DV Journal

(This article first appeared in Broad + Liberty)

The first draft of Delaware County’s 2025 budget shows the county operating with a $76 million deficit, according to a Broad + Liberty analysis of county budget documents.

In order to pay for $52 million of that gap, taxpayers are facing a 28 percent real estate tax increase. To fill the remainder, the draft budget spends $10 million in non-renewable funding from the federal government, and also dips into the county’s “fund balance” — essentially the reserve fund — for another $14 million.

The five-member county council, which flipped from a Republican to Democratic majority in 2020, will have the final say on any adjustments or changes to what Executive Director Barbara O’Malley has proposed. Yet the executive director’s draft budget is usually a reasonable predictor of the basic outline of the county’s anticipated spending and revenues.

The proposed 28 percent tax increase would come on the heels of a five percent increase already levied on county residents in 2024.

Warning signs that a subsequent tax increase larger than last year’s have been flashing for some time.

As far back as March, Councilwoman Christine Reuther said in a public meeting that the county was facing a “sizable tax increase” for 2025, but stopped short of giving any estimate.

In June, the credit rating agency Moody’s downgraded Delaware County’s rating, a decision that may have been based at least in part on Reuther’s comments in March.

“As Moody’s Ratings has downgraded Delaware County’s ratings because of the ‘unexpected weakening of the county’s financial position,’ at least one county council member is anticipating a tax increase at the end of the year to balance increasing costs,” the Delco Times reported.

“The downgrade captures the unexpected weakening of the county’s financial position,” Moody’s said when downgrading the rating from Aa1 to Aa2. “The county’s available fund balance is already an outlier to the downside relative to peers, and it expects to run a large deficit in 2024 with the exhaustion of federal stimulus aid.”

The “fund balance” referenced can essentially be thought of as the county’s reserves, or rainy day fund. According to Executive Director O’Malley’s budget, the county would use $14 million from the fund balance in the 2025 budget.

The other spending item lacking a continual revenue stream is $10 million in spending from the federal American Rescue Plan Act (ARPA), a bill passed in the midst of the pandemic intended to help local governments across the country deal with the turbulence. According to a webpage on the Government Finance Officers Association, ARPA funding “must be obligated by the end of calendar year 2024 and expended by the end of calendar year 2026.”

In other words, the county will not have the ability to dedicate any ARPA funds after this year. This is the same “federal stimulus aid” that Moody’s worried would be a problem for the county once the aid was “exhausted.”

Given that the $14 million from the fund balance and $10 million from ARPA are included in this year’s “operating budget” but are non-recurring sources of revenue, the county would still need to find revenue streams to cover those obligations by the 2026 budget or risk another sizable tax increase. Covering that $24 million in 2026 would equate to roughly an additional 13 percent tax increase, according to a Broad + Liberty analysis.

That worry about reliance on non-recurring revenues was previously detailed by an unidentified county employee who took notes on a county leadership meeting led by O’Malley from February.

“Our county has been in the habit of using one-time funds for ongoing operating costs,” the employee wrote in the four-page memo outlining the meeting. The memo was obtained through a previous Right to Know Law request.

The county charter requires the executive director to submit a budget to council sixty days before the end of the year. Despite the fact that the county has had this draft of the budget since the beginning of November, it hasn’t made the document available online. Broad + Liberty made photos of the executive summary of the budget while in person at the county’s open records office, but was unable to obtain a full copy of the document on Friday. It expects to have a full copy of the document Monday.

Councilman Kevin Madden was one of the first Democrats elected to the Delaware County Council in nearly a century and a half in 2017. One of his first suggestions was to have all county meetings recorded and related documents uploaded to the county website for posterity. “It’s not so much those measures will change things overnight, but they’re emblematic of a system that didn’t employ common sense best practices,” Madden said. “We ran on the idea that single-party rule prevents transparency and this is a time to make structural changes.” Madden also pledged not to raise taxes.

The county responded to issues related to the tax increase, the dwindling fund balance, and posting the draft budget, but did not answer other questions.

