I haven’t seen the original report so can’t even attempt to validate the headline, but here’s a story on the risk that given its current trajectory, the City of Detroit will run out of cash by April, 2012.
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Thanks to an alert reader for pointing out that there’s another New York county nursing home on the agenda of New York’s Public Health & Health Planning Council. Unlike Albany’s, this one, in Fulton County, is being sold. We talked earlier here about the large number of counties seeking to offload their nursing homes (and though we didn’t talk about it at the time, home health agencies).
Fulton County’s facility, which is in Gloversville, and has 176 beds will be sold to a private operator. The sale price is $2,020,000. That works out to $11,477 per bed, a useful metric for other upstate counties. I’d bet that if we check on sale prices from a few years ago, they’d be considerably higher.
Fulton’s 2010 data is interesting. Their 2010 revenues were $11,919,388 and their expenditures were 16,965,907, for a net loss of $5,046,519. That’s a loss per bed of $10,596, which is peanuts compared to what Albany projects after they build a new facility (total loss of $26.4 million, or $114 thousand per bed). So while Fulton is getting out of the business, Albany with a projected total loss five times greater and a per bed loss 11 times greater is going all in to build a new one. Must be something in the water.
And it will make a difference in Fulton County’s budget and property taxes. Fulton County embarked on creating a “survival strategy.” Though they project flat sales tax revenue and Fulton’s tentative budget exceeded the tax cap, the proposed property tax increase was 3.76 percent (compared to Albany’s 19.2 percent). Because Fulton started far enough in advance to find a buyer and go through the regulatory process, they were able to budget the nursing home for only one calendar quarter for 2012. They also budget for sale of their certified home health agency (CHHA) and are “privatizing” the mental health and addiction services clinics.
The new nursing home operators in Fulton expect revenues to decline by $352,170, but expenditures to decline by $5,599,111, a net change of $5,246,941, resulting in a profit of $200,422.
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Heard from the Administrator of another nursing home (by reputation, a good facility) who pointed out that she runs a nursing home of about the same size as Albany County and …
The projected deficit for a new Albany County Nursing Home is about the same size as their entire annual budget.
It must be terribly discouraging and frustrating to struggle to run a good facility in times of financial challenge, even peril and then to watch your own County Legislature move to build a new facility with an added subsidy from taxpayers that is equal to your entire operation.
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Am hearing from officials in other New York counties regarding the Albany County Nursing Home. Here’s a quote that ties together several important issues:
The nursing home issue goes to the heart of the issue about mandate relief/bailouts for counties.
Why should Albany County get the same relief that other counties are getting when they are willingly moving forward with a non-mandated, very costly new NH?
Especially when they are increasing state Medicaid costs?
That’s an important observation. His left hand knows what his right hand is doing.
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It appears that this coming Thursday, New York State will bless the construction of a new Albany County Nursing Home. I wrote a bit about it a couple weeks ago when County Legislators began to talk privately about their hopes that the State would take them off the hook and disapprove the application.
On the schedule for November 17, 2011 of the NYS Public Health and Health Planning Council, is a New York State Department of Health (SDOH) staff recommendation for contingent approval of a new 200 bed skilled nursing facility, including 20 beds for ventilator dependent patients, and a 30-slot adult day health care program (existing adult day health programs in Albany are running well below capacity so it’s unclear why SDOH would be inclined to approve this and further weaken those already operating). The meeting information is here and details are buried in the exhibits here.
This is neither programmatically necessary nor appropriate nor financially sensible. There’s no reason to expect better of the Albany County Legislature. They’ve repeatedly proven their foolishness on this issue. But now the SDOH is about to be complicit and, in doing so, undermine one of Governor Cuomo’s signature policies, the cap on the growth in property taxes.
