Westchester Guardian/Catherine Wilson.

Thursday, November 27, 2008

Catherine Wilson, Bureau Chief
Northern Westchester

The County’s Bloated Budget
What Kind Of Shell Game Is This?

In a prior career, this reporter was a global auditor and budget manager for Reader’s Digest, responsible for reviewing and approving multi-billion dollar international operating and capital expenditure budgets. Organizations conduct reviews on their budgets to uncover any inaccuracies, inconsistencies, and any shell games to disguise costs. A quick review by this reporter of the County’s budget uncovered several shell games, inconsistencies, inaccuracies, and violations of basic accounting standards.

In order to properly analyze an organization’s budgets, each budget submitted by every department in an organization should be compared to those
budgets of their prior years’ operations, to the organization’s overall budget and long-term plan, and to the industry and overall economic environment and trends. Unfortunately, the County does not provide sufficient information on its website to allow for such a thorough review and audit of its budgets.

Budgets are usually developed by taking last year’s information and building upon it without regard to significant overall changes that may impact the structure of the organization as a whole. Therefore, every few years all organizations generally do what is known as a “zero-based” budget.
A zero-based budget is one that is developed from scratch as if the organization was completely new. Every element must be justified and all alternatives pursued before any funds may be budgeted. Given the extraordinary amount of taxes local residents currently pay, and the changes in our economy and pressures on our services, Westchester County cannot afford to simply take last year’s budgets and build upon them.

Ideally, it is time to toss everything out and develop a budget from scratch starting with the most obvious element – why do we even need a County government at all? And if we do, then what is its purpose? The County does not appear to have performed any zero-based analyses in its budgets.

The County Executive, Andrew Spano, in his budget submission to the Westchester County Board of Legislators, alleges that he “reviewed, with a
very sharp pencil, every budget line – all 6,000 of them – to cut costs”. That statement is very revealing. It indicates that Spano merely took what his administration has been doing all along, as if the current economic conditions still warranted the same practices, and simply built upon that foundation, regardless of how accurate and relevant those practices may still be.

Had Spano done a zero-based budget, asking the hard questions that go along with that budget approach, his first question would have been “why do
we have 6,000 line items in the budget to begin with? What could possibly justify spending the taxpayers money in 6,000 different ways?” Six thousand line items is a strong indication to any auditor of a bloated organization.

The bad news is already known, house sales and prices are down resulting in lower mortgage taxes collected; energy costs are still greater than prior
years despite the recent drop in costs; the population is growing and aging placing a higher need on services; and earnings from any government investments are down thanks to lower interest rates. Given such a bleak outlook, the conditions justify a bottom-up review of our entire County government.

However, neither the taxpayers nor the Budget Committee of the County Board of Legislators can perform such a review given the limited amount of material the County provided in its 2009 Operating Budget. But given current conditions, the County Board must insist on a zero-based budget for 2009. Nothing should be considered sacred in the budgets; everything should be open to questioning and elimination.

The County only reveals actual costs for one year, 2007, and an estimate for 2008. But 2007 could have been an extraordinary year with exceptionally high costs, therefore the future years’ budgets would be built on incorrect costs. Also, no trends can be determined from such limited information; three to five years’ worth of prior data is needed to reveal long-term changes.

The County Budget also only shows one year of proposed spending, 2009. But some spending in 2009 could commit the County to additional
spending in future years, such as new hires, or additional leased cars. Spano should have provided preliminary operating budgets for the next five years to show the impact of 2009 spending in future years. With a five-year budget, the Budget Committee and County auditors would also be able to determine if the proposed spending is on track with the County’s long-term investments and Master Plans. The operational budget could then also be compared to the County’s five-year capital budget since no budget should ever be reviewed in isolation.

A capital budget must be reviewed in conjunction with operating budgets; operating budgets must be reviewed in conjunction with long-term plans;
and all plans must be reviewed with the overall economic environment and latest trends in mind.

