It's The Details That Can't Be Strung Behind An Airplane That You Should Be Worried About

This may come as a surprise to some, but probably not most of you.

On August 24, 2007, the day before the deadline for Put It On The Ballot to turn in our petitions to force a vote on the sales tax increase, the Cuyahoga County Commissioners released their 2007 Midyear Financial Report that you can find in its entirety here.

I'll share some highlights of the report with you and let you judge whether the real reason for the urgency of this sales tax increase was a medical mart or whether the Commissioners desperately needed to prop up their General Fund. Recall the the sales tax increase is not specifically earmarked for the convention center/medical mart, but is just dumped in to the General Fund.

As is clear from the following excerpts of the Midyear Financial Report, the county is already hinting that it will need the revenue from this sales tax increase to support/offset and expected general fund operating deficit.

The County’s General Fund and Health & Human Services (HHS) Levies combined available year-end balance is estimated at $120.4 million with an operating deficit of $9.1 million. The operating deficit exists even with the anticipated proceeds of $13 million from the sale of the County’s Skilled East property and the northern portion of the Youth Development Center in Hudson that is expected to take place in the third quarter. The $9.1 million deficit could be further reduced should these two properties sell for more than $13 million (or could increase if less than $13 million is received). . . .

On an individual fund basis, the General Fund is projected to have an operating deficit of $5.5 million (an $18.5 million operating deficit if one-time revenue is excluded) and the HHS Levy Funds a $3.6 million operating deficit. Sound financial management practices prohibit the use of one-time revenue sources for on-going operational needs since it only postpones the problem and more drastic measures are required to eliminate the deficit once the onetime revenue source expired. . . .

The All Funds available ending balance is estimated with a $15.3 million deficit as well. In addition to the deficits in the General Fund and HHS Funds, operating deficits are also anticipated in 40 of the other 89 funds that are included in the annual budget. As fund balances are depleted in these funds, agencies will have to seek revenue enhancements and/or program/expenditure reductions to avoid additional pressure being applied to the General Fund by these agencies seeking funding from the General Fund to continue services or programs previously financed with non-General Fund revenue. . . pg. I-1.

General Fund
On July 26, 2007, the Board of County Commissioners approved a one-quarter of one percent increase in the sales tax, increasing the current tax from 7.5% to 7.75% for a period of twenty years. The tax increase is expected to generate approximately $42 million additionally. The primary driver for this increase was to aid the financing of the public portion of the Medical Mart/Exhibition Hall presently being contemplated. This increase is reflected in the General Fund’s 2008 and 2009 revenue amounts; hence operating surpluses of $19.0 million and $7.0 million are forecasted, respectively. A $42 million reserve will be established to set aside the funds to finance the construction of a new exhibition hall should we be successful in attracting a medical mart. Excluding these reserves, the General Fund’s available ending balance to expenditure ratio in 2008 and 2009 drops to 17.1% and 6.6%, respectively, falling below the desired goal of maintaining a minimum balance of 20%. The drop in the available ending balance is directly linked to expenditures increasing and property taxes being diverted to pay for debt service on debt issuances for numerous capital projects. If the $42 million generated from the sales tax increase is subtracted from revenues, a $23 million operating deficit exists in 2008 and the deficit grows to $35 million in 2009. To bring operating expenditure in line with operating revenues assuming the full sales tax increase is set aside for the exhibition hall, a 6% expenditure reduction is needed in 2008 and another 3% in 2009. pg. I-2.

Between 2001 and 2004, Sales Tax remained relatively flat. In 2004 and 2005, sales tax jumped 5.2% and 2.1%,respectively primarily due to the expansion of sales tax on telecommunication services and other services that previously were not taxed. Sales tax dropped $336,053 to $168.6 million in 2006. As of July 2007, actual sales tax collections are 1.6% higher than the same point in time last year. It is estimated that 2007 sales tax of $170.3 million will be 1% higher than 2006’s collection. The 2008 estimate includes the additional revenue from the 0.25% increase. pg. I-4.

Sorry for the long post. But there it is, in black and white, published under the names of the County Commissioners. The "primary driver" for the sales tax increase? -- this implies that it was NOT the sole reason. "Assuming the full sales tax increase is set aside for an exhibition hall" -- this language in this report tells us that the Cuyahoga County Commissioners lied to us all along.

CEP