Let’s start with the County’s own nursing home numbers as shown in the SDOH summary of the Certificate of Need (CON) application. Here’s the money quote from the SDOH documents:
The combined revenues and expenses for the facility for the third year are as follows:
Revenues $24,327,915
Expenses 50,813,787
Excess of Revenues over Expenses ($26,485,872)Project costs of $70,938,554 will be met via General Obligation Bonds at an interest rate of 4.00% for thirty years.
The submitted budget indicates an excess of revenues over expenses of ($26,485,872) during the third year after project completion.
Revenues are based on current reimbursement methodologies, plus incremental capital reimbursement of Medicaid. The losses will be offset by Albany County.
Of the $70.9 million in capital costs, only $55.8 million would be reimbursable under the State’s Medicaid rules. So $15.1 million in capital costs alone would be borne entirely by County taxpayers. Amortizing that over 30 years, would yield increased annual capital costs of $874 thousand per year and, over the life of the project, total costs, including interest of $26.2 million. But then throw in the increasing operating costs and decreasing revenues, mostly Medicaid cutbacks and you’ve got an annual loss of $26.5 million.
“The losses will be offset by Albany County.”
Got that? By their own numbers, Albany County expects a 52 percent loss each year. This is after lots of grandstanding about how they will be making money when they get a new facility. I need to write that again. They expect an annual loss of $26.4 million for a facility with only 200 beds and 30 adult day slots, i.e., a County subsidy of over $114.8 thousand per patient over and above Medicare, Medicaid, private insurance and other third-party coverage. For the typical (non-ventilator dependent) Medicaid patient, the annual Medicaid costs would be a bit over $95 thousand per year. So Medicaid, whose cost everyone complains about, would pay $95 thousand per year and Albany County would pay its ten percent share of Medicaid and add another $114.8 thousand on top.
Note also that under the State’s standards, Albany County’s Nursing Home Medicaid patients require services that are less intense than the statewide average.
A knowledgeable friend’s response earlier today was, “they actually put that in a budget? They actually admitted that in public?”
They expect an annual loss of $26.4 million while struggling with a property tax increase of a mere $14.5 million. This very same Albany County Legislature that pushed for a new nursing home is currently struggling with a proposed property tax increase of … wait for it … 19.2 percent. The current property tax levy is a bit over $75.3 million, so the increase represents well over $14 million. So here they are struggling to find a solution to their proposed tax increase, and at the same time, they’re committing to a 30 year expenditure for which they already know there is insufficient reimbursement and for which they already know they will carry a huge burden for decades. While county officials, including Albany County officials, are complaining about the tax cap and complaining about “State mandates,” Albany County is pushing to go ahead with a program that is not mandated and they plan a cost that represents over one-third (35.2 percent) of today’s property tax levy.
So it’s foolish on its face, incredibly foolish.
But wait! There’s more!
In the face of such foolish numbers and a statutory requirement under the Public Health Law that projects be “financially feasible” why would the New York State Department of Health recommend approval of this CON application? It has long been the Health Department’s policy that if a local government proposed a health facility that would not otherwise meet the financial feasibility criteria, it would still be acceptable if that government committed to make up the difference with its own tax dollars. That policy appears to be very hard at work here.
However, the environment has changed and that SDOH policy is now terribly out-of-synch with the times that demand governmental financial constraint and with other State policies, most notably the Tax Cap. For those who are interested in a summary of the details of the Tax Cap, they can be found here. However, the short version is that most municipal property tax increases are to be limited to annual growth of no more than two percent without the local governing body voting to do so with at least a 60 percent majority.
The Tax Cap was a major campaign issue for the Governor and its adoption a major legislative achievement. Why is his staff in the State Health Department agreeing to a project that will inevitably force further property tax increases that swamp the Tax Cap in Albany County? It’s time for the Department of Health to re-think its laissez-faire policy with respect to approving money-losing health facilities merely because local taxpayers will be forced to pick up the tab. While it would be much better if the facility were closed, at a minimum, the Department should require the County to prepare a plan that shows how they could build and operate a new facility without further tax increases and with no County operating subsidy. It should also review whether and how a new adult day health program may weaken those already operating in Albany.
