Luzerne County audit dissected

Luzerne County ended 2022 with a $2.76 million general fund operating budget surplus, according to a review of the newly released audit.

That means the county spent $2.76 million less than it received last year.

County Budget/Finance Division Head Brian Swetz views this as evidence the $157.8 million budget council ended up approving the end of 2021 was on the mark.

The surplus equated to less than 2% of the overall budget, Swetz said.

As in recent years, he attributes most of the unspent funds to a high number of budgeted staff positions that were not filled due to continued challenges with recruitment and retention in some departments.

While vacancies helped the county come out ahead, he cautioned they also contribute to staff burnout and higher overtime expenses.

Prepared by Baker Tilly, the audit was completed a day before the June 30 county home rule charter deadline and will be posted under the budget/finance audit section at luzernecounty.org. Council also will be briefed at an upcoming meeting.

Big picture

Collectively factoring in the latest surplus and others in recent years, the county is now carrying a cumulative, unassigned surplus of nearly $21.5 million as of Dec. 31, 2022, according to Swetz.

The goal is to continue using this growing surplus to reduce reliance on tax revenue anticipation loans, he said. Like many taxing bodies, the county secures a loan at the start of each year to carry it over until real estate tax receipts start arriving.

Having more available cash on hand through a surplus also helps the county’s credit rating, he said.

Council members have tapped the surplus to bolster the dwindling capital projects fund but kept the lion’s share intact because a solid reserve is a significant indicator of a county’s fiscal health.

In comparison, the county carried a $16.9 million deficit on its books at the end of 2014.

Pension fund

Although conditions have since improved, the county ended 2022 with a net pension liability of $115.8 million, which was an increase from the $64.36 million reported at the end of 2021, the audit said.

“The significant increase is a result of the current volatility of the investment market and the resulting impact on the market value of plan assets,” it said.

The employee pension fund experienced a $36 million loss, resulting in a value of $273.1 million at the end of 2022, it said.

But the fund has increased significantly since then, infused with nearly $16.2 million in investment earnings this year to date, said pension fund advisor Richard Hazzouri, of Morgan Stanley.

After deducting $8.5 million in pension payments to retirees through the first half of the year, the fund had a balance of $281.7 million as of June 29, Hazzouri said.

Investment opportunities must be structured and managed to maintain enough liquidity, or cash on hand, to pay retirees, he noted.

The audit also provided some other interesting pension figures:

• Employees contributed $4.326 million toward their pensions in 2021 and $4.305 million in 2022, showing a slight decline.

• The fund issued $22.77 million in payments to pension members in 2022, which was an increase from the $21.66 million paid in 2021.

The county must contribute approximately $12 million in subsidy toward the pension fund this year, with most coming from the general fund budget. Swetz expects the first half of that annual required contribution will be paid next week and the remainder toward the end of the year.

Debt

At the end of 2022, the county’s net general obligation debt was approximately $172 million, the audit said.

The county will free up approximately $26 million annually after the debt is repaid in 2030.

Baker Tilly cited the debt under a section entitled “economic condition and outlook.”

“Management knows that the path to a stable future includes changes to major expenditure outlays, primarily debt service, which constitutes more than 20% of the general fund expenditure budget,” the audit said.

It noted the county’s Standard and Poor’s credit rating remained stable at A- in 2022 and was subsequently increased to an A rating in February 2023.

Reaction

As usual, the audit also made recommendations on procedures to improve the tracking and approval of funds.

County Manager Romilda Crocamo, who had served as acting manager when the 2022 budget was approved by council, congratulated Swetz and his budget/finance team for their hard work getting the audit completed by the deadline.

”Public trust in government requires accountability. Opening up the books for an independent review of the numbers allows residents to see how their money is being spent,” Crocamo said. “Now we must thoroughly review the report and start implementing the recommendations.”

Councilman Tim McGinley, who chairs council’s Budget, Finance & Audit Committee, said he is pleased the audit was completed the day before the deadline.

“I’m also happy the results show the county has done a good job meeting the goals of the budget,” McGinley said.

He also noted the growing surplus has allowed the county to reduce the tax anticipation loan, saving the county on interest rates.

McGinley expects he and his colleagues will consider using a portion of this year’s surplus to help reinforce the capital fund to cover emergency repairs and other pressing needs as they did last year.