Financial crisis hits hard at the county level, too

From The Oregonian, December 2, 2010

When timber was king, harvest receipts in southwest Oregon’s coastal counties filled municipal coffers, and residents enjoyed the state’s lowest property tax rates.

These days, balancing county budgets has become an exercise in backfilling a sinkhole, one that threatens to swallow the levers of government whole.

In early November, voters in Curry County overwhelmingly rejected a public-safety levy to fund the sheriff’s office, the Juvenile Department and the district attorney’s office. As things stand, even if the county eliminates every service it provides from its general fund budget over the next two years — juvenile, patrol deputies, 9-1-1, the DA, commissioners, the treasurer’s office, the county clerk and so on — the $1.3 million raised annually from property taxes may be insufficient to cover just the cost of running its jail.

“There has to be some form of government in rural coastal Oregon,” Curry County Commissioner Bill Waddle said. “Is it going to be Curry County or some form that the state of Oregon imposes? I don’t know.”

Curry and neighboring Josephine are among the handful of Oregon counties facing an unprecedented collapse in revenues because of the loss of federal timber payments.

But counties’ budget woes aren’t limited to timber problems, and fiscal cracks have spread throughout the state. The ongoing recession and housing busts mean that property taxes and development-driven fee revenue — permits, inspections, etc. — have stagnated everywhere.

And there’s more — or less — to come as the state Legislature prepares to balance its own budget by slashing through a projected $3.5 billion deficit. Many of those cuts will target services that counties provide under shared funding or that they contract with state and federal authorities.

The list includes services for the state’s neediest residents — children, the elderly and people with disabilities, veterans, those needing alcohol and drug treatment, or family planning. With voters in no mood for new taxes, balance sheets weakened by previous years of budget cutting and increasing expenses to fund retirement and medical benefits, counties are left with few choices.

“Counties can’t go bankrupt,” said Mike McArthur, executive director of the Association of Oregon Counties. “There’s no provision for municipal bankruptcy under Oregon law. They simply ratchet back services to the point the budget is balanced.”

Structural problems

Cities are the geographic stars. States have the broad mandate. But when it comes to fixing aging bridges, providing drug and alcohol treatment for juvenile offenders, or aiding the elderly and disabled, counties are where the social safety net hits Main Street.

County budgets are a tangle of revenue streams, programs, contracts and mandates. There are property taxes, fees, sin-tax receipts, state contracts, federal matching dollars and so on. Some services are mandated, others aren’t. No two counties are alike.

Counties everywhere, however, rely on property taxes for discretionary revenue, the lion’s share of which supports public-safety functions such as sheriff’s deputies, jails and parole officers. With the passage of Measures 47 and 50 in 1996 and 1997, Oregon voters tied counties’ hands by limiting assessed valuations and putting a 3 percent lid on their annual growth.

Still, in theory that provides slow and steady revenue growth to underwrite programs.

In practice, however, the limit creates structural deficits, as revenues fail to keep pace with payroll costs, including spiraling pension and medical benefits.

Booming construction temporarily spiked property taxes and fees for many counties, masking the problem. But the real estate crash closed that spigot. Counties across the state have responded with pay freezes, furlough days and layoffs.

Lincoln County Commissioner Don Lindly says his coastal county has been through the full menu of budget reductions: prioritizing services, freezing pay, laying off 25 percent of the county staff, making employees cover two jobs. Nothing, he said, has been held harmless.

The county considered shutting the animal shelter, but voters passed a five-year levy that actually increased the staff. Lindly notes that no similar groundswell resulted when the county decided to eliminate mental health specialists.

“I’m not saying anything against animals. … I’ve got a yellow Lab that pretty much runs our family,” he said. “But it’s interesting what people will choose to support.”

Timber time bomb

Declining timber harvests on federal forestlands is an old story, as is the threatened elimination of safety-net payments to compensate rural counties for their loss. Those payments are currently in a four-year step-down and will sunset in 2012, carving big holes in the budgets of 18 Oregon counties.

Congress has twice reinstated the payments, avoiding a budget meltdown for many rural counties. But their decline gradually is sapping services and reserves, particularly in counties where Measure 47 froze permanent property tax rates at low levels. Those counties have had a few years to wean themselves from the payments, establish reserves and go to voters for local levies to backstop services. But the prospect of reauthorization has created a cry-wolf scenario, where voters refuse to make up the gap until it’s certain the government money has dried up.

If the federal payments expire, some counties simply won’t be viable. The payments already have declined from $265 million in 2007 to about $200 million today, and if they end in 2012 counties will be left with only a trickle of the river of money that once flowed — about 10 percent of the peak payments.

As recently as 2008, the payments made up two-thirds of the general fund in Curry, Douglas and Josephine counties, 40 percent in Coos County, a third in Jackson and Lane counties.

“We’re past cutting,” said Dave Toler, a commissioner in neighboring Josephine County, which eliminated 250 of its 650 employees during the last five years. “We’re talking about providing what normal American citizens would expect in a First World nation.”

Thirty-three of 36 counties received some portion of the $200 million distributed this year. And even those that escape any direct impact could feel the loss as the state tries to backfill funding by redistributing its own budget pie.

Columbia County would lose $2 million a year — roughly 20 percent of discretionary funds.

“By discretionary I don’t mean money for lattes,” Columbia County Commissioner Tony Hyde said. “This is money we use to supplement law enforcement and criminal justice. It’s pretty sad when you can’t call a cop and get an answer.”

State cuts

State and federal money accounts for $3 of every $10 counties spend on veterans and economic development, $4 of every $10 on community corrections and public health, $5 of every $10 for roads and nearly $7 of every $10 on mental health, according to Association of Oregon Counties.

Most counties are in wait-and-see mode until the governor and Legislature reveal specific strategies for coping with the state’s own shortfall. But cuts are coming.

State cuts can have a multiplier effect, reducing federal matching funds — say for Medicaid reimbursements or family planning. Counties also fear cuts in cigarette and liquor revenues they share with the state.

Officials expect the deepest cuts in human services — public health, mental health, children and family services. Those programs have seen big caseload increases during the recession and were supported by the biggest chunk of federal stimulus dollars, which are unlikely to recur. Various mandates preclude the Legislature from making across-the-board cuts, so they are likely to be concentrated in specific programs.

If cuts go deep enough, and counties can’t provide a minimum level of mandated service, they simply can hand the obligation back to the state. Douglas and Linn counties already have done so with community corrections. The state, officials say, generally spends more to provide the same service levels.

Mary Shortall, director of aging and disabilities services for Multnomah County, expects state cuts to include in-home services for the elderly and people with disabilities. In Multnomah County, that includes 2,800 residents who qualify for state-paid nursing home care, but who can be served more economically at home if they have help with bathing, eating or continence care. Shortall says her division’s caseload grew 13 percent during the recession, while staffing shrank 5 percent.

If the state cuts payments to home health aides, some clients can manage with help from family. But the burden eventually will fall to taxpayers again, as clients apply for more expensive nursing home care that the state is obligated to cover.

Joanne Fuller, human services director in Multnomah County, says she doesn’t even want to speculate on what the Legislature will do.

“This is a lot bigger hole than we’ve seen before,” she said. “We’re cutting deeper at a time when there are a lot more needs in the community. There’s no replacement for these services. It’s not like there’s some way we can do them cheaper.”