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Don Cunningham: News

Lehigh County Financial Outlook Presentation

Muhlenberg College, August 30, 2006

Lehigh County Executive Donald T. Cunningham, Jr. 

This is the first event of its kind. And, I hope this lasts for many years to come. We started doing this in Bethlehem when I was mayor there and it received positive response.

Our intention today is to give all of you – the leaders of our community – key information regarding our county’s financial outlook and direction – and to field any of your questions or concerns.

It is my belief that this is your county and your government – not mine. I’ve been entrusted for the next four years to manage it – and to administer your money – and for that I am honored. I can guarantee you one thing with certainty -- you won’t agree with everything that I do. But, I also can promise you that I will manage your money as if it was my own and run a government that honors this county’s history and heritage while ensuring a future even greater than our past.

The aim is simple: make it better than we found it and give everyone good government at a good price. 

This is county government – that mysterious level of our federalist system – the one that most of us think about only when we get the tax bill. 

Today I plan to take about 25 minutes to tell you what we are doing with your money, what we are working on and what I see as the financial outlook of Lehigh County.

When I took office this January 3, I outlined three broad objectives for our Administration: fiscal discipline, positive growth and cooperation. It is imperative that any enterprise has a firm set of guiding principles. To sail rough seas one needs to have a strong and steady rudder in the water – and everyone on deck must understand the charted course.

In light of recent years’ unstable tax rates, instilling greater fiscal discipline has been this county’s primary need and our top priority. Spending other people’s money is our most sacred trust as public officials. We must remind ourselves every day that we work for ordinary people – and not the machinery of government or the privileged few. We must remember that rising taxes and rising prices affect everyone every day. Every dollar that we collect is money that could be spent on kid’s clothes, paying the mortgage or buying prescription drugs. It is always easier to just go along; to say yes instead of no; to spend the extra money.

Tomorrow, I will present to the County Commissioners the 2007 budget, my first budget as your county executive. The total budget will take in and spend $354.3 million. There will be no tax increase.

But, maybe, even more importantly, however, the 2007 budget will only be 2.8 percent higher than this year’s budget. This is because of good management and a commitment to fiscal discipline. As you now, inflation in the Lehigh Valley is at nearly 7 percent. Our prices for fuel, materials and labor are increasing like everyone else’s.  I made a commitment last year that I would hold spending to the rate of inflation. In this extraordinary year, if I did that, our budget would actually be more than 4 percent higher and we would probably need a tax increase, which would only lead to more inflation.

We will beat that commitment by a large margin.

I’m a firm believer that budgets aren’t made during the few months that you commit them to paper but during the 365 days of the year that you manage your operation.

In addition, it’s been critical that we begin to look beyond one year budgets. That’s what got prior Administrations in trouble and led to 70 percent tax increases.

Like any successful business, we’re looking ahead. Our five year financial models – from 2006 to 2010 – project no need to raise taxes in that period as long as we contain our spending to the rate of inflation and continue the current cycle of growth in the county. This is our plan. Barring any unforeseen calamity, it will be done.

That doesn’t mean that this county’s budget and cost structure are without challenges and potential pitfalls.

For years now, there has been a slight imbalance between revenues and expenditures because of commitments made long ago to provide full health care to employees hired before 1987. At that time, those costs were probably minimal. Today, it costs more than $6 million to provide health care for about 700 retirees – and that commitment will be continued.

Our county revenues meet our operating costs for the current workforce, but we need to apply about $6 million in reserves to balance the total budget. We’ve managed to reduce that a bit from last year but the subsidy will need to remain for some time into the future.

That’s why it’s imperative to manage our finances well and reduce unnecessary operating costs. That’s what we’ve set out to do during these first eight months. Let me give you a few examples:

Cost Controls

One of our most significant areas of reduction is something you may have read about: the proposal to renovate and expand the Lehigh County Courthouse. The proposal we inherited would cost the county’s taxpayers more than $80 million to build – actually $135 million if you count the cost of the interest to borrow that much money. I said last year that this was an unnecessary expenditure – and more than we can afford. Early this year, we offered an option to fix the courthouse and to buy a building like the old post office on Hamilton Street to create a judicial annex. This would have saved us in the area of $25 million. The idea was rejected by a slim majority of our Commissioners after opposition from the President Judge. Their resolution directed us to build the $80 million project. We ignored it.

