Abstract: Paper No. 185
The Outlook for Onondaga's County Finances: Baseline Scenario
William Duncombe and Bernard Jump, Jr.
This is the third of four reports to the Onondaga Lake Management Conference about the economic and fiscal implications for Onondaga County of court-mandated expenditures for sewer-related remediation of Onondaga Lake.
- The past decade has been a time of increasing financial constraints for virtually all local governments, and Onondaga County is no exception. The large drop in federal aid, especially for local infrastructure, as well as the increasing delegation of responsibilities to county governments in areas such as social services and health have put pressure on local budgets. Local governments have been forced to rely ever more on their own sources of revenue, yet the increasing competition among governments to retain business firms and to attract new ones has limited potential tax increases. The only recourse for many local governments has been to make significant expenditure reductions.
- Onondaga County has weathered the latest period of fiscal change in reasonably good financial shape. The county's bond rating remained high, symbolizing the confidence that the investment community has in the county's ability to manage its financial affairs prudently. Debt service payments have fallen and Onondaga County has held down growth in other expenditure categories and actually reduced the number of full-time equivalent county employees during the 1990s. Our analysis of the county's fiscal condition, however, identifies several areas of concern;
- Tax burdens from county taxes are quite high compared to a selected sample of central city counties in upstate New York and around the country. Property tax burdens are especially high; as a percent of personal income they were 37 percent above the state average in 1994.
- The county's sewer rates are well above the average of other metropolitan sewer systems (based on a national sample of metropolitan sewerage agencies).
- Despite holding the line on spending growth during the 1990s, county spending as a percent of personal income remains above almost all counties in the comparison group of central city counties. Spending was particularly high for fringe benefits, debt service, public safety, parks and recreation and home and community (utilities).
- One area where spending has been below average over the last decade-capital spending for wastewater treatment-could have significant consequences for debt burdens and sewer rates over the next several decades. Debt service for wastewater treatment projects relative to the volume of flow treated in 1992 was only one-third the level found in the median metropolitan sewerage system. Capital spending over the last decade has never come close to matching the planned capital spending in the county's capital improvement plans (CIP).
- The future fiscal environment facing county governments is filled with uncertainties. In this report, we examine an important source of uncertainty facing the county-future increases in wastewater treatment costs and user fees to be borne by county residents, even without costs associated with lake remediation. We develop several alternative estimates of the baseline (without remediation) scenario which allow for differences in growth rates for O&M and capital costs over the next quarter century, the amount of planned capital improvements in the sanitary district which are actually funded, and the type of debt structure used by the county. Not surprisingly, the alternative forecasting assumptions produce large variation in the projected growth in district expenditure and the consequent rise in user fees.
- Under the two medium estimates, rates will rise to between $381 and $619 per unit by 2020. The rate projected by the county in the January 1996 draft MCP falls between our medium-high and high estimates. At the medium-high rate level, Onondaga County is projected to have a rate burden of 1.6 percent of median income in 2020 and 1.9 percent of income in 2035. Under the medium-low estimate sewer fees remain below the one percent (of median income) threshold for low rate burdens.
- Under high growth assumptions, sewer fees are projected to grow by 4 percent per year above the rate of inflation and will reach $888 per year (in 1993 dollars) by the year 2020. The sewer burden in 2020 would be 2.3 percent of median household income which is considered to be a high burden using the EPA financial capability methodology.
- In contrast, under the low estimate real rates are projected to grow slower than inflation after 1996, dropping to $247 per unit (in 1993 dollars) by 2020. The household burden relative to median household income will remain well below the one percent threshold judged to be a low burden.
- One of the key areas of uncertainty surrounding these rate forecasts is how the investment community will respond to significant increases in debt burden which are likely to accompany even the medium-low baseline estimate. Outstanding county debt was about $284 million as of March 1996. Even under the medium-low scenario, this debt burden (in 1993 dollars) would increase by 50 percent by the year 2020. Under the high scenario, debt outstanding would rise three-fold even assuming no additional increases in debt outstanding for capital spending other than wastewater facilities. Given that county debt burdens are already above Moody's medians, such a large growth in outstanding debt will not go unnoticed. At what point these large increases in GO debt will trigger a downgrading of bond ratings cannot be forecast with any certainty; however, the possibility surely must be considered in rate projections. Accordingly, we assume for all projections except the low estimate, that the county's GO bond rating would be downgraded.
- The large differences in the future rates facing county residents under these alternative estimates highlight the need for more long-range planning by the county government, in general, and the Department of Drainage and Sanitation in particular. The last comprehensive plan for wastewater treatment for Onondaga County was completed almost three decades ago, before formation of the consolidated sanitary district and most federal (and state) legislation regulating wastewater treatment. Given the long-term nature of commitments to wastewater treatment projects, mistakes in planning will be around for a long time. Without such a comprehensive review of future needs, including thorough engineering studies of existing plants, any forecasts of baseline expenditures and sewer fees will be no more than informed speculation.
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