COUNTY ADMINISTRATOR S 2015 BUDGET SUMMARY

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1 COUNTY ADMINISTRATOR S 2015 BUDGET SUMMARY The Marquette County Budget for 2015 complies with all provisions of Public Act 621 of the Public Acts of 1978 (Uniform Local Budgeting and Accounting Act) and is balanced with respect to projected revenues, resources, accrued equities, and expenditures. Included in the budget document are goals and objectives, program spending plans, and authorized staffing levels. Commissioners, boards and committees, elected officials, department directors, and program managers should find the document a useful policy and management tool. The 2015 General Fund is $25,340,726, a 4% increase from the original 2014 Budget. STATE For 2015, the state funding challenges continue. The most notable question is what impact Proposal 1 will have on the County. Although it has been said that the local governments will be 100% reimbursed for the property tax lost, the baseline for the amount reimbursed is based on the 2013 Personal Property Tax values. Any increase in Personal Property Tax in 2014 will not be reflected in the reimbursement. The Personal Property Tax (PPT) small parcel exemption took effect December 31, The potential reduction to the County could be as high as $80,000. These funds will not be reimbursed to the County under the Proposal 1. Another area of unexpected tax reduction was the Veterans property tax exemption. This legislation eliminated the Residential Property Tax for disabled veterans. The impact to the County for 2014 is approximately $75,000. It should be noted that the State representatives have drafted legislation that would reimburse the local governments for the tax loss, but the legislation has yet to be introduced. Marquette County s ability to provide state-mandated services is largely dependent on our revenue sharing payment. State revenue sharing will be increased in 2015; however, the County cannot count on revenue sharing to stay at current levels. The County anticipates receiving $1,275,675, an increase of $255,000 over the 2014 projection. Another positive note, the County Incentive Plan (CIP) has virtually been eliminated. The remaining requirement is to annually complete the Dashboard and Citizen s Guide. Also of interest to the County is the Supreme Court Ruling in the Cunningham case. In short, the Supreme Court ruled that the courts could impose only those costs that the legislature has separately authorized by statute. This ruling was effective June 18, As a result of this ruling, the estimated combined loss of annual revenue for Circuit and District Court is $140,000. Legislation has been drafted that would allow the courts to impose additional cost. It is anticipated that this legislation will be acted on during the fall of MARQUETTE COUNTY Although this has been said for many years, it is too important not to remember just where County funds are spent. In Marquette County, an estimated 75% of the County budget is for services required, or mandated, by state law or rule. About half of the expense to carry out these mandates is funded by state revenues. A solid fiscal foundation is essential to Marquette County s ability to provide services whether they are locally-determined priorities or state-mandated services. The responsibility for funding services is clearly at the local level.

