County facing deficit as budget hearings begin

Oneida County kicked off its budget hearings this week facing an estimated operating deficit of nearly $1.3 million, but good news from the sheriff’s department quickly pared that number by about a third, and county finance director Tina Smigielski also observed that the budget hearings could produce substantial changes to a final proposed budget.

If recent history is any indication, that’s true, and this week likely will produce significant movement toward a balanced budget. Sure enough, right as consideration of departmental budgets started, sheriff Grady Hartman announced an updated boost of $400,000 in his department’s projected revenues, thanks to state inmate revenue.

Overall, Smigielski told the county’s executive committee, the departments have estimated $77.1 million in revenues for 2025 and total expenses of about $81.5 million. 

That’s a $4.4 million overall shortfall, but Smigielski said that doesn’t tell the whole story.

“That is a deficit, but, just to remind this group, which also serves as the capital improvement planning committee, there is a $3.2 million purposeful spend down of general fund surplus balances,” Smigielski said. “So that takes care of some of that deficit.”

Indeed, subtracting the planned drawdown leaves the projected operating deficit of $1,273,770.

Smigielski also observed that the county’s number of employees would increase significantly, from 297.37 fully-time equivalent employees to 350.88, an increase of 53.51 positions, but those numbers don’t tell the whole story, either.

Most of the new employees can be chalked up to the creation of the new Human Services Department, which combines social services, ADRC, and the now-defunct Human Service Center. The absorption of Human Service Center employee positions into the county structure boosts employment by 49.5 positions.

Elsewhere, buildings and grounds will get two additional positions, as will Information Technology Systems. The number of health department employees will decline by 1.49 positions.

As far as significant impacts for 2025, Smigielski underscored the ongoing transition to the new Human Services Department, which will be led by current social services director Mary Rideout.

Smigielski estimates the net fiscal impact to the county for 2025 will be $1.7 million.

“So based on the proposal put together by Human Services Department, IT [information technology], buildings and grounds, LRES [labor relations and employee services], finance, the net impact after grants, charges to customers, including Vilas and Forest counties, the net impact is currently proposed to be $1.7 million to the county for human services.”

Smigielski again cautioned that the numbers weren’t final.

“The human services department is proposing expenses of $13.5 million in total,” she said. “And then there’s other departments that have expenses as well. But there’s grants, department charges such as insurance, Vilas County, Forest County, rental income. So what I’m saying is the net after you take all those revenues into account would be $1.7 million that the county would have to either include on the tax levy or fund it some other way, as currently proposed.”

But, in what is a recurring theme this year, that $1.7 million net impact doesn’t tell the whole story, for while the cost is being reflected as a departmental expense for 2025, the county had to pay the Human Service Center for those services in previous years, which it does not have to do in 2025.

“So there have been costs associated with human services,” Smigielski said. “They just weren’t internal. We paid the Human Service Center. We would levy and submit funds to them in that way.”

Given that this is the first year of the transition, Smigielski said it will probably take the county two years to figure out the actual net impact is.

The bottom line was, the county paid for human services in the past, it’s just that it will be an internal expense going forward in 2025, though final gain or losses are uncertain.

Smigielski also observed that the estimated $1.7 million net impact does not include indirect costs associated with other departments, which she said are not really known at this time.

Why not pay the freight and not cut

When talking about the nearly $1.3 million operating deficit, Smigielski anticipated that some supervisors might want to know if the county had enough in the unreserved general fund balance to cover the shortfall and be done with it, rather than trying to nickel and dime budget cuts from departments here and there.

“We do have an operating deficit as currently proposed of $1,273,770,” she said. “Before the question is asked, yes, we do potentially have those resources available in the fund balance, but it would be best practice to adopt a budget that does not have an operational deficit. That doesn’t bode well for future operations.”

Supervisor Robb Jensen asked the question anyway, after being told the county’s net reserve was between $8 million and $9 million. not including the county’s Rainy Day Fund.

“As we go through this discussion, if we’re going to look at that general fund and say, ‘okay, we’ve got $1.273 million [deficit]. We’ll take out of there,’” Jensen said. “Or are we going to go through this thing here and say can you cut $10,000 here and then we get all done and we come up with $200,000 [in cuts]. What is it of that general fund balance that, from an auditor’s standpoint, would be reasonable? Can we take the $1.2 million out of there and still be in good financial shape for the county in 2025?”

Smigielski said auditors would not offer up such a number, though rating agencies might, and she stuck by her position that funding the deficit out of the general fund without balancing the budget between revenues and expenses would not be good practice.