But wait again! There’s still more!
While the County’s proposal for adult day health services is a form of community based services, the emphasis is rushing ahead to build a new nursing home and at the same time, the County is reducing other home and community based services. It’s also a reversal of what has been both State and County policy for years. The 2012 budget proposes reductions in two home and community based programs operated for the elderly, home delivered meals (meals-on-wheels) and in-home assistance with activities of daily living. These reductions amount to 19.8 percent and $746 thousand. Albany County’s direction is clearly toward buttressing their money-losing institution while reducing home and community based services. Is there an Olmstead issue here related to the Americans with Disabilities Act of 1990 (ADA)?
The ironies here are multiple and are too, too rich. What will not be rich is Albany County taxpayers.
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When I was a young Air Force pilot, one of the greybeards that I flew with counseled me that the most important job of an Aircraft Commander was “managing the margin of error.” Flying close to home, with less than a full load, or in good weather was much different from flying over the Pacific, with a full load, in lousy weather. In better circumstances, you could afford to go a bit more tired or without certain navigation equipment that you’d insist on in poor circumstances. But in marginal conditions – when you can’t afford to have something else go wrong, you’d better be damn sure, that everything else was up to snuff. Because there was (and is) always the chance that something else would go wrong. And when things go wrong, they don’t just pile up on top of one another, they compound one another. Each problem makes the other problems worse and the worse it gets, the worse it gets.
With that in mind, let’s talk about cash.
Earlier today, I worried about the interaction between the proposed Saratoga County, NY budget and cash. What Saratoga is doing is probably not radically different from what many, many governments are doing in the US today as they prepare their budgets for next year. But a lot of them are not “managing the margin of error.”
So if a budget is balanced, what’s the problem?
- Most importantly, something can go wrong. The economy can turn down and, as we learned just a few years ago, it can do so both suddenly and significantly. Even if we expect a decline, we don’t usually know exactly when it will come and how long it will last. But while budget periods are very precise, economic conditions are not. Let’s consider this equivalent to losing an engine in flight. If everything else is ok, this need not be the dramatic event that passengers and press make it out to be. But if everything else is not ok, it can get very ugly very fast. We know that. And even when an engine is running rough, we don’t know for certain whether it will fail or precisely when.
Second, even when a budget is legitimately and perfectly balanced, cash does not come in and go out smoothly and evenly. Payroll may be fairly even, and therefore predictable. But a severe snowstorm may require overtime for plow truck drivers and increased spending on salt. Property tax receipts may arrive, not evenly but at least predictably and generally earlier in the year, building a cushion, but sales tax revenue will fluctuate quite a bit. And when there’s not much spare change in the bank, that fluctuation can, even when the budget is balanced, leave no cash to pay this week’s bills or next weeks payroll.
Third, like most information, signals regarding the economy, are delayed. By the time you find out you’re in trouble, you’ve likely been in trouble for months. This is especially a problem for local governments that are dependent on other governments to collect and distribute their revenues. That delayed signal can be crucial.
Let’s look at a concrete case with real data. I recently filed a Freedom of Information request (FOIL) for cash data for Albany County, NY. The County has in place a system of weekly snapshots of its cash position. What that information does not have is quite important, but we’ll save that discussion for another time and we’ll take a look at what we have.
Each Friday, Finance staff takes a precise measure of exactly how much cash is actually in hand, by fund. Because it’s the most flexible and most important fund, we’ll focus here on General Fund cash. And, for analytical purposes, we’ll exclude the cash received from the sale of Tax Anticipation Notes in 2010 and 2011 of about $15.1 million. We’d do that because, it’s a better measure of the underlying position and what might be necessary to borrow. But keep it in mind as the time comes (borrowed time) when without that cash, the County’s numbers may turn negative, i.e., they will not have been able to pay their bills. That’s what happened in Albany County.
