Yousef Rabhi, right, chair of the Washtenaw County board of commissioners, talks with Shamar Herron, workforce development manager in the county’s office of community & economic development, at the county board’s Aug. 8, 2013 working session. (Photos by the writer.)

A memo prepared by Conan Smith (D-District 9) outlined six options for generating more tax revenue. Three of those options would not require voter approval, because the Michigan statutes that authorize the millages predate the state’s Headlee Amendment. The board already levies two of these types of taxes – for indigent veterans services, and agriculture/economic development – but doesn’t yet levy the full amount allowed by law. The third tax in this category, which the county doesn’t levy now, would pay for road repair.

Other approaches would need voter approval. A Headlee override – allowing the board to raise its operating millage to the cap of 5.5 mills, from the current rate of 4.5493 mills – would result in an additional $13.5 million in tax revenues next year. The rate of 5.5 mills has been rolled back over the years by the Headlee Amendment, which was designed to prevent property tax revenues from increasing faster than the rate of inflation.

Commissioners also discussed the possibility of putting a millage proposal on the ballot for specific purposes, like public safety. Sheriff Jerry Clayton attended the working session and stressed the importance of funding for public safety.

A targeted millage could also pay for annual contributions toward the county’s unfunded pension and retiree healthcare obligations. But that strategy would not eliminate the entire amount of unfunded liabilities, estimated at nearly $300 million. A controversial bond proposal intended to eliminate those obligations was halted in early July. [See Chronicle coverage: "County to Push Back Vote on Bond Proposal."] However, on Aug. 8 some commissioners indicated that bonding was not off the table, and could still be considered. Michigan’s Public Act 329 of 2012, which enables municipalities to issue bonds for these kinds of obligations, has a sunset of Dec. 31, 2014.

In other possible revenue strategies, Conan Smith also advocated to use some of the general fund’s roughly $16 million fund balance, to support one-time investments like capital expenditures or to replenish fund balances in specific departments. He had made a similar proposal at the board’s Aug. 7, 2013 meeting, but did not win support for it from the majority of commissioners.

At their working session, several commissioners expressed general support for seeking some kind of voter-approved tax, either a Headlee override or a targeted millage. There seemed to be less support for tapping the general fund’s fund balance. Yousef Rabhi (D-District 8) described the fund balance approach as “a short-term energy pill. It’ll get us a couple feet down the road, but it won’t give us the miles that we need.”

It’s unlikely that a millage proposal would be put on the November ballot. To do so, the board would need to take action this month, which would require calling a special meeting. The board’s next scheduled meeting is Sept. 4.

The Aug. 8 working session also included a presentation by Mary Jo Callan, director of the county’s office of community and economic development, about current and proposed initiatives related to economic development. The session was attended by Ann Arbor SPARK executives, including CEO Paul Krutko.

This report focuses on the board’s budget discussion.

Sheriff’s Perspective

Andy LaBarre (D-District 7), who chairs the board’s working sessions, told commissioners that he had invited all of the other county elected officials to the Aug. 8 session, but most were not able to attend. Only sheriff Jerry Clayton was on hand, and he joked that he was designated the “sacrificial lamb” by the other electeds. [In addition to Clayton, officials elected to a countywide position are Brian Mackie, the prosecuting attorney; treasurer Catherine McClary; clerk/register of deeds Larry Kestenbaum; and Evan Pratt, water resources commissioner. All are Democrats.]

Clayton told commissioners that although he and other electeds don’t make the final decision about the county’s budget, they are all following the board’s discussions with great interest, because their operations will be affected. Referencing the presentation earlier in the session by Mary Jo Callan, Clayton said he was glad to see the connection drawn between public safety and economic development. Everyone knows that businesses are less likely to locate in communities where there are challenges with public safety, he said. He appreciated that the board recognized this connection, and that commissioners supported public safety in the budget.

Washtenaw County sheriff Jerry Clayton, seated, talks with county commissioner Dan Smith (R-District 2) during a break at the May 16, 2013 county board retreat.

As the board developed the next budget, Clayton hoped they wouldn’t make decisions purely from a financial perspective. It’s important to consider the impact of budget decisions, he said, in terms of the services that the county provides and the people who receive those services. Clayton expressed concern about focusing on short-term outcomes. He noted that some commissioners have talked about positioning the county for the future and thinking strategically, and he supported that approach.

Clayton didn’t want to see the county “spending dollars chasing pennies” – making short-term financial decisions that don’t consider the long-term community impact. As an example, he cited the board’s discussion at its meeting the previous night, on Aug. 7, 2013, about returning money to the fund balances of some departments. He clarified that the sheriff’s office does not have a fund balance, though he wished it did. The community corrections unit, which was transferred from the trial court to the sheriff’s office a few years ago, does have a fund balance. [The discussion at the Aug. 7 board meeting had not made that distinction.]

He noted that the board’s discussion had included some statements that the sheriff’s office and community corrections unit had chosen to use the fund balance to help balance their budget in 2012 and 2013. He argued that this wasn’t the case. His office had presented a budget proposal to fund the level of staffing that was appropriate to meet community needs, Clayton said. However, the county administration set the budget at a lower level, and told his office that the community corrections fund balance could be used to make up the difference. He noted that the county administration doesn’t use the general fund’s fund balance in that way, because from a strategic standpoint, a reserve is needed for unforeseen circumstances.

Using the community corrections fund balance wasn’t something his staff chose to do, Clayton stressed. But they understood the impact on the community if services aren’t provided. It costs about $10 a day to monitor someone on probation, he noted. A recent study showed that for one day in jail, it costs about $85. Clayton said his staff had done its own research and estimates the cost is closer to $130 a day.

The local courts have confidence in the community corrections program, Clayton said, noting that it’s administered by Renee Wilson. “The judges don’t hesitate to send people to community corrections in lieu of sending them to jail, which saves significant dollars,” he said. This is just one example of how a county program impacts the budget indirectly, he noted.

Clayton said he has supported the county’s struggles around the budget, and the sheriff’s office has taken reductions. He’s prepared to take more reduction in the coming budget, he added, but “we’re in the bone, we’re deep in the muscle.” If the budget is cut beyond a certain point, then his office will have to start incurring overtime costs to meet the community’s needs, which will cause them to go over budget. He hoped his office would at least have the opportunity to talk to the board about how any cuts might impact public safety services. “At the end of the day, we know that we’re all in this together,” he said.

The board has established budget priorities, Clayton noted, and the budget for each unit should be evaluated based on those priorities. “Fairness doesn’t mean we’re all going to have the same outcome,” he said. But since he took office in early 2009, there have been a higher level of reductions for the sheriff’s office than in other units, he contended. As long as the board makes its decisions based on the priorities that it has set, and as long as commissioners are open to feedback, “then I think we can move forward in partnership,” he concluded.

Responding to Clayton’s comments, LaBarre said he worried about cutting the sheriff’s office down to a point where it becomes solely reactive.

Felicia Brabec (D-District 4) thanked Clayton, and said she agreed with the need to make budget decisions that reflect the board’s priorities.

Dan Smith (R-District 2) pointed to Clayton’s comments about the board recognizing the importance of having safe communities throughout the county. Crime does not respect municipal boundaries, Smith noted, and having businesses and homes that are safe countywide affects everyone. This board has recognized that for a long time, he said.

Board Discussion: Budget Options

Andy LaBarre (D-District 7) began the main budget discussion by saying this was a chance to assess where the board stood and to get reactions from commissioners. He noted that Conan Smith (D-District 9) had distributed a memo that outlined various budget options for the county, as well as a flow chart showing what needs to happen if the county moves forward with any of the options. [.pdf of options flow chart] [.pdf of budget options memo]

Smith’s memo described four alternatives:

• Issuing bonds to cover the county’s unfunded pension and retiree healthcare obligations – for the Washtenaw County Employees’ Retirement System (WCERS) and Voluntary Employees Beneficiary Association (VEBA).
• Seeking a Headlee override from voters, to raise the cap on the county’s general fund tax rate.
• Pursuing a voter-approved tax for a specific purpose, such as public safety or human services.
• Cutting expenditures.

Conan Smith characterized the flow chart as a decision matrix, so that people can understand what steps are needed to make any of the decisions. The chart includes decisions points for both the board and voters, and what would happen at each of those points, depending on the decision that’s made.

The memo that provides more information about various revenue options also includes a chart listing each non-special election date through November 2014, and the deadlines for getting millage proposals on the ballot.

Chart showing timeline for putting a millage proposal on the ballot.

A mill is $1 per $1,000 of a property’s taxable value. Based on the county’s 2013 total taxable value of $14.21 billion, a levy of 1 mill would generate $14.21 million. A millage can be placed on the ballot in increments of one-tenth of a mill. The lowest amount – one-tenth of a mill – would generate $1.421 million.

Smith noted that due to various exemptions and deductions throughout the county – such as tax capture by downtown development authorities or brownfield tax increment finance districts – revenue to the county from a millage could drop by as much as 18%, depending on the jurisdiction.

Several options for millages could be considered by the board, Smith said. Those include:

• Headlee override: The county was originally allowed to levy up to 5.5 mills, but rollbacks due to the state’s Headlee Amendment have reduced that amount to 4.5493 mills. An override, if approved by voters, would allow the county to levy the original 5.5 mills, bringing in an additional $13.5 million in tax revenue in 2014. Smith pointed out that the board wouldn’t necessarily levy the full 5.5 mills, but an override would give commissioners the option to do that.
• Act 88 (agriculture & economic development): The county is allowed to levy up to 0.5 mills under Public Act 88 of 1913, but currently levies a small percentage of that – 0.06 mills, which will bring in $696,000 this year. It’s used for programs run by the county’s office of community development, and to fund the county’s MSU extension office. Act 88 does not require voter approval. It was originally authorized by the county in 2009 at a rate of 0.04 mills, and was increased to 0.043 mills in 2010 and 0.05 in 2011. Last year, Smith proposed increasing the rate to 0.06 mills and after a heated debate, the board approved the increase on a 6-5 vote. [See Chronicle coverage: "County Board Debates, OKs Act 88 Tax Hike."]
• Veterans Relief: The county currently levies 0.0286 mills for services to indigent veterans, administered by the county’s department of veterans affairs. The maximum allowable tax of this kind is 0.1 mills, which would bring in about $1.42 million annually. Smith’s memo suggests that the amount could be used to support other programs, such as early childhood education for the children of low-income veterans. This tax does not require a vote of the public.
• Act 283 (county roads): The county has previously discussed levying up to 1 mill to fund county roads, bridges and culverts. It has never taken action to levy this millage, which does not require voter approval.
• Conservation District: If approved by voters, the county could levy up to 1 mill for a countywide conservation district, or up to $14.2 million. Smith’s memo indicates that the current conservation district gets $30,000 from the general fund each year. Additional funds could be used to support the budget for the water resources commissioner, which gets $1.887 million from the general fund, or the public works line item, which receives $77,666 from the general fund.
• Additional targeted millages: The board also has the option of putting a millage on the ballot to support specific programs or other expenses. Possible millages might cover: (1) the county’s unfunded pension and retiree healthcare obligations; (2) public safety services; (3) human services or outside agency funding; (4) early childhood education or “college promise” programs; or (5) land bank and blight elimination programs.

Smith described his memo as a brainstorming document. He noted that one thing the memo doesn’t include as an option is the use of fund balance. The county maintains a “remarkably strong” fund balance, he said. “We’re sitting on $16 million of fund balance right now, as of 2012, which is more than we anticipated having.” In the previous budget cycle, part of the board’s conversation centered on how much of a fund balance does the county need, he noted.

It’s true that if the county has a higher fund balance, it supports the chance of getting a better bond rating, Smith said. “But what does that higher bond rating actually deliver you? This tiny incremental change in the interest rate on your bonds.” So unless the county wants to issue a major bond proposal, Smith said, then moving from double-A to triple-A doesn’t really gain much.

Smith recalled that John Axe, bond counsel for the county, said that a fund balance of at least 10% of general fund revenues is needed in order to keep the double-A rating. For Washtenaw County, that would be about $10 million. So there’s about $6 million of fund balance that could be used for programs and services, Smith said. It wouldn’t be wise to use it for structural activities, like staffing, he said, but it would be appropriate for one-time investments like capital expenditures. He wanted to put that on the table as a possible option when tackling the budget.

Yousef Rabhi (D-District 8) noted that the board has talked about the importance of not forgetting about the county’s unfunded liabilities for pensions and retiree healthcare. The fact that the board considers this one of its top priorities is unique in the state and nation, he said, and they realize that they need to find a way to fund it.