According to the Government Accounting Standards Board, Statement No. 129, “Objectives of Financial Reporting”, states: “Financial reports are used primarily to compare actual financial results with the legally adopted budget; to assess financial condition and results of operations; to assist in determining compliance with finance-related laws, rules, and regulations; and to assist in evaluating efficiency and effectiveness”.

In addition, the Board stresses that: “Financial reporting plays a major role in fulfilling government’s duty to be publicly accountable in a democratic society. Public accountability is based on the belief that the taxpayer has a ‘right to know,’ a right to receive openly declared facts that may lead to public debate by the citizens and their elected representatives”.

Despite this regulatory board’s rulings holding a government to be publicly accountable, most of the written analysis in Westchester County’s budget submissions is merely a public relations document, simply a listing of projects each department has been working on or new developments for 2009. What is missing is a critical analysis of the department’s budget including any alternatives to their current mode of operations and justification for their proposals. Numbers alone do not tell the story which is why all budgets are properly submitted with a full written analysis
from each department disclosing both known information, detailed analysis of every cost item submitted, and any potential developments. The departmental budgets have items for contractual services but do not provide the details of who is providing these services, what the services
are for, how much is being paid to each contractor, how long the contractor will be on the County budget, and why the services cannot be performed by County employees.

The County also does not provide an inventory of all County assets and assets such as cars, phones, computers, houses, in an individual’s possession or for their exclusive use, or a detailed listing of investments, approved contractors, and prior departmental, project, and County-wide audits including any recommendations and areas for improvement or concern.

Such analysis does not have to be elaborate. One County department (as of press time), the Laboratory and Research Department, did provide a
simple typed analysis of their overall mission and every major category of expense along with critical performance information such as their ISO accreditation and turnaround time in DNA cases. They also provided a detailed expense chart that only their fellow scientists (and us accountants) would love. But in contrast, the Parks Department‘s presentation to the County Board of Legislators was a slick PR job – a full color glossy document providing skewed financial information.

The Parks department provided a chart showing a decrease of employees from 381 in 2002 to 335 in 2009. Their staffing levels have been flat at
336 since 2006. Yet the Parks Department’s budget still increased from $50 million in 2007 to $55 million in 2009. For some unknown reason,
they are spending $2 million more in base salaries for the same number of employees.

In addition, the Parks Department is outlaying $6 million to hourly staff, $1.3 million in overtime, $4.2 million for “contractual services”, up $300,000 from 2007, $515,000 for entertainment services and $925,000 for marketing services, up $200,000/40% and $300,000/30% over their 2007 costs. So where are the savings from the alleged decreases in staff? Or is the Parks Department simply shifting costs from salaried employees to outside contractors? If so, then there are no tangible savings to the taxpayers at all despite what their fancy color chart implies.

Suspiciously, an entire property, constituting of 187 acres of County-owned land, does not appear at all in the Parks Department’s budget, Hilltop Hanover Farm. This farm has $14 million in renovations in the County’s capital budget under the Public Works Department, spread out through 2013 (Project B0080). Yet the matching operating budget is buried in the County’s Planning Department. Why? What do a bunch of administrators, real estate commissioners, and architects know about running a farm? And what are they “planning” for this farm, apart from
the Houlihan-Lawrence McMansion development next door. Why isn’t the management and improvements of this farm under the auspices of County employees experienced in handling open spaces, the Parks Department?

The Planning Department’s budget for Hilltop Hanover shows none of the costs associated with the $14 million renovations planned through 2013 or any of the expenses related to the $3.5 million in projects already financed since 2004. The capital budget for Hilltop Hanover is under the Department of Public Works, the staff operating budget is under the Planning Department, but the debt service and interest expenses for the capital projects to date on this property are missing from this statement. Where are these costs buried? What kind of shell game is this? Why aren’t all of the costs of the Hilltop Hanover Farm revealed in one operating statement consistent with generally accepted accounting principles?

The County displays inconsistent accounting principles in its budgets making comparisons almost impossible by anyone other than a trained auditor, which is the point of such shell games. For other County properties, the Parks Department budgets show all employees, operational
costs, and “debt service” expenses, annual expenses related to borrowing for the capital projects, on each statement, per property, so that each property can be compared with another. So why are the expenses for the Hilltop Hanover Farm spread out across departments and not on one statement?

