reserves are used to make payroll and pay bills in the months when no property tax revenue is coming in.

Last year, a handful of departments had to temporarily borrow money from other areas because their reserves were inadequate. Pence would like to beef up the reserves where necessary.

The problem is that the expected increase in revenue during fiscal 2006 likely will be offset by increased expenditures - meaning cash reserves could actually be drawn down even further, rather than built up.

County employees will receive a 2.7 percent cost-of-living increase this year, Pence said. There's also a longevity bonus for employees who have worked there more than five years.

Health insurance fees and workers compensation costs are going up as well.

Together, these increases could eat up any additional revenue, leaving nothing for capital purchases or for improving the cash reserves.

-Capital needs - The county's list of equipment, building and vehicle needs greatly exceeds its ability to pay for these items.

However, rather than prioritize these items and address them from a countywide perspective, individual departments have previously competed for dollars to satisfy their own needs.

Pence hopes to resolve this issue by developing a formal capital improvement plan.

The plan would list the capital needs for all departments. Depending on what the county could afford, the highest-priority needs would be ticked off each year.

"We've applied for a grant to pay for the plan," Pence said. "The goal is to create a 20-year plan that helps the commissioners and public understand what our real needs are."

-Raising revenue - Besides looking for ways to cut costs and prioritize expenditures, Pence is also exploring options for raising more money.

The most likely alternative is increasing fees for services, particularly in the Flathead County Planning Office.

The office currently takes in about $300,000 in fees for subdivision reviews, zone changes, growth policy amendments and other land-use changes.

However, it costs more than $539,000 to run the office.

Pence and newly hired Planning Director Jeff Harris are evaluating how much time planners actually spend on the various types of land-use applications. The intent would be to adjust planning fees to a level that pays for the work that's being done.

"I think something will be presented to the commissioners for their consideration within a month or two," Pence said.

Similar evaluations are taking place in other departments that charge fees for services.

The county also could pursue impact fees for new development sometime in the coming year. A detailed study would have to be completed before moving forward with this proposal; it's possible money will be set aside in the 2006 budget to pay for this item.

Finally, the county still has room to increase certain mill levies.

There are about a dozen different county levies, including voter-approved levies for emergency medical services, the sheriff's office and Eagle Transit transportation system.

Last year, despite the obvious financial needs, the commissioners did not levy the maximum amount possible. The total combined levy of 128.3 mills was about 3 mills or $430,000 less than what could have been levied.

Pence said he might recommend going to the maximum this year, but only if necessary.

"I don't know that it warrants going to the max on all of the levies," he said. "We're not going to go there just because we can. But where it makes sense because of our financial situation to go to the max, I'll recommend that."

Reporter Bill Spence may be reached at 758-4459 or by e-mail at bspence@dailyinterlake.com