For him, it was clear that the voters should be asked to weigh in, Rabhi said. This isn’t an issue that the current board created, he contended, but they have a responsibility to address it. “If we don’t, Washtenaw County will not be a county that can provide the services that we’ve traditionally provided,” he said. It’s not acceptable to go back on the county’s promises to employees who have dedicated their lives to this organization.

The board needs to think seriously about asking voters for a Headlee override, Rabhi said. He argued that spending the fund balance won’t solve the problem. “Fund balance is a short-term energy pill. It’ll get us a couple feet down the road, but it won’t give us the miles that we need. We can’t do it with fund balance.”

As for bonding, it remains on the table as an option, Rabhi said. But the board should also give voters the option of taking a different route, he added.

Dan Smith (R-District 2) reminded commissioners that the county currently has a policy that allows the administration to borrow from other county departments to meet the general fund’s cash flow needs. One of the reasons to have a healthy fund balance is to eliminate the need for inter-departmental borrowing, he said, so that there’s enough money to meet payroll before the July tax revenues come in.

A healthy fund balance also allows the county to react methodically to circumstances as things change, D. Smith noted, and take a long-term approach to making decisions.

D. Smith also addressed the theory behind the Headlee Amendment. The idea is that a property owner’s taxes increase in line with inflation, which presumably matches an increase in expenses, he noted. From the county’s perspective, when property tax revenues are high, the additional revenues could be set aside in the fund balance so that when a downturn hits, the county has an extremely healthy fund balance that it can use to get through a period of lower tax revenues.

But that’s not what happened – not in Washtenaw County or probably any other Michigan municipality, D. Smith said. “The tendency is that when you have more money, you spend it, not save it,” he noted. A lot of programs were added over the past 15 years that the county no longer can afford, he said.

D. Smith acknowledged that the theory behind Headlee “doesn’t actually play out in practice nearly as nicely as we would like.”

Regarding the possibility of levying a millage under Act 283 to fix roads, D. Smith said the poor condition of roads is something he hears about from constituents. He’s frustrated at waiting for a solution from Lansing, but he balances that with the outcome of a recent vote in his district, when voters in the Whitmore Lake school district rejected a millage by a 2-to-1 margin. People in his district are paying a lot of taxes, and are challenging him to find ways to meet their needs without increasing taxes.

Rolland Sizemore Jr. (D-District 5) responded to D. Smith’s remarks: “Dan, when you figure that out, you let everybody know where you can get all this work done without spending any money. I know you’re a Republican, but that’s gonna be a hard one to pull off.”

As the board’s liaison to the Washtenaw County road commission, Sizemore noted that he serves on a committee that’s exploring the possibility of a millage for road repair.

Sizemore also suggested looking at non-mandated programs that the county funds, which offer services that might be duplicated by other organizations. There might be ways to get rid of some of those non-mandated services, he said, and shift the funding to other programs in the county. He called for public forums so that residents could let the board know their priorities. Such forums would also provide the opportunity to educate the public about the county’s budget, and the impact if certain programs are cut, he said.

Alicia Ping (R-District 3) observed that the board had spent a lot of time this year focused on the bonding proposal, and it’s now behind in pursuing other possible options. She’s opposed to touching the fund balance, and feels that paying down the county’s unfunded pension liabilities should be a priority. Ping agreed with Sizemore about looking at non-mandated programs. Funding for those kinds of programs should be put on the ballot for residents to decide if it’s a priority.

She said she didn’t have any solutions, but felt that “no matter what happens, we’re going to have to put something on the ballot, sooner rather than later.” She described a Headlee override as “kind of a band-aid,” but supported the idea of putting other millages on the ballot so that voters can weigh in.

LaBarre agreed with the need to address the unfunded pension and healthcare liabilities. “I would wager that every one of us – all nine of us – are committed to doing that. We haven’t taken a public vote to say we are, but that’s certainly the sense I get.”

At the same time, he said, “I don’t want to cut Washtenaw County to a skeletal organization.” He added that he doesn’t want it to be a rural county that provides “bare-bones” services. The government here does more than that, LaBarre added, “and I think generally, the citizenry supports that” – either directly, by voting in support of millages, or indirectly by electing commissioners who share those priorities.

LaBarre said he initially thought that bonding was a good solution, but now he has doubts about that. There are risks with bonding that might result in the county losing more than it gains. With a millage, on the other hand, the board gets the buy-in of residents and a relatively stable source of funding, he observed.

Commissioners do their jobs on a part-time basis, LaBarre noted, either in addition to their day jobs or in one case as a retiree. He said he’s not an expert, but everyone is trying to do their best and do what’s right. Having this discussion is important, LaBarre said, and he agreed that the board should get some options out to voters and make their case for supporting those options.

In the short-term, however, the administration is moving forward to develop a four-year budget that assumes that bonding is off the table, LaBarre said.

Kent Martinez-Kratz (D-District 1) spoke next, saying that he thought the county needed a bit more reduction in expenses. It’s also appropriate to consider the definition of a healthy fund balance, he said. For a year or two, he felt the county could reduce the current fund balance by one or two percent. He noted that he works for an institution that for 20 years has had a 3% fund balance, “and we still row the boat every year.” [Martinez-Kratz is a special education teacher with Jackson Public Schools.]

The county will see some significant savings, thanks to the long-term labor agreements it reached with unions earlier this year, Martinez-Kratz noted. But there are still a couple of rough years to get through, he added. So he’d like to trim a bit out of the structural costs, and use some money out of the fund balance.

Rabhi spoke again, noting that residents of Washtenaw County are attuned to what’s happening. They understand what the unfunded liabilities mean to the budget, he said, and the potential that addressing those liabilities can have on future budgets. More education needs to happen, he added, and now is the time to do it because so much education and engagement have already taken place.

For most of this year, there were only two options on the table, Rabhi said: bonding, or budget cuts. There are other options, but those are limited to millages. State revenues are decreasing while the county’s cost of providing services is increasing, and the unfunded liabilities continue to put pressure on the budget, he said. If the board does nothing, in the long term the county won’t even be able to provide an adequate level of mandated services.

Rabhi talked about the need to put the county back on track to being an entity that provides first-class services to its residents. “I’m 25 years old,” he said. “I’m going to be in this community for a long time. I want Washtenaw County to be here for a long time, and to take care of my fellow citizens.”

Balancing the budget by just cutting services doesn’t seem like a productive way to help people, he said. He asked other commissioners and residents to think about the long-term health of the county.

It’s short-sighted to think about using the fund balance as an option, Rabhi said, because it’s not a long-term solution. It can be part of the equation, but “we need to be thinking bigger.” Talking about a millage is important, he said. These are tough issues, and it would be easy to put off making decisions. “That’s not the option we’re taking. We’re taking the hard road, we’re taking the long road of fixing this problem.” It’s going to take the time and energy of every commissioner and the community, he said.

Rabhi concluded by stressing the importance of allowing voters to weigh in on a possible millage.

Felicia Brabec (D-District 4) noted that the upcoming budget will include cuts, but those cuts need to be balanced by looking at the services that the county provides. Those services are why some people moved here. She was glad that the board is tackling the issue of unfunded liabilities, although “it feels like a Goliath.” She found the idea of a Headlee override “enticing” and definitely worth exploring, and liked the idea of looking at other potential millages too. “The one that seems to provide the revenue without some of the drawbacks and specificity … is a Headlee override.” She said she’s open to other options as well.

Conan Smith (D-District 9), left, talks with Pete Simms of the county clerk’s office at a May 16, 2013 county board retreat.

Conan Smith said he wanted to clarify an issue regarding the unfunded liabilities. There’s only one way to take care of the full amount, and that’s by bonding to cover it, he said. To make it disappear, the county would need the full amount as a lump sum. “Otherwise, what we’re talking about is the annually required contribution toward that unfunded liability and toward the benefits that we have to provide,” he said.

For many years, the county handled the annual contributions as part of the regular budget process. But when the board voted earlier this year to close the defined benefit plans as part of the long-term labor agreements, that action ratcheted up the amount of the annual required contribution. “That’s what we’re grappling with,” he said. Rabhi had stated that the board didn’t cause this situation, C. Smith noted. “Well, in fact, we did cause this.”

C. Smith noted that he’d supported closing the retiree health care plan, but he said he had disagreed with closing the pension plan. He had wanted to close only the VEBA, because those costs are so variable.

To decrease the required annual contribution, C. Smith said the board could consider re-opening the pension plan and bringing those employees “back into the fold.” Then, the employees’ contributions to the plan would lower the county’s required contribution from the general fund.

So the board’s three options are to find new revenues, cut costs, or transform the retirement system, he said.

Returning to the topic of using the county’s fund balance, C. Smith argued that budget reductions are not inevitable. Every budget cycle, the county makes millions of dollars worth of one-time investments in non-structural, single-purpose expenditures. “That’s a completely legitimate use of fund balance in a down economy,” he said. That’s especially true if those fund balance investments are designed to rebuild the local economy and bring in more tax revenues, he added. He gave some examples of such investments – neighborhood stabilization programs, or workforce development programs to help people find jobs so that they’ll have more discretionary spending.

He also suggested the possibility of using the county’s pension funds to invest in local businesses so that they grow and employ more people. “That’s a budget-neutral approach – that doesn’t take any additional tax money at all,” he said. The board should be thinking of strategies like this as the budget is developed.

“So it doesn’t have to be a cuts-only budget, and it doesn’t have to be a budget that’s framed around paucity,” C. Smith said. “We can be strategic about rebuilding prosperity in the community.”

C. Smith said he doesn’t want to use general fund revenue to pay for the roughly $3 million in additional required pension and retiree health care contributions. He’d still like to pursue the bonding option, “but you’re going to get my support for any strategy that stops us from snagging general fund money for that.”

The Headlee override “is like a dream for a public official,” C. Smith said, because it provides maximum flexibility for how the tax dollars can be spent. But it’s also the hardest thing to sell to voters, he added, “because it’s so vague.” Unlike a targeted millage, the additional operating revenue wouldn’t be dedicated to a specific purpose. The Michigan Municipal League and Michigan Townships Association have found that millages are most likely to pass if the tax is tied to a specific use, he said, like the public safety millage passed earlier this month in Ypsilanti Township.

C. Smith said he was becoming more inclined to support a millage for public safety. Public safety services represent 45% of the general fund budget, including about $11 million for the sheriff’s road patrol. “It is a tangible benefit to the community,” he said. “It’s something that any citizen out there can understand.” He noted that it’s been a contentious issue in the past, and that officials with other local municipalities would like to see the matter settled. If the county were to provide a secure revenue source for public safety, it would stabilize the budgets of other municipalities and also would provide increased flexibility for the general fund.

Present: Felicia Brabec, Andy LaBarre, Kent Martinez-Kratz, Alicia Ping, Yousef Rabhi, Rolland Sizemore Jr., Conan Smith, Dan Smith.

Absent: Ronnie Peterson.

Next regular board meeting: Wednesday, Sept. 4, 2013 at 6:30 p.m. at the county administration building, 220 N. Main St. in Ann Arbor. The ways & means committee meets first, followed immediately by the regular board meeting. [Check Chronicle event listings to confirm date.] (Though the agenda states that the regular board meeting begins at 6:45 p.m., it usually starts much later – times vary depending on what’s on the agenda.) Public commentary is held at the beginning of each meeting, and no advance sign-up is required.

The Chronicle could not survive without regular voluntary subscriptions to support our coverage of public bodies like the Washtenaw County board of commissioners. Click this link for details: Subscribe to The Chronicle. And if you’re already supporting us, please encourage your friends, neighbors and colleagues to help support The Chronicle, too!

The leadership of the Washtenaw County board of commissioners, from left: Felicia Brabec (D-District 4 of Pittsfield Township), Andy LaBarre (D-District 7 of Ann Arbor), and Yousef Rabhi (D-District 8 of Ann Arbor). Rabhi is board chair. Brabec serves as chair of the board’s ways & means committee, and LaBarre chairs the board’s working sessions. (Photos by the writer.)

Those priorities, listed in order of importance, are: (1) ensure a community safety net through health and human services; (2) increase economic opportunity and workforce development; (3) ensure mobility and civic infrastructure for Washtenaw County residents; and (4) reduce environmental impact. [.pdf of budget priorities resolution] [.pdf of budget priorities memo and supporting materials]

The vote on the budget priorities resolution was 6-1, with dissent from Dan Smith (R-District 2), who indicated that his No. 1 priority is long-term fiscal stability, followed by public safety and justice. Rolland Sizemore Jr. (D-District 5) had left the meeting before the vote, and Alicia Ping (R-District 3) was absent. Although it was not part of the four priorities, a resolved clause was added during the meeting, stating that “the long-term fiscal stability of the county [will] continue to be of import throughout the budget development process.”