“Like many counties across Pennsylvania, we are faced with difficult decisions as the combination of inflation, utilization of one-time federal relief funding, increased demand for services, and flat revenue for more than the past decade has resulted in a structural deficit and dwindling fund balance,” a county spokesperson told Broad + Liberty. “We looked at every possible way to streamline operations and cut costs before asking the public for more support and we do not do so lightly. This County, like many others, incorporated the ARPA Revenue Loss funds into our budget during the past few years to avoid relying on tax increases from residents. Last year, Council made a small increase to revenue to reduce our reliance on one-time funds and minimize reduction of our general fund reserves.

“We recognize our residents are facing the same inflationary pressures that we are facing, but additional revenue is in our proposed 2025 budget that may be necessary in order for us to continue modernizing Delaware County’s government, repairing county infrastructure, and delivering the quality services that our residents deserve and expect. We are continuing to work to reduce any increase from our proposed budget that will be presented at our budget hearing.

“We are committed to putting the County on the path to be self-sustaining and begin restoring our fund balance. We will continue the work of providing the level of service that our residents deserve while keeping costs as low as possible. The County will share details on its budget at both the public hearing and the budget ordinance meeting; both meetings will be livestreamed and recorded for later viewing,” the spokesman concluded.

The county also provided a budget slideshow, pointing specifically to one slide showing that Delaware County’s revenue has remained relatively flat in comparison to its suburban neighbors like Bucks, Chester, and Montgomery counties.

Combining both the 2024 and 2025 budgets, the county will have spent $51.8 million from the fund balance. The county did not respond to a question as to what the fund balance was expected to be at the beginning of the new fiscal year on January 1.

The Democrats, who came to power in 2020 and many of whom still remain on the all-Democratic county council today, campaigned on promises to launch ambitious projects like the creation of a county-run health department and the deprivatization of the county prison.

Republicans warned some of those projects would be more costly than Democrats imagined — predictions that seem to be coming true.

For example, as the county was progressing towards deprivatizing the George W. Hill Correctional Facility, it received a financial analysis from a consultant discussing various cost scenarios. In the most expensive analysis presented, the county was expected to spend about $49.9 million to run the prison, but that assumed a full population. The county could reasonably run the prison for about $43 million if the daily population were significantly lowered, the consultant estimated.

According to the 2024 adopted budget, the net cost of running the GWHCF was $56 million. Additionally, that higher price tag came despite the fact that the county has successfully lowered the daily prison population by at least 20 percent over the last two years.

Other decisions by the county have put upward pressure on the budget.

For example, as Broad + Liberty has chronicled for years now, the county’s use of third-party attorneys as opposed to in-house counsel has skyrocketed under the Democrats’ control. In the last year of Republican governance, spending on outside attorneys was about $400,000. In 2023, that figure had shot up to $4.5 million.

When confronted last week about budget issues, Councilwoman Elaine Paul Schaefer largely blamed inflation, and her Republican predecessors.

“That budget deficit doesn’t come from nowhere,” Schaeffer said, as reported by the Delco Times. “The leadership of this county before this current board did not raise taxes for twelve straight years and then, the thirteenth year before this council came in, they lowered taxes and decreased revenue coming in.

“So, it is no great mystery where the budget deficit came from,” Schaeffer continued. “There’s not a business in the entire world whether it’s profit, nonprofit, or government that can operate for over a decade with no increase in revenue commensurate with inflation. It just doesn’t work.”

Delaware County GOP Chairman Frank Agovino sees things differently.

“I am pleased that council Democrats have finally come clean and admitted what most of us have known for years. Out of control spending by the Biden-Harris Administration in DC and this council have resulted in crushing inflation and massive tax increases at a time when most Delco families can least afford it,” Agovino said.

“No one likes big tax increases, and very few people like one-party rule. Unfortunately, we have both right now in Delco. It’s time for county Democrats to be held accountable for their incompetence. Passing the buck to a Republican Party of yesteryear is pathetic and I’m confident voters will see right through their excuses in next year’s local elections,” he concluded.

It is not clear when the budget will be made available online for public inspection. If the standard for “public inspection” includes publishing on the county’s website, as was suggested previously by many current members of the council, then the Nov. 1 deadline established by the county’s Home Rule Charter was not met.

The county will discuss the budget at a 1 p.m. meeting on Dec. 3, and is expected to vote on a final version at the planned, regular council meeting on Dec. 11.

