Running the County on a High Wire

Running the County on a High Wire

Note:  This column ran in the Capital on 5/11/10 with minor modifications. 

County Executive John Leopold is being congratulated for his fiscal leadership while former Annapolis Mayor Ellen Moyer is being berated for driving the city into fiscal disaster.  In fact, Anne Arundel County is following down the same path as the city, and acting even more irresponsibly.

The budget Mr. Leopold presented last week plans to spend down county operating cash to dangerous levels.  Mr. Leopold is proposing to reduce the general fund’s cash on hand on June 30, 2011 to $20.8 million, only 1.8% of annual operating expenses.  Perhaps revenues will come in higher than projected, costs won’t materialize, and the county will squeak through the year.  But if the opposite happens, the county will have serious financial problems.  Mr. Leopold is running the county as a high wire act.   

Rather than making the tough decisions necessary to cut costs so the county lives within its means, Mr. Leopold has spent $188.5 million more than the county received in revenues over the last three years.  He has balanced the budget by stripping this amount out of county funds, taking operating cash on hand far below the absolute recommended minimum of 5 percent of annual operating expenses.

This fiscal mismanagement has not gone unnoticed.  Both Fitch Ratings and Moody's downgraded the county's bond rating this March. Fitch quoted our structurally-imbalanced budgets and diminished reserves as the reason for their downgrade. And that was before Mr. Leopold submitted his FY 2011 budget proposing to overspend revenues for the third year in a row and reduce fund balances to breathtakingly-low levels. 

As the city of Annapolis has discovered, you cannot run a government without operating funds.  The previous mayor’s budget for FY 2010 projected that the city would have a reasonable general fund cash balance of 14.7% of the general fund at the end of year, eight times the risky level Mr. Leopold is proposing for the county.  Despite this, when revenues fell below projections and spending increased, Mayor Cohen was confronted with a fiscal crisis when he took office.  Six months later, the city has had to lay off employees and borrow money to avoid running out of cash this year. 

Odds are good that the next County Executive will face the same untenable situation.  Assuming I am elected, I may have to immediately cut costs to keep the county from running completely out of cash.  In addition, in my first six months in office, my team and I will probably need to identify about $100 million in cost savings for FY 2012.

This task will be even more difficult because Mr. Leopold has relied on one-time fixes to cut costs.  Employees who have suffered through 12 days of furloughs and given up negotiated pay raises for two years are not going to be receptive to another year of the same.  And all ten of the county’s labor agreements are due to be renegotiated in this same six month time period. 

Working hand-in-hand with our employees, we will have to creatively rethink what services the county provides and how they can be delivered far more efficiently.  And we will have to condense what would normally be a multi-year project into a six-month time period. 

Fortunately, I have experience with such a process, albeit on a much smaller scale.  I spent 2008 turning around a real estate education company that was about to go under, eventually reducing costs to where the company could break even at 25% of previous year’s revenues.  It took months of digging line-by-line through the budget, questioning the necessity of every expense, to discover how to successfully restructure the company.  For example, we discovered we could reduce technology spending by 87% while delivering better services to our customers.  While difficult and time-consuming, restructuring pays tremendous dividends if done right.

 

We can no longer ignore the massive fiscal problems threatening Anne Arundel County.  If elected, I will work collaboratively with our county employees, the county council, and the board of education to figure out how to deliver the services our residents need better and more cheaply.  It won’t be an easy process, but by the end of my first term, I am confident the county will be far more efficient and on its way to becoming the best-run county in the state.

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