The resolution was brought forward by Felicia Brabec (D-District 4), who’s leading the budget process for the board. It also laid out a framework for developing strategies to measure the effectiveness of county investments in these priorities.

Brabec described this approach as “both a policy and a paradigm shift” that can’t happen overnight, but one that’s critical for the county’s future. The board is forming work groups focused on each of the four priorities, as well as on the topic of human resources. These work groups will be meeting to develop as many as five “community impact” goals in each category, in work that’s expected to continue into next year and beyond.

The July 24 meeting also included an update from county administrator Verna McDaniel about the county’s current financial condition and preliminary projections for 2014. At her last presentation, on May 15, 2013, McDaniel told commissioners that the county needed to identify $6.99 million in structural reductions for the 2014 budget. The approach to addressing this $6.99 million target depended on whether the county moved ahead with a major bond proposal to cover obligations to retirees, she said at the time. That bond proposal was put on hold earlier this month.

Now, the projected general fund shortfall is $3.93 million on a roughly $101 million budget. McDaniel indicated that the shortfall will be addressed primarily with operating cost reductions ($3.83 million) as well as $100,000 in cuts to funding of outside agencies, including support for nonprofits. The lower shortfall resulted from revised actuarial data that significantly lowered the contribution that the county is required to make toward its unfunded retiree obligations. Other factors include: (1) a decision not to make a $1 million contribution to the general fund’s fund balance; and (2) $2.4 million in higher-than-previously-anticipated revenue.

McDaniel noted that if the county had chosen to bond, then operational cuts would not be needed, and the fund balance contribution could be made. She also reported that the general fund budget doesn’t factor in serious state and federal cuts to non-general fund programs. “Revenue is needed,” she said. “We need to figure that out.”

Commissioners Yousef Rabhi (D-District 8) and Conan Smith (D-District 9) both voiced interest in exploring possible new taxes. “I think it’s important that we strongly consider asking the voters of Washtenaw County if they’re willing to support some of the ongoing operations that we have,” said Rabhi, the board’s chair. “We need to pose that question at least to the voters in the form of a millage of some kind.”

Smith cited human services and public safety as areas that might gain voter support for a millage. During public commentary, representatives from SafeHouse Center urged commissioners to continue funding of that nonprofit, as well as for human service organizations in general.

The upcoming budget will be prepared without the major bonding initiative that until earlier this month was anticipated to occur later this year. The bonding was intended to cover unfunded pension and retiree healthcare obligations – for the Washtenaw County Employees’ Retirement System (WCERS) and Voluntary Employees Beneficiary Association (VEBA). The original maximum amount for the bonds had been estimated at up to $345 million, but updated actuarial data resulted in a lower estimate of about $295 million. During the July 24 meeting, commissioner Conan Smith said it’s unlikely that bonding could occur this year, although he’s still supportive in general of taking that approach.

McDaniel plans to present the 2014 budget to the board at its Oct. 2 meeting. Commissioners are required to adopt a balanced budget for 2014 by the end of 2013. At its May 1, 2013 meeting, the board had approved development of a four-year budget. However, commissioners have not yet decided whether to follow through by adopting a budget with that four-year horizon. And some commissioners – notably Ronnie Peterson (D-District 6) – have expressed skepticism about this longer-term approach. For the past few years, budget plans have been developed for a two-year period, though the board must confirm the budget annually.

Budget Priorities

One of the main agenda items at the July 24 meeting was a discussion of priorities that the administration would be asked to use as the staff develops the budget for 2014-2017. [.pdf of budget priorities resolution] [.pdf of budget priorities memo and supporting materials] Commissioner Felicia Brabec (D-District 4), who’s leading the budget process for the board, began by saying that this year, the board would focus on community impacts and creating a vision.

Felicia Brabec (D-District 4 of Pittsfield Township) is leading the board’s budget process as chair of its ways & means committee.

In 2014, that work would shift to developing strategies and metrics related to the community impacts, she said. The board would ask the administration to report back on a more regular basis to talk about how the budget reflects community impacts and investments in the board’s priority areas. It allows for a fuller and more rigorous look at what’s typically been called the budget reaffirmation, Brabec said. [In the two-year budget cycle that the county currently uses, the board votes to "reaffirm" the second year of the budget, usually with only minor changes.]

Brabec noted that the board had held two budget retreats – on March 7, 2013 and May 16, 2013 – and a July 11, 2013 working session focused on the budget. She said she’s had follow-up conversations with commissioners, and these four budget priorities were her best attempt to synthesize that feedback.

“This is both a policy and a paradigm shift for our county,” Brabec said. It can’t happen overnight, she added, and there will be bumps along the way. But this model is an attempt to create a solid process that will help reach the county’s goals, she said. It also sets forth a model for transparency, responsibility and accountability to the community, Brabec noted. Her hope is that, by working with the administration, the board can achieve the community impacts that will be set as part of this process. The framework will allow the board and administration continuously to assess and adjust its investments, she said, assuring that they’re making choices that align with their priorities and vision. She described it as a strategic, longitudinal and dynamic process.

The four priorities stated in the resolution are:

1. Ensure a community safety net through health and human services;
2. Increase economic opportunity and workforce development;
3. Ensure mobility and civic infrastructure for Washtenaw County residents;
4. Reduce environmental impact.

The resolution on budget priorities also “directs the Administrator to lead a structured and transparent process by which the Board, representatives from throughout the organization, and community partners engage collaboratively to develop a balanced budget proposal that (1) aligns the organization’s programs and services with the Board’s four priorities, and (2) includes a summary set of ‘community outcomes’ that declares benchmarks related to the Board’s priority areas.”

The board has named the framework for this budget decision-making process: “Community Impact Investing.” Part of the framework includes six “decision-making principles” that commissioners are asking staff to use in developing the budget. Those principles are:

1. impacts and outcomes drive investment priorities;
2. services are delivered optimally by the right provider, social and financial returns are calculated and articulated;
3. programs are evidence- and performance-based;
4. mandates that support outcomes and impacts are better funded;
5. the excellence of the County’s internal workforce is foundational;
6. programs and services should be encouraged to achieve the triple bottom line of financial returns on investment, contribution to social equity, and reduction of environmental impact.

Ronnie Peterson (D-District 6) wondered when the board would actually discuss dollar amounts for this upcoming budget, especially for funding of organizations like SafeHouse and other human service programs.

Brabec described the priorities as the “big picture,” which will in turn determine allocations in the budget. It’s a huge shift in process, she said. Noting that the priorities are listed in order of importance, Brabec said the board will be able to look at the budget that the administration brings forward and see how the allocations are aligned with the budget priorities.

Rolland Sizemore Jr. (D-District 5) said it looked like the board was duplicating things they’ve already discussed. Why is the board spending time on this, he asked, when they already have a list of guiding principles that they’ve used for years? Is there anything different here?

By way of background, the “guiding principles” of the county are listed on the county administrator’s website:

1. Ensure long term fiscal stability for the County.
2. Reduce the cost of conducting the County’s business.
3. Enhance customer service.
4. Provide the necessary knowledge, skills and resources to County employees to carry out these principles.
5. Ensure adequate provision of mandated services.
6. Focus on the root causes of problems that affect the quality of life of County citizens by aggressively pursuing prevention strategies.
7. Provide leadership on intragovernmental, intergovernmental and intersectoral cooperation and collaboration aimed at improving services to County citizens.

Saying he didn’t understand the purpose of the proposed budget priorities, Sizemore asked Brabec to explain the difference between the current proposal and the existing principles.

Brabec said that in the past, the board would present its budget priorities, then the administration would develop a budget based on those priorities. The current proposal is an attempt to keep the board involved – not just during the budget development, but continuously as the county makes investments.

Sizemore said that as someone who is elected by residents, he already keeps the budget priorities in mind throughout the year. Although he felt it was duplicating a mechanism the board already had, Sizemore said he had no problem with it if the board is going to follow through on it. But if these priorities are just going to be put on the “back shelf,” he said, there are already plenty of reports like that. Brabec said her hope is that it will be a dynamic process.

Yousef Rabhi (D-District 8) noted that Sizemore had spoken about the classic issue between the board and the administrator, who’s been hired by the board to present a balanced budget. Brabec is trying a different approach, Rabhi said – to involve the board in evaluating and benchmarking the priorities that it’s setting. Some of the priorities are carried over from the previous budget cycle, he noted, but a lot of it is new. The hope is that this process will be more dynamic than in the past, he said.

Andy LaBarre (D-District 7) highlighted the working groups that will focus on the budget priorities. This approach hasn’t been taken before, he noted. The working groups will be developing a list of “community impacts” for each priority. LaBarre asked for clarification about the timeline for that work.

Brabec replied that the work groups will be meeting in August and develop up to five community impacts for each budget priority. Those impacts will be delivered to the administrator as the budget is developed.

Ronnie Peterson (D-District 6 of Ypsilanti).

Peterson brought up the issue of long-term legacy obligations to retirees, and stated that it should be one of the priorities. “It’s not going to go away, and it should be something we should be talking about,” he said. The county made a commitment to employees, and has an obligation to meet it, he said. The board has discussed it for the past few months in terms of a potential bonding to cover those obligations, he noted, and the public should continue to be part of that discussion. He pointed out that the state legislation allowing the county to bond for this purpose doesn’t sunset until the end of 2014. The public should know that the board isn’t hiding this issue, he said.

Peterson added that he wasn’t trying to make it a controversial issue, but “money’s always controversial when you lack it.” He said if the topic became part of the budget document, “I will be quiet for the rest of the night.”

Conan Smith (D-District 9) thanked Brabec and Rabhi for their leadership on this budget framework. It’s important to know what your goals are when you’re developing a budget, he said. For a legislative body, the messiest part of doing that is creating the framework. Giving clear, good direction to the administration is the board’s job, he said. It’s essential to know what the board wants to achieve over the long-term with its investments. The document that the board is voting on that night doesn’t make any allocation of funds, Smith noted. However, he said, it builds on the “experiment” that the board has been undertaking to identify goals for the community, and then pursues those goals “very deliberately.”

Smith called Brabec’s proposal a “significant step forward.” The process calls for defining metrics and clearly articulating those metrics for each priority. In the past, the board simply talked about its priorities, he said, and that wasn’t sufficient. He also said he appreciated the “consistent accountability method” that’s being proposed. The board will be checking outcomes, not just funding amounts. Commissioners will be asking if the investments are delivering the change in the community that they really want, Smith observed.

Rabhi in turn thanked Conan Smith for his leadership in identifying the importance of metrics during budget discussions earlier this year. Rabhi also agreed with Peterson about the importance of addressing unfunded liabilities. A lot of other communities have ignored the issue of unfunded liabilities, he said. The fact that the county is evaluating its options is the most fiscally responsible thing to do, Rabhi said. He asked Brabec how that issue could be incorporated into the budget priorities document, perhaps by noting the importance of long-term fiscal responsibility.

Rabhi suggested taking a certain percentage of any increase in revenues above what’s been budgeted, and using that excess to help cover unfunded liabilities – or adding it to the fund balance. In order for that to happen, that goal needs to be built into the budget priorities, he said. Fiscal stability and workforce sustainability are really overlays to the budget priorities, he added – saying you need those things in order achieve the other priorities.

Peterson clarified that he wasn’t necessarily saying that he wanted to continue the conversation about bonding, but it’s more about the obligation to employees. He alluded to Detroit’s bankruptcy, noting that the issue of unfunded obligations are affecting many communities – but it’s especially affecting people who were promised pensions. He’s concerned that if the county borrows money but doesn’t meet its investment goals, the shortfall will be made up on the backs of county employees. The county doesn’t have a strong reserve, he noted. The state constitution is supposed to protect pensions, but the constitution doesn’t mandate that governments have to make payments to cover those pension obligations.

Peterson also expressed concerns about the proposed four-year budget process. He didn’t see how the county could be responsive to possible fluctuations in contributions to WCERS and VEBA, if a four-year budget was in place. Anything can happen in this country, he said, citing specifically the panic after Sept. 11, 2001. If the stock market crashes, the county would have to meet its obligations out of the general fund, he said. Peterson added that he might be the only one to vote against a four-year budget, if the county doesn’t have a plan in place that is fiscally sound. At one point, the retiree obligations were fully funded, but “we got off track,” Peterson said. Time has passed, he said, but now the issue is how to get back on track.