While Gov. Josh Shapiro spends the next few weeks selling his $48.3 billion spending plan to Pennsylvania, a fiscal watchdog warns the budget proposal will drain the state’s recently replenished finances.

Pennsylvania’s Rainy Day Fund sits around $14 billion. That’s enough to fund the government for almost 50 days in lieu of a government shutdown. “You’re still just pushing it down the road,” Commonwealth Foundation Senior Vice President Nathan Benefield told DVJournal. “It’s unwise to be using that just to go like, ‘Hey, we could use that money this year’ and still have an unbalanced budget.

“Using the one-time reserves for ongoing spending that’s going to be year after year is not sustainable.”

Benefield points out that multiple Shapiro administration officials and the governor himself claim to support fiscal responsibility when it comes to taxpayer dollars.

Shapiro hailed Pennsylvania’s budgeting ability last September after S&P Global Ratings and Moody’s moved the Commonwealth’s outlook to ‘positive.’

“Our commonsense investments and sound fiscal management are setting the Commonwealth up for continued success,” the governor said at the time. “My administration will strive to ensure that our fiscal outlook remains strong by working with leaders in both parties to continue making commonsense investments…all while remaining fiscally responsible.”

Budget Secretary Uri Monson praised sound fiscal management last September, saying it “makes a difference in the lives of Pennsylvanians every day.”

But Benefield pointed out credit rate agencies want Pennsylvania to keep a high balance in the Rainy Day Fund balance. “The credit rate agencies all basically pointed to the fact that Pennsylvania has a reserve and would maintain it in case there is a recession.”

S&P and Moody’s highlighted Pennsylvania’s need to keep its reserve fund high in their credit rating outlook announcements. One S&P analyst said Pennsylvania could see its overall rating go up if it preserved or increased “reserve balances in its budget stabilization reserve.”

Moody’s said it was “particularly important” for Pennsylvania to maintain adequate reserves because of extremely long budget negotiations. The state’s budget wasn’t finalized last year until late December.

There’s also disagreement on whether the Pennsylvania government can use the Rainy Day Fund to fill in the budget hole.

State law says the fund can be used in “emergencies involving the health, safety or welfare of the residents of this Commonwealth or downturns in the economy resulting in significant unanticipated revenue shortfalls…”

Pennsylvania’s government is also blocked from using Rainy Day Fund money to “begin new programs.”

That’s what Shapiro wants to do, according to Benefield. “His proposal, if you look at it, is a lot of new programs,” he said. “They’re not to deal with an emergency. They’re simply to prop up spending.

“The idea that having an ongoing structural deficit year after year is not an emergency. That’s simply poor budgeting,” Benefield added.

Shapiro said during his budget address that the state needed to spend some of the reserve cash as a so-called investment into Pennsylvanians.

“We need to build a more competitive Pennsylvania that starts in our classrooms, runs through our union halls and our small businesses, through our farmlands and our high rises, our college campuses, and leads to a life of opportunity and a retirement with dignity,” he said. “We need to keep people safe, make sure they have access to the medical treatments and care they need, and build communities where they see a future of opportunity.”

Benefield doesn’t believe that Shapiro’s budgetary wishes will come to fruition. Calling the proposals “pie in the sky and even campaign-oriented,” Benefield said that he doesn’t see them getting done this year. “There isn’t a lot of appetite to have that large of a budget deficit of $3 billion-plus this year. I think there probably will still be a deficit this year, but I expect it to be a lot less than what Shapiro proposed.”

The Pennsylvania legislature remains divided, with Republicans controlling the Senate and Democrats holding a small lead in the House.

Neither House nor Senate Republicans appear to desire Shapiro’s proposed spending spree.

“While I can support initiatives that invest in our workforce and help more folks to lay down roots in Pennsylvania, those initiatives cannot be coupled with an endless wish list of spending agendas that are unsustainable and eviscerate our safety nets,” said Rep. Donna Scheuren (R-Montgomery). “That is not good governance, nor is it fiscally responsible.”

“We cannot reverse years of progress with a single-year spending spree that sacrifices our future,” said Sen. Scott Martin (R-Lancaster). “We need a responsible budget that helps grow jobs here and encourages families to put down roots here so we can reverse the negative economic and demographic trends that threaten our future stability. I look forward to working with my colleagues to make that happen.”