You’ll see in Charts 1A and 1B that before the beginning of the recent economic recession (December of 2007 was the beginning of the downturn), the weekly cash position varied, but that there was a quite consistent, recognizable pattern. Here’s Cash Chart 1A.
And here in Chart 1B, is an alternative view:
The deepest trough was early in the year, followed by a spike as most property taxes were paid. and then a series of three more stepped declines toward the end of the year. The stepped declines result from the quarterly payments to cities, towns, and villages of their shares of sales tax revenues. Each month, the State makes two primary sales tax distributions to each county along with a minor adjustment. (So Albany County, and, depending on their arrangements with municipalities, other counties get a bit of a “float” as they sit on and spend cash that must eventually be paid to municipalities.) Each county’s picture will vary depending in large part on their fiscal relationships with municipalities, but most will have a similar peak and decline and all are likely to have some kind of regular pattern.
However, while there are regular patterns, even in good years, variability rules.
The underlying pattern can and does change and the variability itself can change. Charts 2A and 2B show Albany County’s general fund cash after the beginning of the recent recession.
Most importantly, there was a lot less cash, about $34 million per week less. Before the recession, general fund cash on hand each week averaged about $63.7 million. Since the beginning of the recession, it has averaged slightly over $29.0 million.
But the patterns changed too. As is seen on Chart 2, they’re a bit more erratic. That’s partly because the economy had gone to hell; it’s partly because receipts from the also struggling State government had grown a bit more erratic. And it’s partly because, County Budget and Finance staff were juggling like crazy. Payments that would previously had paid with hardly a thought, were delayed and revenues, any form of cash was chased down wherever possible.
During the early part of the years, there’s more variability during and after the recession than before. That’s because of the juggling. But late in the recession years, there’s less variability because there was less cash.
For more detail similar to Charts 1A and 1B, here’s AC Cash Chart 2A.pdf and AC Cash Chart 2B.pdf.
In Albany County, a particularly good example of the difference between budget and cash is in the realm of property tax enforcement. This is another area where each county does it a bit differently. In Albany, an unpaid local property or school tax is turned over to the County for centralized enforcement. The unpaid tax is paid by the County to the municipality or school district, usually as part of a quarterly reconciliation. Then the County pursues the property owner. At any given moment, the unpaid property and school taxes run about $30 million and virtually all of it is off-budget. So even a balanced budget may be out-of-synch with cash. In this case, the County offered a form of amnesty, reducing the interest paid on arrears by 50 percent and significantly accelerated cash receipts. Of course, that put it at risk for a downturn in a later period.
Chart 3 compares weekly cash data points before and after the beginning of the recession. Immediately evident is the significant decline in the average mentioned about. Also evident is that the low points are considerably lower and that after the beginning of the recession, there are more periods concentrated at the low end. Some of the weeks show negative numbers. Those were handled through the sale of short-term notes to be covered by property tax receipts for a fiscal year that are collected by one municipality, but not turned over to the county as cash until the following year.Here’s Chart 3:
And if you’ve been patient to last this long, here’s one last chart, an animated one, showing Albany County’s weekly general fund cash over the entire period. Albany County General Fund Cash Animation.swf
Though every government is a bit different, there are some common lessons, including for the public that cares to consume this sort of complexity:
- Budgets do not equal cash.
Cash flow is not steady.
Therefore, you may have a legitimately balanced budget, but still have significant cash problems when they are at their low ebb.
The tighter things are and the smaller your reserves, the more you should worry about the least hiccup creating an emergency.
Why are so many governments taking such chances, taking such longer term risks? Because they’re avoiding choices that, in the short term are both worse and certain. Things may go horribly wrong financially if we don’t give ourselves a sufficient buffer. But we know for certain, that they will go wrong in other ways if we don’t take the chance. If we lay people off, we know, they will suffer personally and we (elected officials) will suffer politically. If we raise taxes, taxpayers, will suffer personally and we (elected officials) will suffer politically. So they eat up the margin for error and fly closer to the edge of the storm. And those are the reasonable reasons. Then there’s willful denial and taking political advantage and a host of less attractive reasons for recognizable human behavior.
