UNION COUNTY BUDGET2012

TAXES AND DEBT

How I got here

Pension Funding in NJ: • Bad Assumptions• Contribution Holidays• Unfunded Benefit PromisesAre we being governed by idiots?

First Contact

Politician Arrogance

• Jorn saved this town millions (by not stealing as much as he could have?) and got them out of a lot of scrapes.

• Why worry about how much I steal when we invaded Iraq?

Went to Corzine

Attended Freeholder Meetings

No, they’re not all idiots

But to maintain the level of contributions necessary to buy elections donors and political operatives need to be compensated in various ways:• No-bid contracts • No-show/low-show jobs to campaign foot-

soldiers• Fabricating projects to expand the roles of the

above

Constituencies

Those who contribute to political campaigns. For example check campaign contribution records to the Union County Democratic and Republican Committees and you will find four broad categories of givers.

Employees•$300 contributions•Campaign Workers• Friends and Family•Public Contact

VendorsNo-bid contracts go to campaign donors:Lawyers • DeCotiis, Fitzpatrick• Bauch, Zucker• Webber, DowdBuilders• Birdsall Services Group• Claremont Construction

UnionsEven the Union County Republican Committee gets some money from them.Union dues as a retainer to keep politicians on their rolls.

PoliticiansDealing and Wheeling

Dealing out:• Jobs• Contracts• Money• Perks

WheelingThe transfer of money between political organizations in order to skirt campaign funding laws. For example, the law firm of DeCotiis, Fitzpatrick and Cole received $1,606,916 from Union County taxpayers in 2011 ($92,213 through the county; $457,858 through the UCUA; and $1,056,845 through the UCIA). Check on http://www.elec.state.nj.us and you will find that DeCotiis and their employees made 1,825 separate political contributions over the years. One of them was made on June 6, 2008 to the campaign of state senator Raymond J. Lesniak in the amount of $3,000. Among the contributions to the UC Democratic Committee during 2010 was $10,000 made on 10/18/10 from the campaign fund of Ray Lesniak.

Example of a Payback

Ordinance 716-2011: Providing Lifetime Health Benefits to 600-700 county employees (and raising golf fees)• No actuarial study• No freeholder questions• No idea of eventual cost ($50 million?)

It was up to taxpayers……………

Lifetime Health Benefits VideoFebruary 10, 2011 Freeholder Meeting

O’Sullivan Actuarial Study5/25/2011 OSU01 O'SULLIVAN ASSOCIATES ACTUARIAL SERVICES $9,000for Excel spreadsheet projecting 3% savings over 25 years.

Nobody else raised a peep

In Union County taxpayers have to watch out for themselves since nobody else is asking the questions you saw regarding what will amount to a $50 million giveaway in retiree health benefits. In that spirit, the 2012 Union County Budget…………….

Budget Pays To:

• Run a Jail (Corrections)• Run a Nursing Home (Runnells)• Maintain Parks• Run two golf courses, a stable, and an ice rink• Fund the Prosecutors' office• Serve legal papers (Sheriff)• Maintain the courthouse• Provide social services• Keep track of land records (County Clerk)• Run Elections

Ancillary Departments

• Administrative services• Legal Counsel• Public Information• Finance • Freeholders

TAXESThe amount to be raised by taxation will go up x% to $3xx million in 2012 from $291 million in 2011. Amazingly, Union County taxes have more than doubled since 2000 (150 million to $3xx million), and show no sign of abating.The Open Space Tax was first assessed in 2001 and is now an additional $11 million.

County Regular tax levy since 2000

Open Space tax levy since 2000

Total Tax Levy since 2000

County Taxes by City

Revenues

• Revenues exclusive of taxes, grants, and surpluses are expected to increase by x.xx% to $150,000,000 in 2012 from $145,000,000 realized in 2011. Some suspicious items:

Revenues

The major cost increases came in employee benefits. Pension costs rose 22% to $27,573,964 in 2011 from $22,581,825 in 2010. Insurance costs rose 10% to $60,807,651 in 2011 from $55,548,233 appropriated in 2010 and this budget item should continue to skyrocket if immediate action is not taken due to the need of the for-profit insurance industry to recoup investment losses from their captive markets.

Debt – 12/31/11 estimatePRINCIPAL 2012 DEBTBALANCE____ SERVICE____Bonds prior to 2011: $233,628,000 $26,875,692

Bonds 2011: $ 80,000,000 $ 8,917,480

Bond Anticipation Note: $130,000,000 $ 2,000,000

2003 ERI: $ 6,980,000 $ 1,200,733

Dam Loan: $ 2,912,714 $ 206,095

Bonds Authorized/Not Issued$102,871,286 $ 0

TOTAL: $556,392,000 $39,200,000

Getting Into Debt

1. Bonding for Long-Term Projects2. UCIA Leases3. Pension Promises4. OPEB Promises

1. Bonding for Long-Term Projects

General obligation notes and bonds of New Jersey local governments can be issued without any prior approval of the State or the voters as long as the debt complies with the applicable statute. In the case of municipalities or counties, bonds are authorized by a duly adopted bond ordinance. G.O. bonds issued by school districts are authorized by prior voter approval at referendum.

Adopting a Bond Ordinance

Generally, a municipality or county must:1. have the ordinance read at a public meeting

of the governing body;2. publish notice of the ordinance;3. hold a public hearing and have the ordinance

adopted by two-thirds of the governing body; and

4. publish notice of the adopted ordinance.