An email to the Shapiro administration was not answered.

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Gov. Josh Shapiro may soon discover that, as President Harry Truman said, “the buck stops here.”

A new poll from the Commonwealth Foundation and Arc Insights found voters will hold Gov. Josh Shapiro responsible for the state budget impasse.

Fifty-five percent of voters said it is up to Shapiro to get the budget finalized, while just 14 percent say that is the job of Republicans in the legislature.

More than 9 in 10 (93 percent) of Pennsylvanians think it is important that elected officials reach a bipartisan agreement.

A solid majority of voters (57 percent) also say they want Shapiro to continue supporting scholarships for children attending the state’s worst-performing schools. Among Black voters, that number is 76 percent.

Shapiro had promised to support a voucher program both while campaigning and in hammering out a budget deal with state Senate Republicans, only to reverse his position under pressure from House Democrats and teachers unions, leading to the current budget stalemate.

The poll found 65 percent of voters believe Shapiro should honor his agreement, and more than 70 percent believe scholarships for kids to attend better schools should be expanded.

And 54 percent oppose cuts in funding to cyber charter schools.

For a majority of parents, this is a personal issue, with 56 percent saying that if finances were no concern, they would choose to send their kids to schools other than the public school to which they are assigned.

“Pennsylvanians are not only looking for Gov. Shapiro to return to the negotiating table, but they are also expecting him to take responsibility and step up as a leader to finalize a state budget that includes keeping his promise to help kids trapped in failing and unsafe schools,” said Commonwealth Foundation’s Senior Vice President Erik Telford.

After reversing his support for the PASS scholarship program negotiated with the state Senate, Shapiro used a July 6 press conference to shift the blame to the legislature. “It’s now the responsibility of the House and Senate to find a way to work together and iron out those details.”

“It is not too late for Gov. Shapiro to do the right thing and restore a vital lifeline to parents and children while rebuilding his credibility and proving he is a trustworthy leader. State lawmakers should listen to their voters and finish the job they were elected to do,” Telford said.

The poll of 600 likely voters was conducted July 14-16, 2023, and has a margin of error of +/- 4 percent.

Shapiro’s office did not immediately respond when asked to comment.

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Gov. Josh Shapiro plans to allow the House to pass a $45.5 million budget without the school choice scholarship program that the Senate approved through negotiations with him.

The budget for the 2023-24 fiscal year was due June 30. But with the Democratic-controlled House refusing to go along with the $100 million earmarked for the PASS scholarships (formerly called Lifeline) for children in failing public schools, Shapiro is now playing ball with the House and leaving the senators to fume.

Previously, Shapiro campaigned on the promise of scholarships for students in failing public schools but teachers’ unions and many of his fellow Democrats opposed the plan. A Commonwealth Foundation poll found 77 percent of Pennsylvanians agreed that the state “has arbitrary school district boundaries that traditionally force underprivileged students into underperforming schools. All kids should have access to the best public schools, regardless of location.”

Shapiro released a statement Wednesday afternoon, saying in part, “Knowing that the two chambers will not reach consensus at this time to enact PASS, and unwilling to hold up our entire budget process over this issue, I will line-item veto the total $100 million appropriation, and it will not be part of this budget bill.

“While I am disappointed the two parties could not come together, (House) Leader (Matthew) Bradford has given me his word — and he has written a letter outlining directly to (Senate) Leader (Joe) Pittman — that he will carefully examine and consider additional education options including PASS, Opportunity Scholarship Tax Credit (OSTC), and Education Improvement Tax Credit (EITC) as we work to address our public education needs in light of the Commonwealth Court’s recent education ruling,” Shapiro said.

The last three budget cycles have seen major increases in education funding, including $567 million for basic education; $100 million level up; $100 K-12 mental health; $125 million school safety/facilities; $50 million special education; $100 Million Lifeline/PASS Scholarships; and free lunches.

Advocates for school choice unloaded on Shapiro over his reversal.

“Governor Josh Shapiro said he supported private school choice and even put it in his education platform before the election. He just sent out a statement indicating he will line-item veto the school choice program in the budget,” said Corey DeAngelis, executive director of the Educational Freedom Institute.

“He played the parents of Pennsylvania.”