2 In December of 2013, the Marquette County Board of Commissioners addressed several space needs recommendations. Two of those recommendations took place in The first effort was a reduction of staffing in the County s Youth Home operations by the end of the second quarter of All proposed reductions have occurred. The second effort was to hire an architect to design a plan for a build out of the existing jail facility; staff will look at funding for the project; if financially feasible, complete the bidding process for the project by late 2014 and to have construction done and move in by sometime in Throughout much of 2014, the Space Needs Committee and Sheriff s Department representatives worked with Gundlach Champion, Inc., on jail expansion options. The 2015 Budget does not include any funding for the next steps. Budget adjustments can be made once final direction is received from the County Board. There are other impacts to tax revenues and expenditures that need to be monitored and considered in the County s long-term planning. Although there has been a temporary reprieve with the Empire Mine continuing operations, the extension for operations is limited to approximately two more years. Furthermore, there has been substantial change with the Cliffs Natural Resources Managing Board. It is unsure what impact, if any, this will have on long-term operations in Marquette County. The Michigan Employment Retirement Systems (MERS) annual payment will increase over $570,000 for Based on the most recent review by MERS, the annual payment for divisions will increase approximately $165,000 in With the exception of a slight increase for Central Dispatch in 2017, the trend is the annual payment will be reduced in Although this is a step in the right direction, caution should be applied as there are 37 employees eligible to retire by the end of 2015, 23 in the Defined Benefit Plan and 14 in Defined Contribution. Market fluctuations need to be monitored. Other long-term impacts include the request for a large tax reduction from the WE Energies power plant. Should WE Energies be successful with its Tax Tribunal case, the estimated reduction to County general operating would be $390,000. The Dark Stores Appeal by Marquette and Brietung Townships was not successful. The townships have submitted it for review by the State Supreme Court. Should this effort be unsuccessful and a legislative fix not approved by legislators, there will be a reduction in tax revenues. It should also be noted that the most recent announcement of the planned construction of the new Marquette General Hospital facility in the city of Marquette does include tax incentives. It is not known at the drafting of this memo the impact, if any, of the tax incentives on the County. The County has been receiving approximately $316,000 for both real and personal property. Health insurance continues to be an area of concern. A health insurance task force was established in One focus of the task force has been investigating the implementation of a wellness program. Workplace wellness is any workplace health promotion organizational policy designed to support healthy behavior in the workplace and to improve health outcomes and, in time, potentially stabilize or reduce health insurance costs. The Task Force has also been working on reaching out to employees via an Employee Benefits presentation to provide a better understanding of the overall utilization of the County s health insurance.

3 Costs associated with retiree health insurance will continue to be a concern as there is currently no premium cost share mechanism in place. Retiree health insurance cost sharing options should be explored. Current employees are now required to contribute towards their health insurance. Sawyer International Airport will eventually deplete the Stabilization Fund. The Stabilization Fund should continue to supplement funding of the airport through The Budget also includes funding for a classification study and County Board strategic planning. The last job classification study was performed in Given the amount of time that has passed, consideration should be given to updating the study. It should be noted that the study could identify positions that are below the wages of our comparable counties. A wage adjustment would then be implemented. The work of the Management Team and the Board of Commissioner priorities guide the 2015 Budget. REVENUES Total General Fund revenues are $25,340,726, an increase of $810,000 over the mid-year 2014 budget. Local property taxes increased to $12,100,000, an increase of 5%. Specific ore tax revenue for 2015 is $2,820,000, a decrease of $81,000. Again, it should be noted that Marquette County is very fortunate to be receiving this level of revenue, but it should be cautioned that this level of revenue may not continue. Approximately 20% of the specific ore tax revenue is related to operation of the Empire Mine. The Specific Ore Tax formula is based on a five-year average of annual production. The 2015 Budget does not apply potential tax revenue from Lundin Eagle Mine to ongoing operating expenses. It is estimated that approximately $126,000 for all county millages will be generated from the 2014 ad valorem levy on the Eagle Mine operation. The Eagle Mine began mineral extraction in late Severance tax revenue would not be collected until the following year. It is recommended that the board restrict the use of those funds for the purposes suggested below. Space need changes as decided by the Board of Commissioners Courthouse / Annex facility recommended maintenance Unfunded liabilities Sawyer Stabilization Fund State revenues are projected to be flat. Revenue sharing is being funded by the state, but as detailed earlier, the county will need to earn 20% of its revenue. The 2015 Budget includes $1,275,675, a 2.5% increase from For state-funded programs such as juvenile treatment and the judiciary and court operations, the 2015 Budget assumes the continuation of state funding trends for these programs. If additional reductions occur, the budget can be amended with emphasis on reducing programs for which revenue is no longer received.