Fortunately, working together, we’ve developed a second option. Build a smaller addition and reduce costs by value engineering and eliminating the frills. This will shave $22.5 million from the original project. The plan provides a safe, secure, modernized Courthouse that won’t leak and adds the requested extra space for all judicial related functions. This remains the largest capital project in Lehigh County’s history – and it’s imperative that we cap it at $60 million

The largest cost in most local government budgets are employees and their benefits.

Next year’s budget keeps county employment flat. While we will realign our workforce to focus on public safety, there will be no increase in the number of county employees. In the area of health care, we’ve had an extraordinary year. With the help of our unions, our employees, a new health insurance broker and Tom Muller’s group in administration and finance, we will see a reduction in total health care costs next year with no changes to coverage. Yes, I said reduction. We have asked all of our union employees to contribute towards their health care just as non-union employees do, along with single coverage employees.  To reduce costs more, all new hires will not have Lehigh County taxpayers paying for the health care of their spouses if they are eligible to be covered by someone else. With 300 current employees still eligible to retire with full health care, the biggest challenge on the horizon remains the cost of benefits for retirees.

You probably read a lot this year about the new voting machines. What you may not have heard about it is that through smart purchasing and banding together with other counties, Lehigh County shaved nearly $1 million from what was budgeted on the purchase of the new federal law-mandated voting machines. By not buying more machines than we needed, using grant money and negotiating through a Lehigh County-led consortium of counties, we cut the cost to Lehigh County taxpayers to only $500,000 for 700 state of the art electronic voting machines. That works out to $715 in Lehigh County tax money per unit on a machine that retails for over $3,000.

Along those lines, we’ve examined many business processes and made smart adjustments to how we perform routine tasks. Things like how we mow grass, spread lime in our county parks system and maintain our vehicles. We now do routine maintenance checks every 4,000 miles, avoiding large expenditures on deferred maintenance.  Five dollars for a brake pad today turns into $200 for new rotors tomorrow.

This year, we consolidated copying operations by closing the copying center in the Government Center and moving it to one copying center in the Courthouse. A few employees may get more exercise on Hamilton Street but we cut our costs in half.

We undertook a full audit of telephone lines and energy costs for unnecessary lines or extra charges. We found $18,000 in extra costs in unneeded lines and extra fees. We turned them off and saved the money.

To utilize our prison to full capacity, we rent our vacant space, making our prison a small revenue center. Vacant prison beds are rented to entities like the U.S. Marshals, the Bureau of Immigration and Naturalization and other counties with overcrowding problems at a cost of $77.18 per day.  The effective management of our own inmate population growth has allowed us to capitalize on our available beds, reducing the overall cost of the prison to our taxpayers.  In fact, since 1992, Lehigh County has generated more than $25 million in revenues this way. 

We started the year by setting an example that more can be done with less. We consolidated several cabinet director positions and reduced top management positions for a savings of more than $90,000. In keeping with that approach, I have supported the Commissioner-led initiative to consolidate three of our row officers, the Recorder of Deeds, the Register of Wills and the Clerk of Courts into one elected Judicial Records position. This just makes sense. And, it will go via referendum to the voters in November and, if it passes, the consolidated offices will save us a minimum of $100,000 and continue our approach of doing more with less.

Priorities

While these and other cost reductions have helped us to limit next year’s budget growth to only 2.8 percent, cost reductions don’t mean much unless you have the right priorities and a focus on excellent performance. 

We have made five areas a key priority: public safety, regional shared services, investment in infrastructure, the preservation of open space and positive economic growth. In this year’s budget, we will announce several new initiatives in the area of public safety and the reduction of crime.