House Republican Appropriations Chairman Seth Grove (R-York) said his committee is counting the days, hours, minutes, and seconds Pennsylvania has no budget.

“I think it’s important for Pennsylvanians to know the length of time House Democrats have held the budget hostage over Lifeline Scholarships,” Grove said. “We’re talking about 0.2 percent of the budget, just $100 million to help kids in failing schools. This is what House Democrats have chosen to grind the entire process to a halt over.”

Sen. Anthony Williams (D-Philadelphia/Delaware) said he is “very disappointed.”

“Children who are in these schools need them to prepare them for life, whether that’s public school, charter schools or parochial schools. And we need to do everything we can do to help them.”

Commonwealth Partners President and CEO Matt Brouillette released the following statement this afternoon after Gov. Josh Shapiro said he would veto PASS Scholarships (formerly Lifeline Scholarships).

“Today, Gov. Josh Shapiro not only reneged on his word to the people of Pennsylvania. But worse, at the first sign of opposition he gave up the fight to rescue kids trapped in failing schools.

“He claims he wins big fights, but in the first big fight of his administration—with kids’ futures on the line—he left the court without even taking one shot. Today, Gov. Shapiro shows who really runs this state, and it’s not him.”

Pennsylvania GOP Chairman Lawrence Tabas said, “By vetoing the Lifeline Scholarship Program, not only is Josh Shapiro crushing hope of a better education and a better life for disadvantaged children, but he is shamelessly catering to the teachers unions, which benefit from trapping these children in bad schools. There is no acceptable reason to deny any child, of any color, background, or Zip code the potential that comes with access to a better education.”

Charlie Gerow, a Republican political consultant with Quantum Communications, said about Shapiro’s bypassing the Senate, “Shapiro plays political games. Big shocker. Sadly, this one is at the expense of our kids.”

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“Chester’s financial situation is critical, and it is running out of time to find a solution.”

That grim analysis was given last week by the city’s state-appointed receiver Michael Doweary, who added the alternative to a solution could be dissolution — literally. The City of Chester might be incorporated and cease to exist if its fiscal problems aren’t solved.

“Everything is on the table,” Doweary said.

“Everything on the table” has ironically been Chester’s problem for years. The city has maintained a bloated budget with considerably more expenditures than revenue. It has also struggled to accurately keep track of its finances, with officials often unable to produce correct and timely financial reports.

Like many cities in the northeastern U.S., Chester once enjoyed a boom as a manufacturing and distribution hub. The decline of those industries led to years of a shrinking economy and dwindling tax receipts.

Chester first fell under Pennsylvania’s Act 47, the Municipalities Financial Recovery Act, in 1995. A decade later, its fiscal fortunes had not improved. By 2006, city officials had to take out a major deficit-backed loan to pay employees and keep basic services running.

Frank Catania, an attorney for the city’s Chester Water Authority utility concern, told Delaware Valley Journal that state overseers at the Department of Community and Economic Development handled Chester’s management badly.

“During all of this time, the DCED was involved in overseeing the finances, and they were as useful as spectators at a house fire,” he said, adding bluntly: “The Act 47 consultants did nothing.”

Catania was also involved in arbitrating several disputes between the city and emergency responder labor unions. In multiple rulings in favor of increased pension benefits for represented employees, Catania argued that “the city’s ability to pay” the benefits was highly doubtful.

The previous mayor John Linder “could have appealed the payout” and “gone to court,” Catania argued. “He didn’t, and then it just got worse.”

The city’s financial future looked modestly improved by 2007 with the construction of Harrah’s Philadelphia Casino and Racetrack at the site of the former Sun Shipbuilding and Drydock manufacturing facility.

Yet the city’s spending still continued to exceed its income. An amended recovery plan in 2016 projected a roughly $4.5 million surplus in 2019 if the recovery plan were adopted. But the city receiver noted earlier this month that the city saw “a general fund loss of approximately $6.8 million that year.”

The lion’s share of the city’s massive budget goes toward personnel costs. Of the roughly $56.5 million the city projected for the 2016 fiscal year in its recovery plan, over $40 million went to categories such as “salaries and wages,” “overtime,” and “healthcare.”

Its overtaxed budget and cratering revenues pushed the city to shortchange its financial obligations. Doweary’s report from August 2020 said Chester “[had] not made its full minimal municipal obligation to [its] three pension plans since 2013, leading to a severely underfunded pension situation.”

