The Carroll Standard

Carroll County Budget Employing Failed Progressive Accounting Practices

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Regretfully, I cannot support the FY13 Budget embraced by three fellow commissioners.  I believe they are doing what they believe is best, and their motives are honorable.  The proposed budget addresses some lingering problems, and there have been some compromises along the way.

However, I also believe this budget blows past too many “yellow caution flags”.  Decide for yourself:

First, it increases general spending, education spending, and capital spending during a period of flat revenues.

Second, it reduces the rate at which we pay-down bonded debt, while other long-term liabilities and debt service continue to increase.

Third, all increases in capital expenditures will be paid with debt rather than cash.

Fourth, none of our $16 million dollar surplus is applied to debt avoidance or reserves.

Finally, of greatest concern, this budget employs accounting transfers that confuse citizens; and consumes most of our non-routine one-time surplus to elevate recurring general fund spending.

Is this prudent?

In the report, “The Wisconsin Budget- A Self Inflicted Wound”, The Wisconsin Policy Research Institute mirrors my concerns.  “…strategies used by Wisconsin government to spend more than it takes in can be found in the increased use of one-time, non-recurring revenues...  There is… great temptation to use…non-routine, non-ongoing revenue sources to fund general fund spending.  This trap is very alluring, especially if the use of non-routine revenues is implemented through a series of complex transfers that are not easy for the general public to understand.”  It then asserts underfunding reserves is “…an effect of poor budgeting decisions…”

So… why are emergency reserves down?  Why is non-routine cash used to subsidize more spending when revenue is flat?  The answer is troubling:  Recurring revenues are insufficient to fund increased levels of recurring spending in this budget.    The budget is structurally unbalanced, and will not re-balance unless revenue grows $10-12 million per year EVERY year for the next three years.  That's a gamble I'm not prepared to take.

Confused?  Pretend you farm, and revenue is $1000 per month.  You pay wages of $900 per month to an assistant, and $100 per month for fertilizer.   Now, suppose your assistant demands a $100 per month increase?  You can’t afford it.  But suppose you use $1,200 of cash reserves to prepay 12 months of fertilizer.  For the next 12 months, you can redirect the fertilizer budget to pay a $100/mo increase to your helper. Your budget is balanced on paper, but in reality, it isstructurally unbalanced. What happens in 13 months when you need more fertilizer?

We face unimaginable threats from Annapolis, shrinking school enrollments, empty classrooms, and flat revenue. 

We’ve seen slogans on buttons worn by loyal frustrated employees, but the bottom-line on this budget should trouble all citizens.  Why do three commissioners support this budget?  Because, it increases education spending. Is this a valid reason?  Perhaps, but not when Annapolis is already shifting $4 million of education pension expense to us.

Preserving financial solvency sometimes requires unpopular decisions.  It sometimes requires we simply say “No”.  A Google search provides evidence of government and private sector employees taking pay cuts to save their jobs.

One commissioner suggests this budget strikes the right balance between “conservative” financial policies versus responsible management.  Does it?  It ignores a five year trend of flat revenues and assumes future revenues will “catch-up” with recurring spending. This weakens our ability to withstand future economic challenges and attacks from Annapolis.

For decades, similar rationalizations have led governments down the slippery slope of ignoring prudent financial principles in favor of ever increasing spending, under the premise “the sky will fall” if we fail to fund just one more “necessary” expenditure.  Isn’t there always “one more thing” on government’s “to do” list, and isn’t it a fact that the road to financial hell is paved one percentage point at a time?

The use of one-time cash to balance an operating budget is unwise, and usually leads to more problems than it solves.  Timeless wisdom provides a better path… we should avoid spending increases, avoid new debt issuance, and conserve cash until there is clear evidence the economy is improving. 

It’s the only responsible thing to do.  

Richard Rothschild, MBA
Vice-President, Board of Carroll County Commissioners

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