We will also continue our shift to spend our precious capital dollars more wisely to better maintain our bridges and buildings. We will invest $773,000 this year to jump start the repair of eight new county bridges. Lehigh County owns 47 bridges and 32 are in need of some level repair. This, to me, is unacceptable.  Maintenance of bridges is one of our core responsibilities and one that for too long has been neglected. In the end, this is much more critical than the height of ceilings in a courtroom. That is why we will continue to appropriate at least three quarters of a million in this area for the next four years.

This is another reason why we need to cap courthouse spending at $60 million. Our needs are much greater than one building but our funds are limited.

In addition to the hard infrastructure of bridges, there is the infrastructure of our community, the infrastructure that creates quality of life. This year we have made commitments to valuable projects. We will resurface the track at the Velodrome track, our internationally renowned bicycle racing facility. Due to neglect, the Velodrome’s rating has been dropping and its status as a national venue threatened. That will change. This fall we will repair the track surface and next spring we will be back to the second highest category of bicycle track.  

In addition, this year we’ve put to rest many years of debate about the future of the Lehigh County Trexler Nature Preserve. Gone are the $30 million in plans for amusement rides and commercial marketing. Instead we will open the preserve up in the manner that Gen Trexler intended, to passive recreation: hiking, biking, and horseback riding.  The preserve will be a place for generations to come to enjoy nature, to see and experience land in an unspoiled state. We also will keep the bison and elk that have become icons of Lehigh County.

Fifty years from now, people may very well look back and admire this forethought, just as people in New York City have come to understand the vision of those who years ago set aside Central Park, as a place to remain free of development.

While the Velodrome and the Nature Preserve are truly gems that improve and enhance our quality of life, beginning in 2008 Lehigh County will step into the Big Leagues, well, maybe not the bigs, but very close to it. I am pleased to announce that later this week we will issue the ‘Notice to Proceed’ on construction of the Lehigh County AAA Baseball Stadium.  A facility that will seat 10,000 and host not only the Phillies AAA affiliate but be a venue for concerts and other sporting events throughout the year.  Let me say for those of you that may not have seen the plans or renderings, we are building something very special, that we will all be proud of.  I want to take a moment to let you know that Joe Findley and Craig Stein, the owners of Gracie baseball, have proven themselves to be excellent corporate citizens who I look forward to working with for years to come.

Maintaining our quality of life in Lehigh County also requires that we maintain our way of life. Beyond venues and parks, we need to preserve our agricultural heritage and open space. This year, we have a record amount of money available for farmland preservation: $8.3 million. We now rank third in the state in farmland preservation with a total of 16,044 preserved acres. We have another 23 farms that are in the process of being preserved. And, this year, we became the first county ever to take advantage of a new state law that freezes the mileage rate on preserved farms. That means no future tax increases from the school district, municipality, or county would be paid. Hopefully, this is an additional incentive to help preserve our farmland.

In addition to farmland preservation, this year we purchased 124 acres of land on South Mountain from the Bethlehem Water Authority by using county Green Future Fund dollars to leverage both state Growing Greener Funds and a Keystone Grant.  Now, that land on South Mountain will be protected from development and become part of the county’s open space system.

Positive Growth

We need to continue to grow and add tax base, without growth we will become a community of the past, but a community of the future needs to grow the right way. We are focused on trying to grow Lehigh County by helping to expand economic development opportunities and tax base in our urban core: Allentown, Bethlehem and the urban boroughs. We are working with our 25 municipalities to take a broader look at planning and development, one that looks outside the borders of a particular township toward the needs of the whole county and valley. For growth to remain a positive for our county’s quality of life, it must include the retention of open space, the preservation of farmland and a focus on using market forces and smart planning and zoning to redirect growth to our downtowns, our old industrial sites and the areas where we have the proper infrastructure to handle the traffic. These are the guiding principles of our new positive growth strategy

Toward that end, I’ve convened meetings this year of all our municipal leaders and have begun development of a Vision 2010 Plan for Positive Growth. Out of this has come the creation of two new grant funds that will be in the 2007 budget:  a Main Street Initiatives Fund and a Regional Partnerships Fund.