Further complicating the city’s finances has been a lack of transparent accounting of key city funds.

A 2013 independent audit of the city’s finances left the auditors “unable to obtain sufficient appropriate audit evidence” about “various classifications of certain revenues and expenditures” related to the city’s general and proprietary funds, among other outlay streams.

Similar shortfalls were found in audits conducted for the years 2015 and 2017.

Other instances of financial mismanagement abound. A state auditor general report in 2021 found the city “failed to deposit its state aid allocations into the police pension plan” in a timely fashion. The receiver’s office, meanwhile, identified a “pattern of pushing a portion of each fiscal year’s obligations into the next one,” which “made it difficult to accurately analyze the [City’s] financial performance on an annual basis.”

The receiver, whose office did not respond to several queries for this story, called the city’s underfunded pensions “the largest and most severe” of its financial crises.

By April 2020, when then-Gov. Tom Wolf announced a Declaration of Fiscal Emergency for the city and implemented an Emergency Action Plan; Chester’s police pension fund had “less than six months of beneficiary payments” in its coffers, the report said.

The receiver, in his report, argued the city government has followed “a pattern of … either failing to adopt a realistic budget, failing to follow that budget or both, which results in consistent, large deficits.”

Though the receiver’s predictions for the city have been dire and foreboding for several years—including last week’s claim it is “running out of time to find a solution”—city leaders have argued the situation is not as bad as the state has made it out to be.

“How can anyone be expected to continue to work with a team that even mentions the possibility of dismantling and dividing the city through disincorporation?” Chester Mayor Thaddeus Kirkland said at a recent press conference.

Kirkland said city leaders will be heading to the state capitol to secure more funds for the beleaguered municipality, in particular from the near-$10 billion surplus the state currently holds in its coffers.

“This mayor and council members will be visiting Harrisburg to find out how we get our share of that $8 billion that sits in Harrisburg,” he said.

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Delaware County’s budget is under extraordinary upward pressure, an analysis conducted by Broad + Liberty shows. The general fund total spending spiked from $251 million in fiscal year 2019, the last year a Republican Administration managed county operations, up to $284 million in the adopted 2022 budget — an increase of thirteen percent.

Yet as large as those numbers are, they have been adjusted upwards again since the budget was adopted, and the general fund doesn’t capture large budget edits happening in other departments.

In a special budget meeting in June, the $284 million in spending for the 2022 general fund budget was adjusted upwards by another $6 million, bringing this year’s total budget to $290 million, pushing the aforementioned increase up to an eye-popping sixteen percent. Despite the many revisions to the budget at the June meeting, the county conceded that still more budget revisions were forthcoming, including a review of unanticipated costs associated with de-privatizing the prison in the fourth quarter, as well as requests from the county elections director and the Fair Acres Geriatric Center.

The fact that county Democrats are spending significantly more in 2022 than county Republicans did when they were in the majority in 2019 might be expected. Democrats are ideologically predisposed to tax their constituents to fund expanded government services. Indeed, most members of the current council campaigned on the creation of a county-run health department as far back as 2017 and had actually begun parts of the process as early as 2019, despite the fact that a previously commissioned study conducted by John Hopkins University concluded no such bureaucracy would substantially improve public health outcomes.

As a practical matter, the county received more than $200 million in federal Covid-19 stimulus between the Trump Administration’s CARES Act and the Biden Administration’s American Rescue Plan Act. So, the obvious question for Delaware County taxpayers is: What are they getting for their money? Where is all that stimulus money going?

Broad + Liberty’s analysis of the county budget and subsequent spending revisions is likely to alarm many taxpayers.

For instance, 2019 was the last year the Republicans controlled spending on core government operations funded primarily by real estate taxes. Total departmental expenses that year were $156 million.

In 2022, the Democratic majority adopted a budget that called for $189 million in spending. General Administration spending increased from $16 million to $26 million. Community Health spending, the line item that accounts for the newly created Delaware County Health Department (DHCD) in Yeadon Borough, increased from $377,000 to $8.5 million. In aggregate this represents a 26 percent increase in spending on core operations since the change in partisan control.