LaBarre echoed Peterson’s comments, saying the county had to meet its retiree obligations – from a moral and reputation perspective. He considered the budget priorities as a guide for the future, with the assumption that the county won’t be bonding. It will be a long, hard process to develop a budget with the current constraints, LaBarre noted. But the intent is to meet the county’s retiree obligations fully, he said, even though that won’t be handled through bonding.

Brabec described the budget framework and priorities document as separate from a discussion about bonding, or about any other strategies the county might pursue to meet its retiree obligations.

Conan Smith (D-District 9 of Ann Arbor).

Conan Smith suggested that one of the measurable objectives for the budget should be that the unfunded liabilities are addressed. He said his personal preference would be to fully fund it. [The allusion was to funding those obligations by borrowing the full amount through bonding, which Smith supports.]

Smith asked Brabec whether a separate budget work group could focus on employee issues. That’s possible, Brabec replied, but she also wanted to make sure that each of the work groups keep in mind the importance of employees.

Smith agreed, but said he still felt there should be a work group that addresses personnel issues. One example he cited is a “blurring” of compensation between supervisors and the employees they supervise. So the compensation of the leadership across the organization should be examined, he said. Smith also mentioned some commissioners want to revisit the “red circle” policy. [That policy authorizes the administrator to increase an employee’s salary above the position's pay range. If an assignment extends past six months, the administrator must provide a report to the board about employees on extended assignment.]

The county has been a place where people crave employment because of the expertise they’re surrounded by, Smith said. “Putting ‘Washtenaw County’ on your resume really meant something out in the world,” he said. It’s important to keep fostering that environment.

Rabhi described the budget as one of the tools to help address the unfunded liabilities, among other issues. He said he respected Peterson’s concerns about a four-year budget, but he felt the unfunded liabilities could be addressed during the budget process – even if the budget is taking a longer-term view. The county could be locking in that commitment to fund those liabilities for a longer period, he said.

Brabec pointed out that long-term fiscal stability is one of the county’s guiding principles. She proposed adding a resolved clause to the resolution that would highlight this point:

Be it further resolved that the long-term fiscal stability of the county continue to be of import throughout the budget development process.

Peterson said he’d be supportive of that.

Outcome: Brabec’s proposed addition was accepted as a friendly amendment.

Discussion continued. Peterson spoke at length about various impacts to county revenues, including cuts in federal and state funding. He didn’t understand how the county could develop a four-year budget with such huge legacy costs, as well as uncertainty related to state and federal grants. In four years, there will be a new president and possibly a new governor, he pointed out. The county also doesn’t know what the actuary will require in terms of contributions to cover unfunded liabilities for retirees. It’s setting the county administrator up to fail, he contended, if her budget projections are off. If her projections are wrong, the only thing that she could do would be to cut from the board’s priority areas, he said.

It might be different if the county were generating revenues that would offset its retiree costs, Peterson said.

Rabhi picked up on that idea, saying that without having “new dollars” on the table, the county will face similar struggles in the future. “I think it’s important that we strongly consider asking the voters of Washtenaw County if they’re willing to support some of the ongoing operations that we have,” he said. “We need to pose that question at least to the voters in the form of a millage of some kind.”

The county can’t rely on state and federal funding that has traditionally supported county-run programs, Rabhi said. Property taxes are constrained by various state laws and constitutional amendments, he noted. The problem of unfunded retiree liabilities was created over time and no single person can be blamed, he added, but it’s important to address it head on. So the voters need to be asked if they’re willing to keep the county’s commitments to employees while keeping the same level of programs and services. He noted that the liabilities are huge and will impact the budget for years to come.

Taxes are a sensitive issue, Rabhi said, but voters need to be asked. Are they content with shrinking county government to the point of maybe only providing the lowest level of mandated services? Given current realities, “we just can’t expect to continue the way we are,” he said, providing the current breadth of services. “I know that’s kind of a doom-and-gloom statement, but I think it’s the reality that we’re facing and it’s the challenge of local government.”

Conan Smith said he fully supported Rabhi’s suggestion to talk about new revenue. Regarding the funding for unfunded liabilities, however, he reminded commissioners of something that their bond counsel, John Axe, had told them: It’s perhaps a riskier proposition politically to fund those liabilities via a voter-approved millage, because that gives the board the unilateral authority to raise taxes if the funds aren’t sufficient to meet those obligations.

Smith also said he’d love to put a human services millage on the ballot, and is eager to have a conversation about that. A millage for police services is another option to discuss, he said.

Smith noted that the bonding scenario had been presented as a “tax neutral” solution. To cover the unfunded liabilities by bonding, the county wouldn’t need to ask for an additional millage, he said, “nor would we have to cut the general fund.” To him, the bonding question is “unresolved.”

Dan Smith (R-District 2 of Whitmore Lake).

Dan Smith (R-District 2) cited several concerns he had with the budget priorities resolution. His first priority above all else is the short-term and long-term financial stability of the county. It’s troubling to see that the county is contemplating putting $1 million less in its fund balance next year than originally contemplated, he said. A healthy fund balance is a critical part of financial stability. His second priority would be public safety and justice, and there are a lot of mandated and non-mandated services that fall under that category. A distant third priority would be roads, Smith said.

Conan Smith responded, saying he thought that public safety was a priority that was interwoven with the four priorities stated in the resolution. He cited sheriff Jerry Clayton’s focus on a “social justice” approach to public safety, and wondered if Brabec had talked to Clayton about his team’s role in the proposed working groups.

Brabec said she had talked to Clayton about the notion of a social justice campus, but hadn’t discussed it in the context of the budget work groups. She saw public safety as integrated into several of the priorities, primarily the priorities on creating a community safety net and ensuring economic opportunity.

Conan Smith also clarified with Brabec that roads would be part of the third priority – on ensuring mobility and civic infrastructure. He said he supported everything that Dan Smith had identified as priorities, adding that the board needs to ensure that the work groups tackle those subjects. “I think the framework allows for that,” he said.

LaBarre reported that the topic of the next working session, on Aug. 8, would focus on the budget. So commissioners can continue hashing out some of these issues then, he said.

As the discussion came to a close, Peterson again voiced his opposition to a four-year budget, saying he was “totally opposed” to that approach. Rabhi responded, noting that although an original draft of the resolution had mentioned a four-year budget, the most recent version had eliminated references to that. Brabec had made those changes in order to address Peterson’s concerns, Rabhi said.

Brabec added that the resolution is meant to provide a budget framework, regardless of the timeframe. The discussion about whether to develop a four-year budget will be addressed separately, she said. Peterson replied that “in front of all of these witnesses, I’ll take your word and hold you to it.” He indicated he’d vote for the resolution based on that assurance.

Outcome: Commissioners approved the budget priorities resolution on a 6-1 vote, with dissent from Dan Smith (R-District 2). Alicia Ping (R-District 3) was absent, and Rolland Sizemore Jr. (D-District 5) had left the meeting prior to the vote.

Financial Update

County administrator Verna McDaniel gave an update on the county’s financial condition, and a look ahead at the upcoming budget. [.pdf of McDaniel's presentation] She had previously given a report to the board on May 15, 2013, when she’d been advocating for a bond proposal. At that time, she had told the board that $6.99 million in structural reductions were needed in 2014, in order to provide a balanced budget for the four-year period of 2014-2017. If the county didn’t bond, she’d said at the time, all of that $6.99 million – including $5.06 million related to covering unfunded retiree obligations – would need to come from operational cost reductions.

County administrator Verna McDaniel.

On July 24, she told the board that revenues would be $2.4 million more than previously projected. [That's based on information from the equalization report that was delivered at the board’s April 17, 2013 meeting.]

She noted that many of the previous assumptions are unchanged. That includes projecting a 1% increase in property tax revenue each year through 2017, and getting $5.3 million per year in state revenue-sharing.

Her current analysis is that $3.93 million in structural reductions are needed, McDaniel said. In explaining the lower shortfall, she said the original estimated amount of $5.06 million in contributions needed to cover unfunded retiree obligations had turned out to be high, and was now estimated at about $2 million.

To address the $3.93 million shortfall, McDaniel said most of the reductions ($3.83 million ) will come from operational cuts. In addition, she’s proposing cuts of $100,000 to “outside agency” funding, which includes the county’s support of nonprofits. She also expects to eliminate a previously planned $1 million contribution to the general fund’s fund balance in 2014.

However, McDaniel also proposed that any additional revenues above the projected 1% increase in property taxes each year should be allocated to the fund balance as unearmarked reserves. Any surpluses at the end of each year would also be moved into unearmarked reserves, she said. The additions to the fund balance will be incremental, “as opposed to being baked in,” she said, “because baking it in will create an undue burden on the organization.”

McDaniel reminded the board that the county had made $30 million in reductions over two years in 2010 and 2011, and another $17.5 million in cuts during 2012 and 2013. With $3.93 million in proposed cuts next year, “we’re close to the finish line,” she said. “We think we can do this.” She plans to make a formal budget recommendation to the board on Oct. 2.

For the non-general fund portion of the budget, programs and services that are funded with federal and state grants face serious challenges, she said. Those issues were not addressed in her budget presentation, she added, but she wanted the board to keep it in mind. “Revenue is needed – we have to figure that out.”

Financial Update: Board Discussion

Conan Smith noted that when the budget had factored in bonding, the structural reductions were originally estimated at $1.83 million. If bonding were to move forward now, he said, there would be no need for operational reductions and the county could make its $1 million contribution to the fund balance. By abandoning the bonding proposal, he added, it is forcing cuts on the organization and reducing the contribution to the fund balance.

Kelly Belknap, Washtenaw County’s finance director.

Smith then asked for an explanation of the relationship between the fund balance and the annual cash flow. Each June for the past couple of years, “we’ve cut it pretty thin,” he said.

Kelly Belknap, the county’s finance director, confirmed that the county had “dipped below zero” in the summer, in terms of its ability to meet payroll with cash flow. Each year, the county in May or June enters into a negative cash balance, she said, because property taxes aren’t collected until July. The county’s policy is to borrow internally from its fund balances that are outside of the general fund, she said. When tax revenues are received later in the year, those other fund balances are repaid.

Conan Smith clarified with Belknap and McDaniel that this is considered an acceptable practice, but not a best practice. He said he wasn’t trying to blame anyone, but wanted to make clear that there are “consequences of walking this particular path.” He noted that the other way to address it would be to make even deeper operational cuts to the general fund, which is not something that the administration is proposing.

Ronnie Peterson confirmed that the county was making actuarial-recommended contributions to both WCERS and VEBA. He noted that some employees are in the Municipal Employees’ Retirement System of Michigan (MERS), a statewide system. McDaniel reported that most employees in the sheriff’s offices are in the MERS plan, though she didn’t have specific figures on hand. She noted that the county also makes required contributions to that system, in addition to WCERS and VEBA.

Peterson wondered if the county could expect large fluctuations in the amount of contributions it would need to make to MERS in the future. That should be part of the board’s discussion, he said. McDaniel replied that the amount fluctuates each year, and it’s been going up. Those figures are included in the budget projections, she said. Peterson wanted to make sure that MERS was included in the discussion about legacy pension costs, saying that it also impacts the budget.

Conan Smith noted that the MERS system is the healthiest fund – saying that it’s about 88% funded. But the challenge is that the county doesn’t control the assumptions for that system in the same way that it can for WCERS and VEBA, he said. So in 2010, there was a $600,000 increase in the contribution that the county was required to make for MERS, for example. He agreed with Peterson that it was important to be aware of the volatility of MERS.

Outcome: This was not a voting item.

Financial Update: Public Commentary

At the beginning of the July 24 meeting, Doug Smith – wearing a Washtenaw Watchdogs T-shirt – told the board that commissioner Conan Smith has repeatedly stated that the county has made its scheduled contributions to the retirement accounts, and that the county is therefore not responsible for underfunding those accounts. “He’s deceiving you – whether he’s deceiving himself is not clear,” Doug Smith said. In 2000, the WCERS account was overfunded by $4 million. Since then, it has been progressively underfunded until it became underfunded by more than $40 million in 2007. That was before the financial crisis of 2008, he noted, and before the pension plan was re-opened for new members. That means the county board watched the fund lose ground by about $6.5 million each year between 2000 and 2007, Smith said, and nothing was done to investigate or correct the situation. The county didn’t pay its annual contribution to VEBA in full until 2010, even though it was severely underfunded, he said.

From left: Conan Smith (D-District 9 of Ann Arbor) and Dan Smith (R-District 2 of Whitmore Lake).