So the weather is still lousy (did you see today’s news regarding a Fed forecast that the odds are 50/50 that we will shortly enter another recession) we’re about to take our fully loaded plane into that storm, and some of our equipment is not functioning properly if at all. We’ve already cut into our margin for error. Should we take off with less than a full load of fuel? The irony here is that a full load of fuel is taxes. The plane is fully loaded because we’re still insisting on providing all the services we’ve provided before and doing it with the same number of employees. And so doing, we’re taking a chance of flying into rough weather with a safety margin that’s been repeatedly diminished during the past several years. Here’s hoping it all holds together, but I think we’re going to have some very rough flights and probably a few crashes.
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Good grief!
Historically, Saratoga County, NY has been among the financially tightest in New York. When we wrote about Nassau County being consistently on the high side of spending per capita among New York’s county governments, we could also see that Saratoga was on the low side. In particular, you can see a graphic view of this pattern here. (Each point represents a county in New York. You can see that Saratoga consistently spends less per capita than other counties.)
Well, perhaps they’ve taken this too far. Today’s story in the Saratogian reports that Saratoga County is proposing raising the sales tax from seven to eight percent. Were they to try to fill this gap with property tax increases, it would require a 22 percent increase (even higher than Albany’s 19.2 percent). They’ve chosen not to increase the property tax at all and instead ask the State for permission to increase the sales tax. Read beyond that though.
Saratoga County’s budget hole is $33 million on a base of $320 million. That’s a significant proportion. Structurally that’s considerably worse than Albany County’s even before you get to fund balance. They propose using $10.4 million of fund balance and by year end, they expect to have a remaining fund balance of only $2.1 million.
Just from the news article, they’re taking at least three big risks:
- The first is specific. They’re counting on at least four months of increased sales tax revenue that is dependent on complex State Legislative action and Gubernatorial approval. Even when approved, these actions typically don’t happen until the end of the Legislative session, say June or early July. Then it takes a few months to notify vendors of the change in the rate and for them to begin collecting the new tax. They estimate the full annual value of the sales tax increase to be $33 million and that it will be in effect the last third of the year. Simple arithmetic suggests that they expect to generate about $11 million in 2012. But as vendors collect and send the cash to the State, which distributes sales tax cash to the counties, there’s a delay built into the system and some of the cash won’t actually show up until 2013.
Second, though they acknowledge that they will lose the tax advantage over other counties in the region, they press ahead. I figure they will definitely lose some of their sales tax revenue because a one-percent difference is consequential. Perhaps they’re counting on the new gang in Albany County to raise their sales taxes even higher. That would not be a shock.
Third, and perhaps most dangerous, they’re doing this with what appears to be very little margin for error, especially with respect to cash. Are they playing “chicken” with the State, daring it not to pass a sales tax increase?
I’d love to see what their cash position is and what their cash trends are. If Saratoga doesn’t have cash that’s usable beyond fund balance and they don’t get the State’s permission to raise the sales tax rate, or if there’s a delay in implementation, they may have a technically “balanced budget”, but there’s a very real risk that they’ll run out of cash. I don’t understand why they didn’t at least move the property tax up a percent or just under two.
Side note: of course, just like other counties, Saratoga is losing a lot of money on its nursing home. Of the $33 million gap, $9.4 million is from the nursing home, Maplewood Manor. However, instead of talking about structural changes, the County Manager is talking about pursuing “alternative funding options.” Right. They’ll have no better luck than any other county. The bulk of funding for nursing homes in New York especially county nursing homes, is Medicaid. Can anyone in their right mind, imagine that the State is going to reverse direction, slap their foreheads, and say, “oh, we were wrong. We really do want to open the floodgates of Medicaid spending in order to shore up county nursing homes.”?
As I said: Good grief!
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Inequality is both effect and cause.