Additionally, at the June budget meeting, the county revealed it will adjust the health department budget for fiscal year 2023 from $11.8 million up to $18.2 million. That $6.4 million increase represents a 55 percent increase in its initial projection for next year and a 114 percent increase overall. It’s important to understand that because DCHD is its own category of spending, these increases are not captured in the previously discussed sixteen percent increase to the general budget.

For now, Covid-19 monies from the federal government have helped smooth over most of these costs. By law that money must be completely spent by 2024. So, the issue for taxpayers is whether the county’s operations and current spending trajectory can continue without substantial tax increases — or service cuts — when federal money is no longer available to subsidize a vastly expanded county government.

In the 2022 adopted budget alone, county council used $19 million in federal reimbursements and $6 million in cash reserves to balance a budget they have been unable to adhere to. The general fund and the DCHD, taken together, have seen a total of $12.2 million of edited, post facto spending that the original budget missed.

County officials attribute much of the increases to the creation of a county-run health department as well as the county assuming the management of the George W. Hill prison, which had been privately run for three decades. Budget documents also show the county aims to greatly increase salaries at the county prison, possibly revealing that officials underestimated those costs. At the June budget meeting, Howard Lazarus, the county’s executive director, said the county still intends on raising salaries for prison guards by 50 percent.

Records reviewed by Broad + Liberty show substantial increases to the county’s payroll, well beyond the mere addition of employees to the Department of Corrections or DCHD. Salaries, in general, appear to be a red flag. Using data obtained via a Right to Know request, the Delaware County Republican Party found that in 2020, the first year that the Democrats-controlled County Council, the county employed 832 people making more than $50,000 a year. Those salaries totaled 56.7 million annually.

Two years later in 2022, the county had 1,121 employees earning more than $50,000 which brought the annual total up to $77.9 million — an increase of $21.2 million. A similar analysis by Broad + Liberty largely confirms that thrust from the county Republicans.

Furthermore, every new dollar in salary comes with an additional cost of benefits. When queried by Broad + Liberty, the county said it has a 70 percent “total employee benefit cost,” meaning for every dollar paid out in salary, the county is on the hook for another 70 cents in benefits. For a county employee that earns $100,000, there is an extra $70,000 in benefits costs. That 70 percent benefits rate is far above nearby counties, like Bucks, which says it has a 41 percent total employee benefit cost.

New departments. New operations. New hires. These are not one-time pandemic-related costs, rather, they are long term obligations for which the taxpayer is on the hook in perpetuity, or at least until there is a change in the administration.

Also, these expenses are funded — almost exclusively — by property taxes and fees levied on residents and businesses in need of government services. So, what lingers as a question is: what percentage of federal monies spent to date have been used for one-time government expansion costs versus what percentage is earmarked for multi-year operational costs? How will these operational costs be covered going forward? Are Delaware County homeowners on a similar path as those in the City of Philadelphia?

From the publicly available budget documents, the answers to those questions are unclear. Perhaps intentionally so. Which is why it is worth noting that in May 2022, Philadelphia’s Office of Property Assessment created an uproar when it announced that residential property assessments for tax year 2023 are going up by an average of 31 percent citywide. In some neighborhoods, real estate taxes have doubled. According to the Mayor’s office, the increases are highest in low-income black and brown neighborhoods. These neighborhoods are already grappling with high inflation and even higher crime.

In response to multiple queries on these matters, executive director Lazarus told Broad + Liberty, “The sound financial management practices put in place have resulted in a greater degree of revenue and cost realism and alignment, transparency in the sources and uses of funds, and a decreased reliance on General Fund reserves to balance the budget.”

We hope he’s right. Our analysis, however, tells a very different story about the county’s likely fiscal position when the federal money runs out by 2024. Using Lazarus’ own methodology for the how the tax revenues were calculated for the 2022 budget as a baseline — and assuming the county still leveraged approximately $25 million in federal subsidies and cash reserves — the large incremental cost increases hitting the general fund such as the budgeted county contribution for DCHD and the $6 million mid-year budget adjustment would result in a 21 percent property tax increase. Without subsidies and reserves, the increase could exceed 25 percent.