Smith referred to a New York Times article he’d given to the board, which reported that actuaries have been making unrealistic assumptions about returns on investments for many years. That means pension funds are much more underfunded than industry practices would estimate, he said. For Washtenaw County, actuaries are still using an unrealistic net gain on investments of 7.75%, he said. For the WCERS account, the actual return has been 3.4% since 2000. If the actuary used a more realistic number, the current underfunding would be much higher than $300 million, he argued.

In 2007, the board made a decision “so stupid that it must have been on purpose,” Doug Smith said. Even though the county had eliminated the defined benefit pension plan in 1984 in favor of a defined contribution plan – which by 2007 covered about 80% of county employees – the county in 2007 decided to let all employees buy back into the pension plan. It was a “gift to employees, including Verna McDaniel, at taxpayer expense,” Smith contended. McDaniel is employed by taxpayers, he said, and she is not serving them well. The entire problem with underfunding the retirement plan rests with the board, “and I’m tired of hearing Conan Smith say otherwise,” he concluded.

During the final opportunity for public commentary at the end of the meeting, Doug Smith asked for confirmation of his understanding of McDaniel’s presentation: Even if the administration isn’t happy about making budget cuts, the roughly $4 million cut over four years is manageable without the bonding. He also wanted confirmation that the budget was being prepared with the assumption that the county would not be bonding.

Financial Update: Public Commentary – Commissioner Response

Conan Smith acknowledged that Doug Smith was right: “I had missed the shorting of the VEBA in 2006-09. I’d been told differently, and I didn’t validate that information.” He said he’d go back and look at what the rationale was for that decision, but “it almost doesn’t matter. We’ve got to deal with it looking into the future.”

Conan Smith also affirmed that “absolutely the budget is manageable.” There are sufficient general fund revenues to cover the contributions that must be made each year toward unfunded retiree obligations. “The question is always: What are the consequences of doing that?” he said. The county has been making operational cuts ever since he got elected, Smith said, and it would be possible to make more cuts. But “we have cut to the bone already,” he added. Making additional cuts would result in measurable, immediate reductions in services to residents, he said.

As for bonding, it’s almost inevitable that they wouldn’t be able to bond this year, he said, because of the timing needed to move through the bonding process. Given that the board must adopt a balanced budget by Dec. 31, it would be irresponsible of McDaniel not to present a budget on an assumption that no bonding would take place, he said.

Andy LaBarre addressed Doug Smith’s comments that had questioned the motives of commissioners. LaBarre felt those comments were wrong. He said he appreciated the service of Conan Smith, Yousef Rabhi and Verna McDaniel. “I just wanted that said for the record,” LaBarre concluded.

Communications & Commentary

During the evening there were multiple opportunities for communications from the administration and commissioners, as well as public commentary. In addition to the remarks reported earlier in this article, here are some other highlights.

Communications & Commentary: SafeHouse Center, Human Services Funding

Three representatives of SafeHouse Center – a nonprofit that provides support for people affected by domestic violence or sexual assault – addressed the board at the start of the July 24 meeting. Barbara Niess-May, the nonprofit’s executive director, thanked the board for its support of SafeHouse as well as other safety net services in the community. It makes an enormous difference to people who find themselves struggling and needing an extra hand during a difficult time. She noted that the coordinated funding program is critical, and she encouraged commissioners to keep it a priority. Any loss to that funding would impact the quality of life for many people, including survivors of domestic violence and sexual assault.

Molly Resnik, a co-founder of SafeHouse Center, and SafeHouse board president Rob Oliver addressed the county commissioners during public commentary, advocating for continued support of the nonprofit.

About 10 years ago, SafeHouse took on the task for providing sexual assault services on behalf of the county, Niess-May explained. There was an agreement about how much funding it would take to support that work, she said, but those amounts subsequently have been reduced. Like everyone else, SafeHouse is doing its best to do more with less, she said, but the need has not lessened. SafeHouse serves about 5,000 women, children and men each year, with a staff of 24 and 150 volunteers. SafeHouse is “definitely leveraging every last bit that we can,” she said. SafeHouse serves as a support for law enforcement, and works cooperatively with the county prosecutor’s office, “and in the end, we save lives,” Niess-May said. A loss of funds would mean a drastic reduction of services.

Molly Resnik, one of SafeHouse’s co-founders and a long-time volunteer, said she knew there were a couple of people at the board table who had been there in the early 1970s when organizers started putting together services for survivors of domestic violence and sexual assault. It’s heartening to see the continuity, she said, but frightening to see that in many ways, “we’ve gone backwards in response to budget cuts.”

Until recently, she had served on the board of the Ann Arbor Area Community Foundation, a partner in the coordinated funding approach. She’s very aware of the importance of prioritizing and of coordinating an approach to meet community needs. The one problem is that some services – like those offered by SafeHouse – “don’t comfortably fit into categories.” It’s been put into the category of emergency housing and homelessness, she noted, but it’s not exactly a fit. As the U.S Dept. of Housing & Urban Development (HUD) and others have redefined what homelessness means for the purpose of funding, it’s leaving SafeHouse out in the cold. Resnik said that for her, it comes down to saving lives. She has no doubt that there are women and children alive today because SafeHouse was there. She asked the board to remember that SafeHouse stands out, and somehow the community needs to reinvigorate the comprehensive services it offers.

The president of SafeHouse Center’s board, Rob Oliver, noted that the organization is effective despite cuts by the county, federal sequestration and funding cuts from the HUD. That’s why money from the county is so important. SafeHouse has hired a consultant to help with fundraising, so the nonprofit is doing as much as it can to be sustainable, he said. Oliver recalled his own experience with domestic violence years ago, saying that thanks to Resnik, his family had a place to go when they had to flee an abusive stepfather. Now, other families also have a place to turn. He urged commissioners to support SafeHouse and its work.

From left: Commissioner Kent Martinez-Kratz (D-District 1 of Chelsea) and Bob Tetens, director of Washtenaw County parks & recreation.

Several commissioners responded, expressing support for human services funding in general and SafeHouse specifically. Conan Smith noted that there are fiscal pressures on all local governments, and some of the cuts are because of economic conditions. But some cuts are because of decisions that the board chooses to make, he said, so having people come and articulate the critical importance of maintaining certain investments is really important. People need to know that even making small cuts to organizations like SafeHouse can have a direct impact on people’s lives, he said.

Ronnie Peterson said SafeHouse had brought its secret weapon by having Molly Resnik speak to the board. Washtenaw County government was part of the birth of SafeHouse, he said, and it’s important to make sure that this kind of safety net service is always a part of the county’s institutional funding. He joked that some people might think his politics have swung to the right because of his friendship with Dan Smith, a Republican commissioner. But Peterson said he’s always been focused on the delivery of services and outcomes. Every community should have a SafeHouse, he said. If the county can make a major long-term commitment to the humane society, Peterson added, then it should make a commitment to SafeHouse too.

Yousef Rabhi said he supported SafeHouse, and he thanked the representatives for advocating on behalf of the nonprofit. The partnership between SafeHouse and the county goes way back, he said, adding that he plans to continue advocating for human services funding in general, and for SafeHouse specifically. Although SafeHouse has a separate line item in the county’s budget, its funding has been decreased significantly over the years, Rabhi said. That decision needs to be reviewed.

Communications & Commentary: Thomas Partridge

Thomas Partridge called for an FBI investigation of municipalities in Washtenaw County, including the city of Ann Arbor, because of egregious, long-standing violations of civil and human rights of residents. In particular, he cited budget manipulations and priorities that resulted in the loss of substantial amounts of money between 2008 and today. He contended there’d been investment losses at the Ann Arbor Transportation Authority, Ann Arbor Public Schools as well as at the University of Michigan.

At his last turn at public commentary, Partridge told commissioners that priority items are being ignored, including plans for affordable housing, ending homelessness, an affordable countywide transportation system, and affordable, accessible education and health care. County residents are suffering, he said, and Washtenaw County is being left behind compared to other areas in the state. Commissioners should be seeking additional revenue sources, and lobbying the state legislature to allow for a progressive income tax, he concluded.

Present: Felicia Brabec, Andy LaBarre, Kent Martinez-Kratz, Ronnie Peterson, Yousef Rabhi, Rolland Sizemore Jr. (present during the first part of ways & means committee only), Conan Smith, Dan Smith.

Absent: Alicia Ping.

Next regular board meeting: Wednesday, Aug. 7, 2013 at 6:30 p.m. at the county administration building, 220 N. Main St. in Ann Arbor. The ways & means committee meets first, followed immediately by the regular board meeting. [Check Chronicle event listings to confirm date.] (Though the agenda states that the regular board meeting begins at 6:45 p.m., it usually starts much later – times vary depending on what’s on the agenda.) Public commentary is held at the beginning of each meeting, and no advance sign-up is required.

The Chronicle could not survive without regular voluntary subscriptions to support our coverage of public bodies like the Washtenaw County board of commissioners. Click this link for details: Subscribe to The Chronicle. And if you’re already supporting us, please encourage your friends, neighbors and colleagues to help support The Chronicle, too!

From left: Conan Smith (D-District 9) and Dan Smith (R-District 2) at the Washtenaw County board of commissioners meeting on March 20. Dan Smith cast the lone vote against new contracts with labor unions representing county employees, citing concerns over the length of the agreements. Most of the contracts run through Dec. 31, 2023. (Photos by the writer.)

About 85% of the nearly 1,300 county workers belong to a union. The board also approved similar wage and benefit changes for the county’s non-union employees.

The right-to-work law will make it illegal to require employees to support unions financially as a condition of their employment, but labor agreements in place prior to March 28 will not be affected until they expire. Most of the previous contracts with the county’s labor unions were set to expire on Dec. 31, 2013. All but one of the new deals will run for more than 10 years – through Dec. 31, 2023.

Dan Smith (R-District 2) cited the length of those contracts as a reason for casting his no vote – he was the only commissioner to vote against the union contracts, though he supported the agreement for non-union employees. The duration eliminates the flexibility to deal with different conditions that might face the county in the future, he said. There is no “re-opener” clause that would allow either side to renegotiate before 2023.

Despite his no vote, Smith praised the most significant changes that will impact employees hired after Jan. 1, 2014. Those employees will participate in a defined contribution retirement plan, instead of the current defined benefit plan – the Washtenaw County Employees’ Retirement System (WCERS). In defined benefit plans, retirees receive a set amount per month during their retirement. In defined contribution plans, employers pay a set amount into the retirement plan while a person is employed. The most common defined contribution plan is the 401(k). Similar changes in retiree healthcare plans will also affect new employees.

The shift in the county’s approach to retirement plans and retiree healthcare was a major concern for several other commissioners. While acknowledging the benefits of eliminating the county’s legacy costs, Conan Smith (D-District 9) cautioned that retirees could be put at risk without the predictable stability of a defined benefit plan. However, he also noted that the board can’t continue to put the institution at risk by “guaranteeing something that we don’t know we’re going to be able to afford in the long run.”

Those legacy costs were a factor alluded to during the March 20 discussion, linking to another major decision that is expected to come before the board: bonding to cover the county’s unfunded liabilities for employee pensions and retiree healthcare. The issue hasn’t been discussed directly at any of the board’s regular meetings, but commissioners have been informed that a proposal likely will be brought forward by administration.

Based on actuarial valuations at the end of 2011, the county had $101.27 million in unfunded liabilities for its defined benefit pension, and $148.46 million in unfunded liabilities for its retiree healthcare. Those amounts will be higher when the 2012 actuarial valuations are completed later this year. The new accounting standards of GASB 68 require that unfunded liabilities must be included in an organization’s financial statements for fiscal years beginning after June 15, 2014.

Commissioners also got a year-end 2012 financial update during the March 20 meeting – the final 2012 audit will be brought to the board in April. Total revenues exceeded total expenditures by $2.26 million. The county had planned for a surplus of $1.889 million to carry into 2013 – so the year ended with an excess of $327,607 above that targeted amount.

In other action items, the board voted to form a committee that will explore the feasibility of creating a land bank, and appointed three people to the committee: Commissioner Ronnie Peterson (D-District 6), county treasurer Catherine McClary, and Mary Jo Callan, director of the county’s office of community & economic development. The committee is directed to report back to the board by Aug. 7, 2013.

During communications from the board, Conan Smith reported that the southeast Michigan Regional Transit Authority board has now been fully appointed, and will convene on March 28 for an orientation meeting. He suggested that the two Washtenaw County representatives – Richard “Murph” Murphy and Liz Gerber – come talk to commissioners about what the county’s interests and priorities are. “The earlier we weigh in, the more systemic the impact of our comments are going to be,” he said. “If we don’t talk to them until they’ve already made decisions, then it’s going to be too late.”