“So we did adopt a stabilization fund resolution a couple of years ago, which was a great idea,” she said. “We have thirty-three-and-a-third percent of operating expenses set aside. So could the county just adopt this as is and be okay for a year?”

The answer was yes, Smigielski said, but once again that wasn’t the whole story.

“Is that best practice when things indicate the economy might be slowing down?” she asked. “Our cost of living adjustment as well as the cost of employee benefits is higher than our allowable [levy] increase. So I think it’s a good exercise to go through and press departments to see if there are ways to reduce their impact, their funding impact, or request on the levy.”

Smigielski said she believes that doing so is an important aspect of governance. 

“Sure you could adopt the adopt the operating deficit budget and we decline,” she said. “We have a fund balance, unlike other governments, but I don’t believe that’s best practice to not press departments on the requests.”

Jensen continued to express doubts that the executive committee could find enough cuts to erase the projected deficit over the course of the budget hearings.

“Is it realistic to come up with $1.273 million as we go through these three days?” he asked. “I don’t know. All I know, my experience in the past has been that we’ve been very unsuccessful at some of that and we look at the fund balance to bail us out. So I agree with going through and asking some tough questions. It’s important, but we should try and get some kind of an idea what that number would be that we might look at from the general fund.”

Jensen pointed out that the general fund balance has been increasing over the years.

“We’ve been very good at every year coming in in the black and that’s a good thing,” he said. “And then that’s just taxpayer money that’s put into the general fund. We are actually taking taxpayer money from 2024 and 2023 and applying it to 2025.”

It’s good to ask tough questions, but the estimated deficit was a lot to come up with, Jensen said.

Committee chairman Billy Fried wasn’t as pessimistic as Jensen that savings could not be found.

“The last couple years we were looking at over a million dollar deficit when we sat down on day one and we were able to get a balanced budget,” Fried said. 

Fried agreed with Smigielski that using the fund balance to pay ongoing expenses was not a good idea.

“I’m thinking you definitely don’t want to take operational expenses out of the general fund,” he said. “I’ve seen it in my time here. The general fund deteriorates down and later on in the year the county will be looking at the needs for the highway department, possibly looking at other opportunities to bring in revenue for it because the surpluses aren’t there for what the future needs are.”

Supervisor Steven Schreier said the committee needed to keep in mind that the county spends down a significant amount of the general fund year to year and most of it is attributed to things that were not included in the budget. 

“So you have a lot of things and you could go through the whole list,” Schreier said. “I’m sure they’re available to us of what we did spend, what did we contribute money towards out of the general fund that was not in the budget at all from year to year to year and we’ve done it every year that I’ve been on the board.”

Schreier said he had attended budget hearings every year and there has always been a structural deficit.

“And we’ve always balanced the budget every single year,” he said. “So this is not new. It’s sharpening pencils, listening, finding out ways that you can get that number down. We have taken money out of the general fund to balance, but usually it’s not the entire amount of the deficit we’re projecting at the beginning.”

Smigielski also reminded committee members of the statutory levy cap.

“The only other thing I wanted to mention is the state does have statutory limits on how much local governments can levy with their property tax levy,” she said. “It’s based on net new construction, not growth in equalized valuation. So for our allowable increase to our levy next year for the amount that’s under the tax cap, it’s 0.76 percent. The dollar amount is $116,000 total that we’ll be able to go along with our levy. So sorry to end that way, but that’s an important number to keep in mind when moving forward today.”

The committee then started its week-long dive into departmental budgets, and right off the bat sheriff Grady Hartman said he could shave the projected deficit by $400,000.

That’s not to say times aren’t tough, the sheriff said.

“What I would say is that there are a lot of outside negatives weighing in on the sheriff’s department’s operation, outside influences and those types of things,” he said. “At the same time, inflation’s having a huge impact on us. So with that in mind, we prepared a realistic budget.”

But there was good news, Hartman said.

“After we prepared our budget, right before we presented to public safety, we were able to renegotiate to get another 10 state inmates and we also renegotiated the daily per diem for those inmates,” he said. “Combine the two together and it’s gross [about] $475,000. So I think you can take another 400,000 of that as a net. So that was something significant that, although I would caution you again on spending that in your operating budget.”

Hartman stressed that the $400,000 represented a net increase, after associated expenses.

“I’m paying 4 percent back to buildings and grounds for their increased costs,” he said. “We ultimately have increased costs as well with medical and meals and that kind of stuff. So I’m taking a stab at, in this scenario, it’s about $400,000 to the good for the county after paying buildings and grounds and medical and meals.”

Richard Moore is the author of “Dark State” and may be reached at richardd3d.substack.com.