As the old saying goes, elections have consequences. And as former Chief of Staff to President Obama Rahm Emmanuel once said, you should never let a good crisis go to waste. The strange and unanticipated confluence of those two political realities have left the county — its government, its taxpayers, its voters — in a set of circumstances unlike any in its history. The policy merits of the CARES and American Rescue Plan Acts notwithstanding, county officials are without question in a cash position to make historic investments in county infrastructure and strengthen the balance sheet for the foreseeable future. On the other hand, reckless spending, and poor financial planning in pursuit of fashionable ideologies over functional governance could have devastating socioeconomic effects for generations to come.

The county is at a crossroads. Let the data inform which road is taken.

This article first appeared in Broad + Liberty.

A public finance watchdog group gave Philadelphia an “F’ for its budget numbers and says the city’s attempting to hide a debt burden that totals $25,900 per taxpayer.

In a new report entitled “Financial State of the Cities,” the organization Truth in Accounting (TIA) says dozens of the nation’s 75 biggest cities claim to have balanced budgets, but don’t. Many aren’t fully counting pension obligations, the report said. And that includes Philadelphia.

While these cities may appear to have balanced their books, the reality is very different, says TIA founder Sheila Weinberg.

“They have surpluses and seem to be in good shape. But it is misleading; they are ignoring their debts,” Weinberg told Delaware Valley Journal. “It’s a little like saying, ‘well, you got plenty of cash in your pockets but just ignore those big credit card debts you have in your back pockets.’”

Collectively, these cities have accumulated some $357 billion in debt. That’s despite the fact these cities, unlike the federal government, are legally required to have balanced budgets, the report said.

Sara Durr, a spokeswoman for the United States Conference of Mayors, didn’t respond to requests for comment about some of her organization’s largest members.

The most common way of clouding budgets, the report said, is overcounting assets and undercounting or hiding debts.

The TIA report said cities are using dubious accounting practices. These include: “Inflating revenue assumptions. Counting borrowed money as income. Delaying the payment of current bills until the start of the next fiscal year so they aren’t included in the budget calculations.”

Both Philadelphia, which was given an “F” for finances, and Boston, which received a “D,” according to the report, have far more in debts than assets, the TIA report said.

A spokesman for Boston Mayor Michelle Wu didn’t respond to requests for comment. But a spokesman for Philadelphia Mayor Jim Kenney said Philadelphia’s finances are improving.

“The city has and—despite ongoing challenges from the financial impacts of the pandemic—continues to make significant progress regarding our financial situation,” spokesman Kevin Lessard said. “The city went into the pandemic with the highest ever fund balance (savings), a recession reserve built into our five-year plan, and a small rainy-day fund.”

The TIA disagreed, and said the city debt burden is $25,900 per taxpayer.

“Philadelphia’s financial problems stem mostly from unfunded retirement obligations that have accumulated over the years,” the report said.

“The city had set aside only 51 cents for every dollar of promised pension benefits and 10 cents for every dollar of promised retiree health care benefits. Philadelphia did not have enough money set aside to weather the pandemic and the city has been in poor fiscal shape for years,” according to the report.

Lessard says city officials are addressing the issue.

“We’ve also increased the funded percent of the pension fund from the mid-40s to over 50 percent as part of a multi-year plan to get funding to 100 percent funding in about a decade,” Lessard says.

“That pension funding plan won an innovation in government award from the Government Finance Officers Association,” he continued, “and an analysis from Pew showed that our approach to pension funding put us in a better position than other cities are to continue to increase our funded percent even in a down market.”

But how and when will taxpayers know that a city could be headed for a New York City 1970s-style fiscal crisis, in which the city needed help to pay its bonds and barely escaped bankruptcy? Or a Detroit situation in which a city went broke?

Weinberg can’t say exactly when cities will go through similar crises. However, she argues credit rating agencies will not be in a position to spot problems ahead of time.

She says cities are using what are called “generally accepted accounting standards,” which allow budget officials to legally present budgets that appear healthier than they are. “These standards are not strict enough,” Weinberg said. Corporations have much stricter accounting standards than those used by bond raters in evaluating cities, she said.

“They (the bond raters) only care if the bonds get paid and bond holders are first ones to get paid when tax dollars come into the city.” She said most ratings aren’t based on the overall financial conditions of cities.

Weinberg says misleading numbers are anti- democratic. “People are making decisions on who to vote for based on the wrong numbers.”

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