RUNNING HEAD: OAKLAND COUNTY: A LESSON IN FISCAL RESPONSIBILITY Oakland County: A Lesson in Fiscal Responsibility Percola Brooks Davenport University Nonprofit Accounting Accounting 742 Prof. Linda Pitsch April 15, 2011 Abstract Oakland County is one of the more prosperous counties in the State of Michigan. While it has suffered along with other counties, it continues to balance its budget and successfully reduce its expenditures in response to the constricting financial environment engulfing many parts of the country.
County officials have developed a proactive strategy in dealing with revenue shortfall, and increasing retiree and employee benefit costs. Long-range planning initiatives, as well as cost reduction strategies have enabled the County to weather the economic downturn. Additionally, the County’s ability to diversify its economic base has allowed the County to remain attractive to businesses engaged in activities other than manufacturing. Although a significant amount of jobs has been lost due to the automotive industry restructuring, Oakland County is poised for some growth in the job sector.
This also makes it an attractive place to live, work, and play. Overview Oakland County, Michigan was incorporated in 1820. It covers an area of approximately 910 square miles and boasts a population in excess of 1. 2 million people. Many attributes make this County a world-class attraction for prospective residents, including its thriving downtown communities, excellent schools, and state-of-the-art medical facilities. Also, cultural entertainment abounds with such attractions as the Cranbrook Academy of Art and The Holocaust Memorial Center. Oakland County has varied cities, towns, and villages, including many rural areas.
There are also 370 miles of walking trails, 155 miles of bike paths, and 539 miles of safety/side paths. Generally considered one of the better local economies in the United States, Oakland County has experienced challenging economic downturns in the past decade. Losing a large segment of it automotive workforce (est. at 60,214 in 2009), Oakland County has made significant strides towards diversifying its economic base. It has fared better than other local governments, mainly due to the fact that its economy is not as reliant on manufacturing.
In September 2010, Oakland County’s unemployment rate was 12. 2%. While slightly lower than Michigan’s 12. 3% rate, the County exceeded the national average of 9. 2%. According to the University of Michigan’s April 2010 Oakland County Economic Outlook report, the County is moving toward a slight recovery with forecasted job gains of 2,421 in 2011 and 7,937 in 2012. Throughout the past several years of recession/depression, Oakland County continues to introduce and support economic growth initiatives such as Automation Alley, Emerging Sectors, and Medical Main Street.
These initiatives and others are examples of the area’s ability to re-invent itself and embrace change. As a direct result, the county continues to be a favorable location for businesses. 859 businesses are housed within Oakland County’s boundaries. These represent 721 foreign-parent firms and 57% of Fortune 500 companies or their subsidiaries. Financial Condition Oakland County has experienced the same financial turbulence that other governments have suffered. Record-setting numbers of home foreclosures and declining property values have taken their toll.
In response, officials have attempted to develop policies and procedures to maintain services despite the dismal economy. Ongoing operations are funded with recurring revenues, rather than through the use of fund balance, or debt. Also, the County has expanded its two-year budget to a three-year budgeting process. Fiscal stability is further enhanced through the annual budget process which appropriates for full utilization of its 4,245 positions (as of September 2010). Positions that become vacant or filled at a lower salary than authorized result in a favorable variance that falls to the fund balance.
The efficiency of the County’s financial management have allowed it to maintain the AAA bond rating, which allows borrowing at the lowest possible interest rate. This saves the County millions in future borrowing costs. Government Structure The General Fund is Oakland County’s principal operating fund. It has increased by a total of $40. 2 million since 2001. This increase can be primarily attributed to County officials’ efforts to limit spending, and require internal service funds to absorb rate increases instead of passing that cost on to the General Fund. Issuance of debt is also limited.
While the County has authority to issue up to $5. 8 billion in debt (10% of its State Equalized Value), the actual outstanding debt is $809. 9 million which represents 14% of the permissible amount. Other types of funds are used in accordance with Generally Accepted Accounting Principles (GAAP). Special revenue funds record activities funded by restricted monies such as Public Health, Friend of the Court, and all grant-funded activities. Debt Service Funds record transactions related to assessment of tax levies and payment of principal and interest of long-tern debt.