Labor Agreements

The county administration and labor have been negotiating new contracts since February. At the board’s Feb. 20, 2013 meeting, commissioners had approved a resolution opposing the right-to-work legislation, with a clause that directed the county administration to renegotiate union contracts, as requested by union leaders. The resolution stated a “goal of reaching four (4) year agreements to protect and extend each bargaining unit’s union security provisions, as well as enter into a letter of understanding separate from the existing collective bargaining agreements for a period of ten (10) years.”

That was an approach taken by other institutions statewide, including the Ann Arbor Transportation Authority. [See Chronicle coverage: "AATA OKs Labor, Agency Fee Accords"] However, the county administration and union leaders ultimately felt that the strategy of a separate letter of understanding would be more vulnerable to legal challenges. They opted instead for longer-term labor agreements and no separate letter of understanding.

Since mid-February, the board has held four lengthy closed sessions to discuss labor negotiations – including a closed session near the beginning of the March 20 meeting that lasted over an hour. Labor negotiations are one of the few reasons under Michigan’s Open Meetings Act that public governing bodies are allowed to hold sessions out of public view.

Nancy Heine, president of AFSCME Local 3052, talks with Washtenaw County commissioner Rolland Sizemore Jr. Local 3052 – which represents 48 general supervisors and four supervisors in the juvenile division – agreed to a new five-year contract.

The vote to go into closed session was 8-1, with dissent by Rolland Sizemore Jr. (D-District 5), who did not state any reason for his no vote.

The administration and AFSCME Local 2733 had reached a tentative agreement on March 7, which union members ratified on March 13. Other union bargaining units subsequently ratified similar agreements. However, the ratified agreements differed slightly from the version that had been shown to commissioners at their most recent closed session on March 6, so another closed session was held on March 20 to go over those changes.

In broad strokes, the agreements provide for annual wage increases, a cap on employee healthcare contributions, and the elimination of “banked leave” days. Banked leave days have been used in recent years to help balance the budget by cutting labor costs. The days are unpaid, but don’t affect retirement calculations.

Some of the major changes relate to benefits for employees hired after Jan. 1, 2014. Those employees will participate in a defined contribution retirement plan, instead of the current defined benefit plan – the Washtenaw County Employees’ Retirement System (WCERS). In defined benefit plans, retirees receive a set amount per month during their retirement. In defined contribution plans, employers pay a set amount into the retirement plan while a person is employed. The most common defined contribution plan is the 401(k).

In some ways, the change reverts the county to its previous approach. Until about 2009, employees participated in the Money Purchase Pension Plan (MPPP), a defined contribution plan. Most county employees were shifted from the MPPP to WCERS, the county’s defined benefit plan. The MPPP was never eliminated, but is used primarily for county commissioners who choose to participate in it.

The county will also shift away from a defined benefit retiree healthcare plan for new employees, in favor of retiree health reimbursement accounts (RHRAs).

Most details in the contracts match the agreement reached with AFSCME 2733, the county’s largest bargaining unit, with 630 members. Highlights from the AFSCME 2733 agreement include:

• Restoring 3.85% to an employee’s annual salary in 2014 by eliminating banked leave days. In addition, employees will receive a 2% non-structural salary increase.
• In 2015, there will be a 1% salary increase if county property tax revenues do not rise. However, if tax revenues do increase, employees will receive a salary increase of either 2% (if revenues increase by up to 4%) or 3% (if revenues increase by 5% or more).
• Employees will receive 2% salary increases in 2016 and 2017. The 2016 increase will be structural; the increase in 2017 will be non-structural.
• The remaining years through 2023 alternate in this same three-year pattern of (1) formula increases tied to tax revenues, followed by (2) a 2% structural increase and (3) a 2% non-structural increase.
• Current employees will remain in the county’s defined benefit retirement plan, unless they choose to transfer into a defined contribution plan.
• Employees hired after Jan. 1, 2014 will participate in a defined contribution retirement plan, with each employee providing 6% pre-tax contributions that are matched by 6% from the county. Contributions will increase to 7% in 2016 and 2017, and to 7.5% in 2018 through 2023. Vesting for employer contributions will occur over several years, with workers becoming fully vested after 10 years of employment.
• For current employees, their contributions to the Washtenaw County Employees’ Retirement System (WCERS) – the defined benefit plan – will be capped at 10% in 2014 and 2015. That cap will be lowered to 9% in 2016 and 2017, 8.5% in 2018 and 2019, and 8% in 2020 through 2023.
• The county will adopt state-mandated “hard caps” on health care contributions by public employers. Current workers will pay $75 per month in medical premium-sharing.
• Workers hired after Jan. 1, 2014 will have negotiated health care benefits. Their retirement health care will be handled through retiree health reimbursement accounts (RHRAs), with staggered contributions by the county based on years of employment. The current retiree healthcare plan – the Voluntary Employees Beneficiary Association (VEBA) – is a defined benefit plan.

At the March 20 meeting when commissioners returned from their closed session, they took up the issue of the labor agreements. Dan Smith asked to pull out the non-union agreement for a separate vote. The other six contracts were handled as a group.

The bargaining units that struck new deals are:

• AFSCME (American Federation of State, County and Municipal Employees) Local 2733 Units A, B, C, Juvenile Division, and Juvenile Detention – a total of 630 employees. [.pdf of AFSCME 2733 contract summary]
• AFSCME Local 3052 General Supervisors and Juvenile Division Supervisors – a total of 52 employees. [.pdf of AFSCME 3052 contract summary]
• Assistant Prosecutors Association Units I & II – a total of 24 employees. [.pdf of APA contract summary]
• Public Defenders Association Units I & II – a total of 13 employees. [.pdf of PDA contract summary]
• Michigan Nurses Association Units I & II – a total of 13 employees. [.pdf of MNA contract summary]
• T-POAM (Technical, Professional and Officeworkers Association of Michigan) Units I & II, District Court – a total of 30 employees. [.pdf of T-POAM contract summary]

A similar agreement was on the table for the county’s roughly 225 non-union employees. [.pdf of non-union agreement]

The resolution for non-union workers also provides the same benefits to the county’s five statutory elected officials: Treasurer (Catherine McClary), clerk/register of deeds (Larry Kestenbaum), water resources commissioner (Evan Pratt), county prosecuting attorney (Brian Mackie) and sheriff (Jerry Clayton). It also “aligns” the salaries for the treasurer and clerk/register of deeds to the current salary of the water resources commissioner – $101,685, effective immediately. Previously, the treasurer and clerk/register of deeds earned $98,570 and $101,528, respectively. The sheriff and prosecuting attorney each earn a salary of $119,268.

All of the new contracts contain only one element that takes effect in 2013: An additional banked leave day will be added, and must be used sometime this year. The intent is to ensure that the new contract differs from the previous one during the rest of 2013, to guard against possible legal challenges. If there were no changes in 2013, it could be argued that there were no real contract differences until 2014 – well after the right-to-work law went into effect.

Two bargaining units did not negotiate new contracts – the Police Officers Association of Michigan (POAM), which represents 254 employees, and Command Officers Association of Michigan (COAM), with 33 members. Those public safety employees are exempt from the right-to-work law.

For background on the county’s unions, see Chronicle coverage: “County Board Briefed on Labor Issues.” Most of the current contracts were authorized in September of 2011.

Labor Agreements: Broader Context

These new agreements will be a factor in the budget that’s being developed for 2014, 2015 and beyond. The county administration is hoping that the board will approve moving from a two-year budget cycle to a four-year budget planning process.

Caryette Fenner, president of AFSCME Local 2733.

The administration has projected a $24.64 million general fund deficit over a four-year period from 2014 through 2017. A much smaller general fund deficit of $3.93 million is projected for 2014, but county administrator Verna McDaniel hopes to identify $6.88 million in structural changes for that year – a combination of new revenues and cuts in expenditures – in order to eliminate the cumulative deficit going forward. When McDaniel briefed commissioners on budget preparations at their Jan. 16, 2013 meeting, she indicated a desire to find $2.62 million in reductions to employee compensation and benefits.

The county also faces a challenge due to its unfunded liabilities related to employee pensions and retirement healthcare. New Governmental Accounting Standards Board (GASB) standards, enacted in 2012, require that public employee pension liabilities be reported on an organization’s balance sheet. Expenses related to pensions and retirement healthcare are projected to spike in the coming years.

Based on actuarial valuations at the end of 2011, the county had $101.27 million in unfunded liabilities for its defined benefit pension, and $148.46 million in unfunded liabilities for its retiree healthcare. Those amounts are expected to be higher when the 2012 actuarial valuations are completed later this year.

The administration plans to propose dealing with those unfunded liabilities by issuing bonds to cover those costs. Although the county would be taking on significantly more debt as a result – and incurring interest expense – the idea is to take advantage of low interest rates and create a “smoothing” of payments over a more extended period.

The board has not directly discussed this possibility at any of its public sessions. John Axe of Axe & Ecklund – a Grosse Pointe Farms firm that serves as the county’s bond counsel – has attended at least one closed session of the board this year, when labor negotiations were discussed.

In response to an email query from The Chronicle, Tina Gavalier – a financial analyst for the county – described how the new contracts and bonding could affect the upcoming budget:

The preliminary estimated cost savings from these deals in terms of the settled contracts and the anticipated bonding for retiree health care and defined benefit pension obligations is approximately $2.1M per year. The savings is likely to increase or compound over time. The estimated cost savings is preliminary because of the basis of calculations used the 2011 actuarial valuation reports. Savings estimates will be finalized after the 2012 actuarial valuation reports are published (anticipated to be in late May or early June).

If the authorization to bond is approved by the Board of Commissioners and bonding is successful, $2.1M of the $2.62M reduction target for employee compensation and benefits will have been met.

The $2.62M was based on the preliminary financial state of the county presented in January. The updated financial state of the county will be presented in May after the equalization report is issued in April. Therefore, reduction targets may be modified based on the updated financial state of the county presentation.

Labor Agreements: Board Discussion

Before the March 20 vote, Conan Smith (D-District 9) began the board discussion by saying the contracts represent “a very, very substantial change in the way the county does business.” He thought it was important for the public to know the details. In large part, the county is moving away from a defined benefit pension system and back into a defined contribution system, he noted. This introduces substantial volatility for county retirees, he said, and does not provide for predictable stability that a defined benefit plan would. He appreciated that county administration has been “keenly sensitive” to the impact of that change.

The fact is that in moving out of a defined benefit plan, C. Smith said, “we are able to eliminate substantive legacy costs for the organization, which will create an enormous opportunity for us to do alternative types of investing to the community’s benefit at large.” It comes at the cost of introducing risk into the retirement system for employees, but after weeks of heavy debate, he said, he felt the county had created the best defined contribution program that they could. “It’s not the thing that I want,” he added, saying he’d prefer that the county keep its pension plan.

County commissioners Conan Smith (D-District 9) and Alicia Ping (R-District 3).

C. Smith said the process of reaching this decision was “interesting, open and thorough.” For years, he said, the county’s approach to labor negotiations has been remarkable in this way. The county was one of the first local governments to institute an interest-based bargaining process, “which was revolutionary,” he said. Smith noted that when county administrator Verna McDaniel was HR director for the county, he had asked her to teach members of the Michigan Suburbs Alliance about this approach. [Smith serves as executive director for the alliance, which is based in Ferndale.] So despite the fact that he’s disappointed about moving out of the defined benefit system, Smith said he’s very supportive of the contracts because he respects the negotiating process that was used.

C. Smith said he hoped the board and administration would be attentive to retiree health care. These new contracts are moving way from a defined benefit approach to retiree healthcare, and using another kind of investment system instead. [Smith was referring to retiree health reimbursement accounts (RHRAs), for employees hired after Jan. 1, 2014.] This is probably the most important thing that the county can do financially, he noted, because they have no control over the volatility of health care costs, which have been skyrocketing. He hoped that national responses to rising health care costs will have an impact, “but we don’t know that.” So the board can’t continue to put the institution at risk by “guaranteeing something that we don’t know we’re going to be able to afford in the long run.”

The proposal to move out of guaranteed retiree health care is dramatic, C. Smith said, and will likely pose significant challenges to employees. Both administration and the board will need to be very attentive in the coming years to ensure that this new system will provide the right kind of security. He said it’s the right move fiscally for the county.

These are big changes, C. Smith concluded. He thanked other commissioners and the administration for “bearing with me through my panic modes.” He described the solution as decent. It’s “imperfect, in my opinion, but quite good – B+.”

Dan Smith (R-District 2) spoke next. As with all contracts and negotiations, you end up with things you like and things you don’t like, he said. In this case, there are some things that he liked a lot. “And then, as these things go, there are things you don’t like so much.” It’s important to look at the entire document as a whole, he said.