The Main Street Initiatives Fund will provide money to municipalities for streetscapes, new development and upgrading of existing retail and mixed use properties and urban core businesses.  It will exist to help communities change the landscape of neighborhoods in and near their central business districts, attracting new investment by the private sector in the process.

The Regional Partnerships Fund will provide funds to help our twenty-five municipalities interact with the county and with each other.  It makes sense for us in Lehigh County to move toward sharing services and working with each other instead of against one another.  Every resident of the Lehigh Valley will benefit when we begin to work together on multi-municipal land-use planning.  Every resident of the Lehigh Valley will see their quality of life increased when the township that they live in has extra money to put into the parks system because they saved money on purchasing supplies by leveraging the increased demand of several municipalities to drive down prices.

In fact, for the first time ever, this past year we brought together all twenty-five municipalities to network and share their concerns with each other and with the county.  This forum, that we named Vision 2010, provided a great opportunity to identify the challenges that we all face, that’s why in 2007, I will work with our municipalities to create a Council of Governments in Lehigh County that meets regularly to discuss regional planning and shared services.

We continue to grow rapidly in Lehigh County, and one of key economic indicators that predict that will continue to grow in the next few years is the fact that the private sector continues to demonstrate willingness to invest here. Along with the residential growth taking place, the commercial and industrial expansion in the county this past year has been strong. I’d like to highlight just a few:

  • LUTRON electronics has undertaken a tremendous expansion that includes building a 250,000 square foot office building and the creation of 100 new highly-skilled engineering and technical jobs over the next three years. Their investment of $60 million into the project represents confidence in the Lehigh Valley.
  • Automatic Data Processing will also expand their East Coast Telesales operations and create 300 jobs over the next three years.
  • Buckeye Partners is moving from Lower Macungie to the Tek Park in Breinigsville. They are consolidating operations and retaining 200 jobs in the Lehigh Valley, and creating 45 new jobs in the process.
  • Dunn and Bradstreet Information Systems had seriously considered leaving Lehigh County and moving to New Jersey, but they will be remaining in Lehigh County and keeping 750 jobs as they move into a new office building currently under construction in Upper Saucon Township.  Again, their investment, which will be in the area of $30 million, represents significant private sector confidence in Lehigh County.
  • DHL is currently under construction in Breinigsville on what will be their new 350,000 square foot fully-automated east coast distribution center.  Their $42 million investment will create 104 jobs over the next three years.  DHL is a worldwide shipping company, they really could have chosen to invest $42 million into any area in the world, but they chose to invest and locate here in the Lehigh Valley.
  • Olympus America, the inventors of the microscope, just finished construction of their 337,400 square-foot American corporate headquarters.  This spectacular, unique building will house 800 new employees whose jobs will be created over the next three years.
  • Nestle Water is opening a second manufacturing plant here.  The 400,000 square-foot facility and 90 new jobs created represent a $200 million investment in the County.
  • On the retail side, in September, 2006, Boscov’s will open a 178,000 square foot store in the Lehigh Valley mall which will have 425 new employees on opening day.
  • The Promenade Shops are planning to open in late October of 2006.  This 475,000 square-foot facility already has 44 tenants confirmed.
  • There is a lot of investment still in the works that I’m not able to mention today.  We expect several major announcements for expansions, relocations and new business development in the manufacturing, tech and retail sectors over the next few months.

Lehigh County is on the move. Thanks to all of you. This is your county. It’s your investment, your hard work, your commitment to community that makes this a very special place to live.

I believe that Lehigh County is the place that can lead the rest of our state in showing how municipalities can work together, share resources, regionalize, and plan smarter for positive growth. This is a county of people with a proud heritage of hard work, frugality, ingenuity and strong sense of community. If partnerships and cooperation for the greater good can happen anywhere it is right here in Lehigh County.

Our financial outlook is good but the prospects for our future are even better.

 

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