Capital project funds account for the purchase or construction of major facilities such as buildings, drains, and sewer projects. Enterprise funds account for functions supported by user fees. These funds operate similar to businesses and include airports, water/sewer operations and parks. The County also has component units including the Road Commission and Chapters 20 & 21 Drainage Districts. County Budgeting The appropriated budget is prepared by fund, function, and department. Control categories are established at the department level for all expenditures.
Departments may exceed the individual line item appropriations, provided the Control Category is not overspent. Budget amendments providing additional spending authorization are processed by action of the Board of Commissioners, upon recommendation of the County Executive. It should be noted that the County also has the ability to budget by program cost center. This has proven to be a valuable tool as resources have dwindled. Policy makers are better able to analyze and determine where to appropriate limited resources in order to best serve County residents.
Oakland County’s revenues are derived from several sources including taxes, special assessments, federal and state grants, investment income and other miscellaneous sources. Major program expenditures are broken into seven program area of General Government, Public Safety, Justice Administration, Recreations and Leisure, Direct Citizen Services, Commerce and Community Development, and Public Works. Oakland County’s strong financial position is a direct result of its adherence to policies and practices that insure a balanced budget and low debt.
Success is attributed to officials’ focus on long-range financial planning that enables the County to anticipate problems in a proactive manner. The County continues to address challenges through restructuring, retirement incentives, fringe benefit changes, privatization, and other means. In 2010, Oakland County also held its second annual Oakland County Budget Symposium that encouraged officials to engage in long-term financial planning in order to sustain services for Oakland County residents far into the future. 009 vs. 2010 As a comparison, Oakland County’s financial position improved during FY 2010, primarily due to a concerted effort to reduce expenses. Net Assets increased by $20. 7 million. Governmental activities Net Assets were $388. 4 million up from $385. 1 million in FY 2009. Business-type activity net assets were $643 million up from $625. 6 million in FT 2009. Fund-level governmental funds reported a decrease of $8. 8 million from FY 2009. This decrease was attributed to a planned use of $58. million in fund balance in the Interim Retiree Medical Benefit Trust Fund (IRMBT) and a transfer of $24 million to the General Fund by the Revenue Sharing Reserve Fund (RSRF). This fund was established by State Statute to replace state revenue sharing dollars. The General Fund experienced a $42. 7 million increase at the end of FY 2010. This increase is attributed to planned accelerated expenditure reductions. The County’s Capital Assets increased by $10. 7 million during FY 2010 while issuing $17. 9 million in new general government debt and paying $41. 0 illion in general government bond obligations. MD & A Overview Oakland County’s MD & A provides a general overview of financial activities based on current conditions. Overall, management concludes that the County has weathered much of the economic upheaval of the past few years, and has improved its financial position from FY 2009. Several charts and graphs enhance the information presented. The MD & A does an excellent job of describing the changes in account balances, although some of the information is repetitive, and can be found in other parts of the CAFR.
Condensed financial information is presented comparing FY 2009 and FY 2010. Much discussion is given to the County’s overall financial position and the results of County operations. This discussion will assist users in their own determination of whether the entity has improved its finances. The discussion also explains any significant events, such as the use of money from IRMBT that was transferred to VEBA. There is also discussion of falling property values, and its impact on resources.
The MD & A is very thorough in describing the types of funds that are used by the County, and the financial operations of each. Additionally, the discussion of General Fund Highlights is very user friendly. The discussion regarding the economic outlook for the region is very straightforward. Acknowledging the sluggish economy, management continues to point to its proactive responses through implementation and continuation of various cost reduction measures. Additional measures include budget revisions when necessary, as well as restructuring of County operations.
The County continues its long-range planning initiative which includes forecasted data through 2016, and emphasis on developing contingencies to handle fiscal concerns before the crisis must be faced. The Oakland County Board of Commissioners has adopted a balanced budget through September 30, 2013, continuing its demonstration of fiscal responsibility to its residents. References Oakland County. (2010). Comprehensive Annual Financial Report FY ended September 30, 2010. Oakland County. (2010). Comprehensive Annual Financial Report, FY ended September 30, 2009.