The thing that made D. Smith uncomfortable is that most of the contracts are long-term – more than 10 years. “That is very likely longer than the service of most of us sitting around this table,” he said. A 10-year contract “severely binds future boards and dramatically eliminates the flexibility that they have to respond to situations that may face them seven or eight years down the road.” There are some benefits to that as well, Smith noted, but he’s not able to find enough data or information that would make him comfortable with that length of time. It would be different with a two-year contract, which gives the county the chance to respond to changing conditions, he noted. With a 10-years contract and the unknowns surrounding the costs and benefits of the various provisions, “I’m just not comfortable moving forward with that at this time.”

D. Smith also cited concerns about legal questions “that continue to nip away at this.” He wished the legislature would just leave this issue alone, but instead they continue to pick at it “week after week after week.” He didn’t know how it will play out, but “I do know that if we did this contract in the traditional way … we wouldn’t have a bull’s-eye on our back for that.”

D. Smith said he wouldn’t be supporting the union contracts. He appreciated the time and effort that the administration had put in to reach these agreements so quickly. He was very pleased with some of the provisions, and looked forward to seeing how those played out. But 10 years is too long a time to risk taxpayer dollars, he said. He realized there were competing interests – taxpayers, employees, the services that the county provides to citizens – that all have different needs. He realized that the new contracts try to address those needs in various ways, but he wasn’t comfortable with it in its entirety. He concluded by thanking the administration, and saying he was sorry he couldn’t support the contracts.

Andy LaBarre (D-District 7) expressed support for the contracts. The final product included the “varied thinking on this board,” he said. Hearing some of the issues raised by Dan Smith had been “exceedingly helpful,” LaBarre said. The flip side of concerns related to the 10-year length is the stability that these contracts bring – or at least the certainty of knowing the costs and benefits, for both the county and its employees.

Commissioners Felicia Brabec (D-District 4) and Yousef Rabhi (D-District 8).

LaBarre said Conan Smith did a laudable job in acting as a “conscience” on the real-life impact of the county’s workforce. LaBarre also thanked commissioners Felicia Brabec (D-District 4) and Yousef Rabhi (D-District 8) for providing the framework to reach this final contract. [Rabhi serves as board chair; Brabec is chair of the board's ways & means committee.] “It’s an imperfect but very workable solution that I believe is in the long-term best interests of the county,” he concluded, “and most importantly, the long-term best interests of the citizens we serve.”

Rabhi also indicated strong support for the contracts. The process was an example of why unions have been an institution that has worked in this country, he said, and it’s an example of why Washtenaw County’s bargaining process is one to be modeled across the country. Labor and management had only a few weeks to make this happen, he said, and came together with the engagement of the board to work out these contracts. “It’s an amazing accomplishment, and one that we should all be proud of.” He agreed with Conan Smith that there were some features that “can make some of us uncomfortable.” Specifically, Rabhi cited the switch from defined benefit to defined contribution plans. But in the end, the contracts will have a significant impact on the county’s long-term fiscal stability.

The fact that it’s a 10-year contract sounds scary, Rabhi said. But it provides the stability that the county needs to move forward, and the tools to build a healthy and resilient workforce, he said. He applauded the process and all of those who were involved. It had been a challenge, and they all had stepped up to it. He agreed with Conan Smith about the need to be mindful of the long-term resiliency of county employees and fiscal strength in retirement. By helping to provide the tools that employees need to invest, the county can help employees make the right decisions about their retirement plan. That will be a priority for him moving forward.

Rabhi also highlighted the aspect of these contracts that builds in wage increases when property taxes increase. “So when the county is bringing in more money, we’re able to pay our employees more,” he said. It builds in an economic reality and stability, without ignoring the needs of employees to keep up with the cost of living. It will also allow the county to offer competitive salaries, so that they can hire and retain the most excellent staff in Michigan and the country. He concluded by again thanking everyone for their work.

Alicia Ping (R-District 3) noted that she agreed with Conan Smith that the contracts were imperfect, but “for different reasons.” Ultimately, for her it’s about the stability of the entire organization. Without that stability, no individual employee can be secure in their job. There was some give-and-take in the negotiations, and when no one is completely happy, it’s a sign that everybody truly wins, Ping said. The county can now do more structured planning, based on what they know their costs will be. And any employee who comes on board will know what their pay structure will be like, so they can do some planning, too.

The county is eliminating legacy costs by eliminating the defined benefit plan, Ping noted. For her, that’s huge – it’s one of the best things that could happen, along with the changes to retiree health care. “It also gives us options on what we can do with our unfunded liabilities,” she said.

This process got started “because Lansing is meddling again,” Ping said, and that leads to unintended consequences. The contract is lengthy, but she believed it will be an “awesome” benefit to the county. While there are certain aspects that she doesn’t agree with, overall it’s the best thing that could happen for the county and its planning efforts. She thanked both the administration and employees.

Commissioner Ronnie Peterson (D-District 6).

Rolland Sizemore Jr. (D-District 5) cautioned the board against using acronyms. [Some commissioners referred to defined benefit and defined contribution plans as DB and DC, for example.] Noting that the public is watching on TV, he said commissioners should use “real words” and be more down-to-earth so that people can understand what the board is saying.

Ronnie Peterson (D-District 6) told commissioners that he wouldn’t be voting on the contracts for AFSCME Local 2733 or Local 3052, citing a professional relationship he has with the union’s parent organization. [Peterson is the legislative/political director for the Michigan AFSCME area office.] He said he agreed with Conan Smith’s comments, and highlighted the “years of sacrifice” that employees have made. The new contracts are the best that the county has ever negotiated, he said. It’s a “sharing loss,” but employees again are giving up a lot to keep the organization afloat.

The employees do it because they trust the administration and board to do right by them in the years ahead, Peterson said. Employees need to get credit for their help in balancing the budget over the past few years, he said, citing furlough days, wage concessions and other “huge sacrifices.” While most employees in other organizations are now being forced to do that, Washtenaw County employees came to the table years ahead of that to keep the organization afloat and to keep jobs for their colleagues. He wanted to make sure everyone was mindful of their sacrifices, including sacrifices for future employees – some of the union membership will frown on that, he said.

The 10-year term is almost unheard of, he said. It’s not locking them into a commitment that’s too long, he added, but rather it’s locking the county into a road map for the future. If the county does well and tax revenues increase, it’s only right that the employees benefit from that, he said. “They are public service providers,” he said. “They are not public servants who serve for free. They’re entitled to their compensation.”

Kent Martinez-Kratz (D-District 1) spoke briefly, saying he supported the move to the defined contribution system. He noted that the Chelsea city council had made the same decision several years ago when he served as a councilmember. It was overdue, he said. The long-term contract will help stabilize the county, and will give the workers knowledge that their jobs will be stable. It’s a good contract, he said.

Brabec wrapped up the discussion by also expressing her support. It’s been an open and transparent process, she said, that was done with great care “under some trying and difficult circumstances.” It will allow the county to address long-term liabilities and fiscal stability, and allow for a stronger county organization and a stronger workforce to serve residents. She thanked administration and labor for their work. It’s not perfect, she concluded, “but it’s the best imperfect.”

Outcome: The vote on contracts for AFSCME Local 2733 and AFSCME Local 3052 was 7-1, with Dan Smith dissenting and Ronnie Peterson abstaining. Commissioners unanimously approved the agreement with non-union employees. The vote was 8-1 on all other union contracts, with Dan Smith casting the lone vote of dissent.

2012 Financial Update

County administrator Verna McDaniel introduced finance analyst Tina Gavalier to give commissioners a 2012 year-end report, saying “I think you’ll be pleased.” Most recently, the board had received a financial update at their Jan. 16, 2013 meeting, to lay a foundation for setting the 2013-2014 budget.

From left: Finance analyst Tina Gavalier and Washtenaw County administrator Verna McDaniel.

Gavalier reported that the 2012 audit is wrapping up, and will be presented to the board at its April 3 meeting. So she characterized her presentation as preliminary, with the possibility of final “tweakings” before the audit is completed.

She told commissioners that she’d start with the good news: The county saw a $540,000 surplus in property tax revenues compared to what had originally been projected in the 2012 budget. Of that, about $111,000 is due to the timing of property tax collections, including $104,000 from Ann Arbor Township’s 2011 Huron Clinton Metro Authority millage, which was collected in 2012.

Other revenue surpluses include $536,000 more than budgeted from the county clerk/register of deeds office, related to real estate transfer taxes and fees, as well as services from e-commerce. In the “transfers in” category, a surplus of $506,000 related to closing out some non-general funds, Gavalier said, and transferring those into the general fund. And a $167,000 surplus from state revenue-sharing was due to payments under the 2012 incentive program.

In total, general fund year-end revenue surpluses reached about $1.7 million.

Gavalier also noted some revenue shortfalls, including about $687,000 in the sheriff’s office mostly due to delayed implementation of the consolidated dispatch services with the city of Ann Arbor. The district court also recorded a revenue shortfall of $286,000 primarily due to lower-than-expected court fees and fines. New case filings have declined for five straight years, she noted.

Overall, general fund revenue shortfalls totaled about $973,000.

Factoring in both surpluses and shortfalls, 2012 ended with a total general fund revenue surplus of $797,970.

Shifting to the general fund expenditures, a surplus of $1.7 million in fund balance reserves was planned and will be carried forward to use in 2013. There was also a savings of $336,000 in personnel services because of attrition, job vacancies and planned reductions. An additional $309,000 in net operational savings came across all county departments. For example, the trial court exceeded its “lump sum” reduction by $101,000, not counting personnel reductions.

The category of appropriations/transfers out was $731,000 higher than budgeted. Gavalier cited an increase in infrastructure management, and capital investment in technology, building maintenance and renovations.

The total expenditure “surplus” was $1.464 million for 2012 – that is, expenditures were $1.464 million less than budgeted for the year.

Through the end of 2012, total projected revenues of $102.04 million exceed total projected expenditures of $99.78 million by $2.26 million. The county had planned for a total surplus of $1.889 million to carry into 2013 – so the year ended with a surplus of $327,607 above that targeted amount.

2012 Washtenaw County general fund budget variance.

Chart showing 2012 Washtenaw County general fund status.

In 2011, the year-end fund balance was about $14.5 million, compared to a year-end fund balance as of Dec. 31, 2012 of about $16.8 million – or 16.3% of general fund expenditures in the 2013 budget.

Gavalier also reviewed several of the non-general fund outcomes for 2012. There are surpluses in the child care, facilities operations and maintenance, Friend of the Court, public/environmental health, building inspection, and risk management funds. On budget are funds for the prosecuting attorney, veterans relief, and office of community & economic development. The fund supported by the county’s Act 88 millage – for economic development and agricultural programs – showed a shortfall. Gavalier said the shortfall was planned, and includes a planned use of $15,000 from the program’s fund balance.

Looking ahead, Gavalier reminded commissioners that they’ll get the 2013 equalization report in April, along with the 2012 audit. The first-quarter 2013 budget update will be delivered in May. Throughout this year, staff will be working on the 2014-2015 budget, which will be presented to the board in September.

2012 Financial Update: Board Discussion

Yousef Rabhi wanted to highlight the shortfall of $687,000 in the sheriff’s office, most of it related to the dispatch consolidation with the city of Ann Arbor. [Rabhi represents one of three Ann Arbor districts on the county board.] It’s an example of a collaborative effort, and in the future it will save taxpayers money, he said – about $500,000 annually for Ann Arbor.

From left: Commissioners Yousef Rabhi, Alicia Ping, Andy LaBarre, and Ronnie Peterson.

The county is working to make regional collaboration a reality, he said, “but it is costing us something.” He wanted people to realize that the county is stepping up to the plate and putting up resources to help that consolidation go forward, because they believe in this approach. He said he didn’t like the shortfall, but wanted to highlight the investment that’s being made for the sake of regionalism.

Rabhi also noted that the county has a fund balance surplus at year’s end, and that’s something to be proud and excited about. But this good news comes on the heels of federal sequestration, which will impact county operations, he said, including employees and services. The budget surplus won’t offset sequestration entirely, he said, but perhaps it helps the county delay that impact a little bit. If the board prioritizes its programs and focuses on outcomes, he added, there’s a way to mitigate the impact of a loss of federal funding.

Rolland Sizemore Jr. said he was glad the county was working with Ann Arbor on dispatch consolidation, “but maybe Ann Arbor can be a little nicer and not charge us rent.” He asked whether the county will charge Ann Arbor rent when the dispatch operation eventually moves to county facilities on Zeeb Road. [Currently, the combined dispatch unit is located in the downtown Ann Arbor fire station No. 1 across from city hall.] Greg Dill, the county’s infrastructure management director, replied that the answer was “to be determined.”