4 The county should balance current expenditures with current revenues. County reserves have more than doubled since 2006 and exceed the County Reserve Policy and the minimum recommended by the Department of Treasury. The reserves cushion unexpected revenue losses or expenditure increases. The reserve funds are inadequate to expand services or support ongoing expenditures. Use of reserves in the 2015 Budget is limited to interest income generated or to funds that have a sufficient balance. Sawyer International Airport relies on the Airport Stabilization Fund because airport revenues are inadequate to support required operating expenses for the airport. FEES Fees for the various departments are continually monitored for needed increases. The 2015 Budget does not include any fee increases. As in prior years, the Budget includes $585,000 from the Delinquent Tax Revolving Fund (DTRF): Tax Administration Services $ 235,000 Capital Improvement Program $ 200,000 General Fund Contingency $ 150,000 The fund generates approximately $600,000 annually above what is needed for tax payments to the cities, townships, and schools. Use of $585,000 will not require borrowing to maintain the DTRF. HIGHLIGHTS FROM DEPARTMENT 2014 REQUESTS The budget management work of the departments is significant in carrying out the directives of the county board. Each department has managed, and continues to manage, its budget in the new economic reality. LAW ENFORCEMENT (Core Business: 2, 4) The Sheriff requested three additional road deputies and eight additional full-time corrections deputies. No new positions are included in the 2015 Budget. Currently, the corrections division continues to rely on part time and overtime to continue providing our current level of service. The Space Needs Committee has reviewed various alternatives for the Detention Center; the report is pending. The 2015 Budget continues the operation of the Community Corrections Detention Center (CCDC). In 2014, CCDC has provided needed incarceration bed space with an average monthly occupancy of 25 inmates. The $616,000 operating expense of the Detention Center has been absorbed by the General Fund. In 2008, total rehabilitation expenses were $2,290,752 and revenues were $358,113. Rehabilitation expenses in the 2015 Budget total $3,359,892 with revenues of $498,000. COURTS (Core Business: 1, 2, and 4) As noted in the revenue discussion, if state revenues are reduced, consideration should be given to reducing expenditures in the programs receiving state support. The State Court Administrator s recommendation to reduce the number of judgeships in Marquette County by one judge will not have any potential impact until at least Circuit Court requested a part-time referee to prepare for the future loss of a judgeship; however, no change is anticipated for the 2015 budget. The request will continue to be monitored.

5 HUMAN SERVICES (Core Business: 5) The Health Department Maintenance of Effort from the General Fund remains at $521,506, the same annual amount since Overall, the department budget is $188,617 more than the 2014 amended budget. The total budget is $3,854,722. The increase is due largely to higher personnel costs. The Board of Health approves the Health Department budget. The final 2015 Budget will be considered by the Board of Health after the Board of Commissioners has set the General Fund appropriation to the department. The Soldier/Sailor Relief Fund can rely on equity in that fund to cover program expenditures of $7,500 for The 2015 Budget includes funding in the amount of $51,123 for MSU Extension services under the terms of the Memorandum of Agreement. In addition, the county provides space and.5 FTE secretarial support. ADMINISTRATION No changes have been made to the department budget for the county administrator. A search to fill the civil counsel vacancy that was created by Mr. Adamini s retirement began this past fall, and the Board approved the hiring of Mr. Steven Pence as our new civil counsel, effective January 1, SAWYER INTERNATIONAL AIRPORT AND BUSINESS CENTER (Core Business: 7) Airport operating expenses are $2,407,900. Operating revenues are $1,831,200. Airport staff strive for self sufficiency. There is continuous effort to work on operational efficiencies and controlling expenses. Staff is also striving to locate and secure new tenants / leases. One example recently brought to the County Board is staff s effort to work with the U.S. Army in establishing a long-term relationship for its helicopter winter testing program. County support for the airport in the 2015 Budget includes transfer of $100,000 from the General Fund. This support includes the tax dollars anticipated from businesses in the Renaissance Zone. We continue to recommend that as the percentage of tax revenue increases from the businesses in the Renaissance Zone, it continues to be applied to the airport budget. The Renaissance Zone expires December of 2014, with full taxes in The Airport Stabilization Fund remains a funding source through The projections are based on current cash balances and do not include any anticipated revenue from the purchase agreement with Telkite that obligates Telkite to purchase additional raw land from the county by The remaining amount of sales proceeds to be generated by that contract is $416,785. A funding source, or sources, will be needed for the ongoing sustainability of the airport. A team effort will continue to be needed to plan, implement, and evaluate. The Airport Master Plan that was approved by the Board of Commissioners in 2009 serves as a foundation. Federal Aviation Administration funding has been approved to update the Airport Master Plan in There are separate budgets for the Water and Sewer Funds. The wastewater treatment plant improvement project is behind schedule. However, due to engineering changes, it is anticipated that the project construction will begin in the first quarter of 2015.