Inequality of income and resources is indeed a significant, even profound social, political and economic problem. But this did not just happen suddenly and, by itself, it’s not enough to explain the current unrest. That’s more because a large proportion of the public has come to the conclusion (rightly, I think) that the game is rigged.
Here’s an alternative, systems picture of what’s happening and has been happening for several decades. It’s the self-reinforcing nature of the current system and its inequalities. This shows three examples of “the rich getting richer,” one in the public sector, one in the private sector, and one private/public combination. (Note that I did this a few years back on an earlier version of a sister site.)
Other self-reinforcing loops might well be added, such as the ownership of the media and its messaging. Implicitly, it’s part of “buying influence.”
The key points is that this unhealthy system is self-reinforcing and that fixing it must occur in multiple interrelated domains. It ripples through politics, government, education, finance, and business. Perhaps it would be better to assume that, until proven otherwise, any major component of our economy works this way.
Increasing taxes on very high income individuals would contribute, but it’s far from enough. These self-reinforcing loops need to be reversed, or at least be counter-balanced.
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Recently I had lunch and caught up with an old friend and colleague, one who’s been central to the wars over health coverage. We’re equally distressed about, not only the state of the economy, but the state of political discourse and decision making. We’ve been concerned for quite some time, but this past summer’s debt ceiling debacle (let’s not call it a debate) crystalized how much our political system has deteriorated. I suspect that beneath the noise, there’s a direct line between the rampant failures in the debt ceiling debate and erstwhile “solution,” and the “Occupy Wall Street” demonstrations. The fix to the debt ceiling problem was to explicitly structure a process which recognized the inability of Congress to make the most basic decisions.
The question’s been asked “what do the OWS protesters want,” as if a crowd that’s should be expected to produce, in short order, a bunch of policy papers. Most of the current Presidential candidates haven’t done that; why should we expect a crowd of protesters to? But more importantly, they’re protesting, not advocating, or at least that’s what brought many of them together. And I suspect that what they’re protesting is not only ineffectual governance, but governance that is rigged to advantage those who already have advantages. When the economy was relatively healthy, those with advantages could get away with it because no one was paying much attention. That’s not so any longer.
From another perspective, what my colleague and I discussed over lunch were the dysfunctions of the political extremes. On one extreme, we have ideologues whose idea of government is barely more than a big military and police function (though locally funding police is an iffy proposition) or those whose actions reinforce the advantages of the advantaged. At the other extreme, we have those who have no conception of “opportunity costs” and tradeoffs and no ability to say “no.” We’re seeing a lot of the former in some midwestern and southern states. My experience of the past few years in Albany County, NY was of the latter sort.
Yet, in many places somewhere in between, there are government and political leaders at the state and local level who are honestly struggling to cope with economic and financial challenges and threats. They’re digging, analyzing carefully, and trying to find the optimal mix of governmental functions and services for a manageable and prudent cost. They’re not throwing everything and everybody over the side; they’re not driven by ideology; and, they’re not spendthrifts. Mostly, they don’t get the press that the extremes do. When they do, no doubt they’re being castigated by everyone.
They’re out there, by the hundreds and more, I’m sure. We should find, identify, and celebrate those folks. Any suggestions?
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Comment Policy
by John W Rodat on November 14, 2011
Debate is encouraged here. Flamewars are not. Thoughtfulness is encouraged here, even if and maybe especially if contrarian. Alternative perspectives that promote learning are encouraged. Personal attacks are not.
Among other things, thoughtfulness and reading what’s here before spouting off would not only seem to be common courtesy, but essential to using this site for learning and constructive debate.
So I’ve started filtering comments. Bad enough are personal attacks. Worse is when they came from someone who doesn’t even seem to read enough to recognize whose site this is. Still worse is when a would-be commenter doesn’t even read far enough to spell my name correctly. Not a good sign of someone who pays attention.
For heaven’s sake, if you’re going to spout some drivel and attack me personally to boot, at least spell my name correctly.
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