Sizemore also wondered why the county showed a deficit in Act 88 funds. Gavalier reiterated that the 2012 budget for Act 88 funds included a planned use of the Act 88 fund balance.

Conan Smith asked for more details about the appropriations/transfers out, which was $731,000 higher than budgeted. Gavalier replied that because of overall budget reductions, the county has held flat the appropriations for the “1/8th mill fund” – which is used for maintenance projects – and the technology plan. In 2012, there was some extra money available to allocate, so the administration decided to provide more funding for those areas, Gavalier said.

“How does that happen without the board voting on it?” Smith asked. Gavalier replied that it was an administrative decision. County administrator Verna McDaniel elaborated, saying those funds had been “cut short” over the past few years. The plan was to eventually restore funding, she said.

Smith noted that the board had budgeted $1.3 million for the 1/8th mill fund in 2012. So capital construction got a “solid chunk of money” in the budget process, he said. Was McDaniel saying that it was still underfunded?

Gavalier said the 1/8th mill fund and tech plan funding have been flat since 2008 and 2009. Normally, the allocations are based on property tax values, she said, but that hasn’t been the case in recent years. So administration determined that if it were possible to increase the allocation to those funds, “it would help soften that reduction,” she said.

Allowing that he might sound rude, Smith asked where the budgetary authority was to make that appropriation without the board’s approval.

Commissioner Kent Martinez-Kratz (D-District 1).

McDaniel replied that she knew her authority was for line items under $100,000. The decision was made to restore funding to those areas, she said, but the board can make changes if it wants. Smith clarified with McDaniel that the funds aren’t yet spent. Gavalier added that the money has simply been transferred into the fund for future capital needs, and there was no net impact on the budget.

Smith indicated that he understood – the county had more money than it anticipated, “so we had to put it in some fund.” He further clarified that Dill would be discussing how those funds would be used during a working session presentation on March 21. [Dill's recommendations, presented on March 21 as part of the county's "space plan," included demolishing the former juvenile center and redeveloping the vacant Platt Road site, as well as renovating and remodeling several other county facilities.]

Smith said he wanted to draw the board’s attention to the fact that the money in this line item hasn’t yet been spent. The board has discussed other priorities for the organization, he added, and they need to carefully weigh the appropriateness of making an investment in the county physical infrastructure against some of the programmatic cuts that have been made – such as support for nonprofits, or to offset the impact of sequestration.

Andy LaBarre, who chairs the board’s working sessions, noted that in addition to the space plan update, the March 21 working session would include a presentation by Mary Jo Callan, director of the county’s office of community & economic development, about the impact of sequestration. [.pdf of sequestration impact on county departments] [.pdf of sequestration impact on OCED programs]

Outcome: This was not a voting item.

County Land Bank

Commissioners were asked to form a committee that will explore the feasibility of creating a land bank. A resolution on the March 20 agenda also named three people to the committee: Commissioner Ronnie Peterson (D-District 6), county treasurer Catherine McClary, and Mary Jo Callan, director of the county’s office of community & economic development. The committee is directed to report back to the board by Aug. 7, 2013.

A land bank is a mechanism for the county to take temporary ownership of tax- or mortgage-foreclosed land while working to put it back into productive use. “Productive use” could mean several things – such as selling it to a nonprofit like Habitat for Humanity to rehab, or demolishing a blighted structure and turning the land into a community garden.

The board has made attempts in the past to start a land bank, and actually formed one in the summer of 2009. But after commissioners were unable to resolve issues related to governance and funding, they voted to dissolve the land bank in March of 2010. Only three current commissioners were on the board at that time: Ronnie Peterson, Rolland Sizemore Jr. and Conan Smith.

At its Sept. 1, 2010 meeting, the board voted to revive the land bank. However, the board never took the next step of funding it or getting approval from the state.

On March 20 it was current board chair Yousef Rabhi who brought forward the land bank resolution. At the board’s Feb. 20, 2013 meeting, Rabhi had announced his interest in this effort.

For additional background, see Chronicle coverage: “Banking on a Land Bank” (July 8, 2009 board meeting); and discussions during the county board meetings on March 17, 2010, July 7, 2010 and Aug. 4, 2010.

Outcome: Without discussion, commissioners voted to form the land bank exploratory committee.

New Jobs in Water Resources, IT

Two new jobs – in IT support and water resources – were on the March 20 agenda for initial approval.

A new water resource specialist will work in the county’s office of the water resources commissioner, Evan Pratt. The job is authorized at a salary range between $30,515 to $40,253. According to a staff memo, the position is needed due to heavy drain construction activity and an increase in soil erosion application inspections. The job is described as a revenue-generating position, bringing in an estimated additional $41,337 in each of the first three years, and a minimum of $15,000 annually after that. The staff memo indicates that the office has identified reductions within its budget to offset the increased cost of the position.

New Jobs in Water Resources, IT: Board Discussion

Commissioner Dan Smith (R-District 2) expressed hesitation to add to the county’s payroll, but said he understood the need in these cases.

Evan Pratt, Washtenaw County’s water resources commissioner.

Evan Pratt, the county’s water resources commissioner, attended the March 20 meeting and spoke briefly, beginning his remarks by joking: “Long-time listener, first-time caller.” [He was first elected to this position in November of 2012.] Pratt said the construction activity is primarily in the city of Ann Arbor, which is paying for the work and has made at least a three-year commitment. “Existing staff was doing the work, but getting pretty far behind,” he said. He added that he had challenged his staff to figure out a cost-effective way to handle this without hiring part-time staff. The strategy includes shifting some clerical and accounting work to existing front-office staff.

Yousef Rabhi (D-District 8) said he appreciated that Pratt would be hiring a full-time position, rather than using temporary or part-time workers.

Pratt said he wished he didn’t have to come before the board with this request while they were dealing with labor negotiations, and he didn’t want people in the public to think the county was sending a mixed message. Pratt indicated that he was sensitive to Dan Smith’s concerns, but thought this was the most cost-effective way to proceed, by shifting some responsibilities elsewhere within his office. “We see it as budget neutral,” Pratt said.

The IT system support technician was authorized at a salary range between $37,464 to $52,355. According to a staff memo, the new position is needed to provide back-up for the IT help desk and other staff support. It will be funded from IT contracts and a structural reduction of $32,647 in the tech plan appropriation.

Outcome: Both positions received unanimous approval from commissioners in an initial vote at the ways & means committee meeting. The items will be considered for a final vote on April 3.

Public Health Plan

The Washtenaw County public health plan – mandated by the state of Michigan – was on the agenda for a final vote. The board gave initial approval at its meeting on March 6, 2013. [.pdf plan of organization]

State law requires that the county submit a plan of organization every three years to the Michigan Dept. of Public Health. The 103-page document outlines the county health department’s legal responsibilities and authority; the department’s organization, vision, mission and values statement; community partnerships; services, locations and hours of operation; reporting and evaluation procedures; and procedures for approving the county’s health officer and medical director. In Washtenaw County, the health officer is Dick Fleece. Alice Penrose serves as medical director.

Approval of the health plan is part of the state’s accreditation process for public health departments, which was put in place in 2004.

There was no discussion on this item.

Outcome: Commissioners unanimously approved the county’s public health plan.

Water Quality Training Fee

A $75 fee for Washtenaw County’s training course to certify drinking water operators was on the agenda for final approval. The board had given initial approval at its meeting on March 6, 2013.

Entities with drinking water supplies or places that use certain water treatment processes – like factories or schools – are required by the state to have certified operators. Until the end of 2013, the Michigan Dept. of Environmental Quality (MDEQ) reimbursed local health departments that offered these training courses, paying $75 for each certified operator who attended. Those funds will no longer be provided. The Washtenaw County public health department plans to continue offering the courses, but now needs to charge for this service.

The new fee will take effect on April 1, 2013.

Outcome: With no discussion, commissioners gave final approval to set the training course fee at $75.

Communications & Commentary

During the evening there were multiple opportunities for communications from the administration and commissioners, as well as public commentary. Here are some highlights.

Communications & Commentary: Regional Transit Authority

Conan Smith (D-District 9) highlighted the fact that the southeast Michigan Regional Transit Authority board has now been fully appointed, and will convene on March 28 for an orientation meeting. He suggested that the two Washtenaw County representatives – Richard “Murph” Murphy and Liz Gerber – come talk to the board about what the county’s interests and priorities are. “The earlier we weigh in, the more systemic the impact of our comments are going to be,” he said. “If we don’t talk to them until they’ve already made decisions, then it’s going to be too late.”

The city of Detroit and counties of Wayne, Macomb, Oakland and Washtenaw are included in a regional transit authority created by state legislation passed on Dec. 6, 2012.

Rolland Sizemore Jr. (D-District 5) said he’s been getting emails from people in the community who are interested in opting out of the RTA. He wanted to have a working session soon to talk about the RTA, “before we get too far down the tubes, to find out what our options are.”

Smith responded, saying there are no opt-outs allowed for the RTA under state statute. He thought Sizemore might be talking about the countywide effort that “AATA and the locals were trying to put together.” As far as the RTA, legally no one can opt out, he said. Sizemore replied that he still wanted a working session on it.

By way of background, the RTA was created by the legislature in December of 2012 to coordinate regional transit in the city of Detroit and counties of Wayne, Macomb, Oakland and Washtenaw. Conan Smith has been a strong advocate for Washtenaw County’s participation in the RTA. He lobbied the legislature to include Washtenaw County in the RTA, and accelerated the appointment process so that he could make the county’s two appointments to the RTA board before his term as board chair expired at the end of 2012.

However, other local leaders are concerned about the impact of the RTA on the Ann Arbor Transportation Authority, which primarily serves Ann Arbor and Ypsilanti. At a special meeting on Dec. 10, 2012, the Ann Arbor city council unanimously passed a resolution objecting to the inclusion of Washtenaw County in the RTA. There was subsequent lobbying to urge legislators to amend the law so that Washtenaw County would be excluded from the RTA – but that hasn’t happened.

Separately, the AATA has been meeting with representatives of the county’s “urban core” communities to discuss possible expanded public transit within a limited area around Ann Arbor. This follows last year’s derailed effort to build a countywide transit system. The AATA is hosting a meeting on March 28 to go over details about where improvements or expansion might occur, and how much it might cost. [See Chronicle coverage: "Costs, Services Floated for Urban Core Transit."]

Communications & Commentary: Healthy County

Alicia Ping noted that Washtenaw County has been ranked among the healthiest counties in the state. She congratulated the staff for their work.

The annual rankings are published by the University of Wisconsin Population Health Institute and the Robert Wood Johnson Foundation, looking at counties across the U.S. Dick Fleece, Washtenaw County’s public health officer, told commissioners that there are two categories: (1) health outcomes, based on morbidity and mortality; and (2) health factors, including health behaviors (tobacco use, diet and exercise, alcohol use and sexual activity), access to care and quality of care, social and environmental factors, and physical environment.

Washtenaw County ranked first in Michigan for health factors, Fleece reported, and fifth for health outcomes.

Communications & Commentary: Thomas Partridge

Only one person spoke during public commentary at the meeting. Thomas Partridge told commissioners that it was nearly the eve of Good Friday and Easter, and he wondered what Jesus would advocate if he were here today. Partridge thought Jesus would want everyone to be treated in a kind, respectful manner – despite differences of opinion. Commissioners need to work toward affordable, accessible housing and transportation, among other issues to help the most vulnerable residents of Washtenaw County.

Present: Felicia Brabec, Andy LaBarre, Kent Martinez-Kratz, Ronnie Peterson, Alicia Ping, Yousef Rabhi, Rolland Sizemore Jr., Conan Smith, Dan Smith.

Next regular board meeting: Wednesday, April 3, 2013 at 6:30 p.m. at the county administration building, 220 N. Main St. in Ann Arbor. The ways & means committee meets first, followed immediately by the regular board meeting. [Check Chronicle event listings to confirm date.] (Though the agenda states that the regular board meeting begins at 6:45 p.m., it usually starts much later – times vary depending on what’s on the agenda.) Public commentary is held at the beginning of each meeting, and no advance sign-up is required.

The Chronicle could not survive without regular voluntary subscriptions to support our coverage of public bodies like the Washtenaw County board of commissioners. Click this link for details: Subscribe to The Chronicle. And if you’re already supporting us, please encourage your friends, neighbors and colleagues to help support The Chronicle, too!