6 CHILD CARE (YOUTH TREATMENT AND CUSTODY) (Core Business: 2, 4) The Budget continues current levels of service. Space needs recommendations for the Youth Home from December of 2013 have all been implemented. The Youth Home averaged 69.5% occupancy in 2011, 44% occupancy in 2012, 37% occupancy in 2013, and 39% occupancy through August of 2014 with 63 admissions. AGING SERVICES The Aging Services Advisory Committee reviewed the Budget for Total funding to service providers (Senior Centers, AMCAB, RSVP, Medical Transportation, and Marquette Adult Day Care) will increase by 5% to $881,208. Additional allocation recommendations may be considered during the year. Anticipated tax revenue for 2015 is $979,158. Future increases for service providers will be determined by tax revenue increases. CENTRAL DISPATCH The operating budget continues current levels of service at the current location. Marquette County continues to provide a leadership role in the U.P Authority and continues to receive recognition for their cooperative way of delivering a valuable service to the community. They are also a state leader in the enhanced arena. FORECLOSURE FUND The budget includes a $25,000 transfer to the Land Bank. The Land Bank Authority requested the transfer to provide funds for management of properties that will be transferred to the authority. The Foreclosure Fund has sufficient reserves for the transfer. NON-COUNTY AGENCIES The 2015 Budget includes $67,000 for economic development purposes. In past budgets, this amount was fully set aside for the Lake Superior Community Partnership (LSCP). The budget does not specifically identify the amount being provided for the LSCP. It is recommended that $10,000 be allocated for the County s contribution to the Next Michigan Development Zone and $5,000 for the LSCP EDC. The remaining $52,000 can be used in a contract for the LSCP or other economic development priorities. In 2014, Marquette County continued to be the LSCP s single largest funder. PERSONNEL AND POST-EMPLOYMENT EXPENSES As a service organization, our major expense is personnel. The 2015 Budget assumes a total compensation approach that is sufficient and sustainable based on current county revenues. Compensation for most county employees is set through the collective bargaining process. The 2015 Budget includes $2.4 million for retiree health insurance, an increase of $524,000 over our projected expense for As a continued effort to fund the expense for future retirees, $100,000 will be added to the county s OPEB reserve fund. That amount will bring the total OPEB reserve to $1,970,000. The Budget includes a $570,000 increase to our MERS retirement cost. Additional allocations from revenues generated from the Eagle Mine could be considered for the county s unfunded liabilities.

7 PROJECTIONS The Management Team will continue its diligence in preparing for the future. The Airport Stabilization Fund will no longer be a viable funding source for airport operations after 2016 if current revenue and expenditure patterns continue. In addition to the challenges unique to Marquette County, we share with many other local governments the increasing costs of health care and retirement. Liabilities for post-employment benefits, although still significant, have been reduced. Beyond 2015, the future of state government continues to be challenged, and the state s continued ability to fund county revenue sharing and revenues for other county services is unknown. On the positive side, the Eagle Mine will be a temporary source of needed tax revenue. Long-range planning should take into consideration the potential closure of WE Energies and the Empire Mine, as well as the global demand for iron ore and the Dark Stores Supreme Court appeal.