Comparing County employee costs across departments is no easier. Some departments, such as the Information Technology Department, do this correctly. They show all employee costs, including FICA and unemployment taxes, grouped together so the total employee costs can easily be determined; whereas other departments, such as the Board of Legislators, do not reveal employment taxes or disability insurance costs but do show their share of retirement and health benefits “below the line.”

Still other departments, such as the Hilltop facility, do not show any of these costs at all. What part of “consistent accounting principles” do the
County’s Finance and Budget departments not understand? Do they not have a standard pro-forma format for the budget reporting process? And
why are two of the largest costs, retirement and health, buried “below the line”, and then, only in summaries of each County division, and not reported as employee costs for each and every department?

In the main “Operating Budget Comparative Analysis”, the County actually reports retirement, health, and employment tax costs as miscellaneous and fixed expenditures”, and not as employee costs allocated to each administrative function. Indeed, the County shifts $485,679,066 of its proposed 2009 costs into the “Miscellaneous” category in defiance of generally accepted accounting principles. Miscellaneous
accounting costs are defined as: “Costs where no other category has been established. This account is used when all other accounts have been reviewed”.

Do the County accountants actually expect the taxpayers to accept that they consider $485 million of employee benefits, insurance payments, fund contributions, and sales taxes to be “miscellaneous” and not to be part of the functions of the government? In fact, the County accountants
are so lax here that they dumped $81,827,031 of taxpayers’ dollars into “miscellaneous budgets”. Who is spend-ing $81 million of our tax dollars? And why isn’t this identified as a specific function or cost in the total budget?

Since when is $81 million considered to be miscellaneous? Is this a reflection of the administration’s attitude towards taxpayers’ money, that $81
million of our taxes shouldn’t be properly accounted for? The individual department budgets also reveal inconsistencies in the administration’s
management. The County Executive’s office has three secretaries and eight assistants for only seven staff members whereas the Board of Elections
has seven secretaries for 74 staff. Why does the County Executive need so many secretaries? Spano has even more assistants hidden in other budgets such as the Office of Government Relations, a department whose main responsibility is to “liason with other levels of government” and “coordinate communications with the Board of Legislators”.

If the Office of Government Relations is coordinating the Legislators’ communications, then what do the 22 aides in the Board of Legislators’ Department do? And perhaps if the County didn’t have 57 people in the Board of Legislators department and another thirty 30 people in
the County Executive department, they wouldn’t need 46 aides and secretary’s running back and forth between 41 administrators to begin with!

There are more inconsistencies in the budgets at the individual department levels, and increases to the budgets, such as staffing in the Board of
Elections, which The Guardian will address in detail next week. In the interim, The Guardian advises its readers to review the County budget online at www.westchestergov.com/aboutwestchesterbudget.htm. The final public hearing for this budget is December 3, 2008 at 7:30 pm: Board of Legislators’ Board Chambers: 8th Floor – Michaelian Office Building, 148 Martine Avenue, White Plains, 10601 Additional information may also
be obtained by contacting the Board directly at 914-995-2800.

I would suggest to readers intending to attend the Board of Legislators’ hearing on the Budget that they bring this and last week’s (Nov. 20) issue of The Guardian with them for purposes of referencing specific areas of concern.

Where are these costs buried? What kind of shell game is this? Why aren’t all of the costs of the Hilltop Hanover Farm revealed in one operating statement consistent with generally accepted accounting principles?

Do the County accountants actually expect the taxpayers to accept that they consider $485 million of employee benefits, insurance payments, fund contributions, and sales taxes to be “miscellaneous” and not to be part of the functions of the government?

The County also does not provide an inventory of all County assets and assets such as cars, phones, computers, houses, in an individual’s possession or for their exclusive use, or a detailed listing of investments, approved contractors, and prior departmental, project, and County-wide audits including any recommendations and areas for improvement or concern.