- Part 2 of a Series.
An old expression goes, “Victory has a thousand fathers … defeat is an orphan.”
As I mentioned in last week’s Chairman’s Corner, we’ve got a thousand fathers to thank for Kane County’s financial successes of the past four years. There’s strength and stability in Kane County’s budget process, and your County Board members have been conscientious in holding the line on property tax levy.
But I also warned that we don’t ever want to be orphaned in defeat, and I promised to point out some of the highlights from Kane County’s recent audit and the massive 322-page Comprehensive Annual Financial Report (CAFR).
So, here goes. The following are some bullet points from the report that I think are important for Kane County residents to know. I’ll do my best to keep this summary simple, interesting and relevant, and I’ll provide a little analysis along the way.
Bond Indebtedness Down
Bond debt went down $8 million in comparison to the previous year, according to a recap on Page 4. Smart refinancing of some of our obligations and the retirement of others contributed to this good news.
Revenue Exceeds Expenses … So Far
Because county government is a perpetual operation, any excess of revenue over expenses needs to be viewed as temporary, if only to err on the side of cautious perspective. This year, there was a “temporary” excess of revenue over expenses of $6.6 million, as shown on Page 28. My opinion: This beats the heck out of a deficit of any amount.
Pension Obligations a Worry
If you calculate the present value (i.e. “How much do I need in the bank today?”) of all the future pension obligations to be paid out, then subtract the amount we actually have deposited in the bank, the answer is called our “unfunded liability.”
The state of Illinois’ unfunded liability is a staggering $110,000,000,000 ($110 billion)! Less than 55 percent of the present value of future benefits is held in assets in the bank. That’s less than a 55 percent funding ratio.
In my opinion, this is bankrupting our state and leading to consistent downgrades to the state’s bond rating.
Fortunately, during the past two years, our board has authorized deposits to the pension accounts in the Illinois Municipal Retirement Fund (IMRF) about $2 million more than the required annual contribution. And that’s a very good thing: In a way, these are like prepayments on a home mortgage.
For rank-and-file employees, our funding ratio (shown on Page 87 of the CAFR) is 87.25 percent, and for law-enforcement personnel, it is 70.39 percent. This compares to a generally accepted good standard of 90 percent.
More good news: Both of these statistics improved by 8 percent to 10 percent last year. Steady progress on a long race.
One of the reasons I’m encouraged by the structure of the IMRF funds is that the each fund’s performance is segregated. Frankly, other local governments haven’t been successful in meeting these legal obligations, but their lower funding percentages do not affect our fund. With fiscal discipline, we can be we masters of our own destiny rather than victims of some “random” fate.
Other Post Employment Benefits
A liability that is seldom discussed in local and state government circles is called “Other Post Employment Benefits” (OPEB). These are obligations to retired employees for healthcare costs and can have substantial unfunded liabilities, like the pension problems I mention above.
Last year, I was distressed that our OPEB unfunded liability increased — and it did so by as much as our pension unfunded liability was decreased, cancelling some of the hard-earned gains of our disciplined prepayment.
Where other local governments have not focused on this problem, we have begun to address our options to contain the costs of this expense. This year, that liability shrunk by $3.4 million on (see Page 88 of the CAFR), so we’re going in the right direction!
Just the Stats, Ma’am
I want to give our financial staff and outside auditors “extra credit” for the last chapter of the CAFR, titled “Statistical Section,” which starts on Page 288.
Next year I’m going to ask for a chart that shows the 10-year performance of our General Fund revenues and expenses, as long as it doesn’t violate any of the generally accepted accounting and auditing standards. That will give us a clear and easy-to-understand visual that we can share with you.
In Summary …
This year it’s almost all good news. But as I said in Part 1 of this Chairman’s Corner, we need to keep our eyes open and trained on the horizon to watch out for future threats. We cannot allow any agency or county department to overspend, and we can’t forfeit advantages and cash flows that we already possess.
For now, we’re going to be grateful for the good work that was done this past year and get ready for this summer and fall’s budget process.
I’ll keep you posted on how we’re doing.
Kane County Board Chairman
June 19, 2015