Issuance Procedures1. may not issue bonds to finance more than 95 percent of a project’s

cost;2. must sell bonds at competitive sale rather than negotiating a sale

with a designated underwriter;3. must amortize bonds over a period no longer than the useful life of

the projects financed (not exceeding 40 years for land);4. must begin repaying principal within one year of issuance;5. must structure principal repayments such that no annual payment is

more than 100 percent greater than any earlier payment; and6. may not authorize debt in an amount which exceeds 3-1/2% for

municipalities and 2% for counties of the average equalized valuations of the taxable real estate, together with improvements, over the preceding three years.

Not ‘Debt’ - 1

Debt service on bonds that will be paid solely from a county or municipal open space trust fund (established to hold proceeds of a dedicated open space tax or dedicated annual budget appropriation) need not be included in the calculation of the municipality’s or county’s total (gross) debt (N.J.S.A. 40A:2-44h).

Not ‘Debt’ - 2

Payments to Authorities under lease or loan agreements.UCIA lease payment includes repayment of the project bonds plus as “additional rent, the County will pay the Authority an annual administrative fee and actual legal and accounting expenses incurred by the Authority.”

Ordinances

Every bond expenditure needs to be tied back to an ordinance but who is keeping track?Was the $25,000 allocated for “Engineering Flood Control” back on July 22, 1999 in Ordinance 501-1999 really spent on Engineering Flood Control or is it being included in a bond sale now to raise money to pay salaries?It’s not as if the county is noted for keeping accurate accounting records……

MusicfestHow much do they spend exactly? We’ll never know. Why? Because the county employees and officials running the event and the concessionaires keep shoddy records — if they keep any records at all.In Union County, they use the “trust me” accounting method.

• How many cars parked at $10 a pop? We’re not sure, because the parking lot counter isn’t accurate, but trust me, the money is all there.• How many beers were sold at the Beer Garden?We’re not sure. We took the bartenders’ word, but trust me, the money is all there. • How much was made on the kiddie rides?There’s no method for counting the tickets, but trust me, it’s all there.

To which we reply: This is New Jersey. We trust no one with cash, and for good reason. For years, trying to follow the MusicFest money has been dizzying. Who knows how much could have been skimmed? So this year, the Union County Prosecutor’s Office decided to investigate. It found the bookkeeping was so lousy last year — and probably every year — that nobody can tell whether money was stolen. Receipts? Records? What are those?The prosecutor’s office found no criminal wrongdoing (because, ironically, there were few records), but discovered that a vendor nearly ripped off the county for $24,281.68. A refund has been ordered. If Union County — which spends roughly $800,000 to stage the event — lost this much in 2010, was it cheated out of money the other 13 years? And why didn’t a county official spot this?

Star Ledger editorial 9/1/11

Audit Findings – 2001/2002

We recommend that:• Every effort be made to obtain all Section 8 Housing

Assistance records from HUD.• Once the records are returned, the condition of the

records be assessed to determine their sufficiency, completeness and accuracy.

• A consultant be retained to file the final close out reports and resolve any questioned costs.

• Consideration be given to take legal action against the third party administrator to recover any misappropriated funds.

Audit Findings – 2003/4/5/6/7

That a physical inventory of General Fixed Assets be taken and reconciled with the property records on a periodic basis.

Audit Findings - 2006

OPEN SPACE TRUST FUNDSWe noted that Open Space Trust Funds were encumbered for authorized projects prior to the availability of dedicated revenues. The encumbrances were eventually reviewed and reallocated to other existing capital ordinances.RECOMMENDATIONThat the encumbering of Open Space Trust Funds be in accordance with the requirements of NJSA 40A:4-39

Audit Findings – 2007/8/9/10

Federal and State Programs:We recommend that the County of Union monitor and document the submission of all audit reports of subrecipients and the financial activities of the consultant of the Housing Choice Voucher Program

Audit Findings – 2007/8/9/10

Federal and State Programs:We recommend that all expenditure reports be accurately prepared and reconciled with the accounting records prior to their submission with grantor agencies.

Audit Findings - 2008

PAYROLLThe monthly bank reconciliations for the payroll account were not prepared properly. There were numerous unidentified reconciling items and the outstanding check amount was not supported by a detailed listing.RECOMMENDATIONThat outstanding checks amounts included in the monthly payroll bank reconciliations be supported by a detailed listing

Audit Findings - 2008

Department of Parks and Community RenewalWe noted that the office lacked formal internal control procedures that provided appropriate reviews, approvals and proofs of all financial transactions. As a result, the financial records as presented for audit were not accurate or completely maintained. Numerous checks received by the office were not recorded in the records or deposited in the bank account within 48 hours as required by State statutes. In addition, an employee responsible for maintaining the financial records was able to misappropriate County funds over a period of several years. This individual was dismissed from County employment and criminal charges were filed.

Audit Findings - 2008May 19, 2009; Star Ledger:UNION COUNTY -- Two employees of the Union County parks department were charged with theft today, in what authorities say were unrelated incidents.A clerk for the county parks department, Melissa Kolbeck, is accused of swiping between $15,000 and $20,000 in funds paid to the county for permits, authorities said. And park maintenance worker Brian Hughes is charged with stealing more than $35,000 from the parks workers' union, of which he is president, authorities said. He is also charged with forgery. Complaints were signed against both employees today, according to the Union County Prosecutor's office. Each has been suspended without pay pending the outcome of the charges. This comes a day after the county's announcement that an audit bureau (to be headed by Richard Childs) will be formed to conduct internal investigations and monitor internal controls for its 2,000-member work force.

Audit Findings – 2008/9/10

We recommend that the allocation of salary costs be documented and supported with employee time sheets.

Payroll from Employee Lists: $174 millionBudget: $156 (?) millionDifference: From grants and not being tracked

Audit Findings - 2010

Union County Golf FacilitiesKSM provides the County a monthly financial report that details the financial activities of the golf facilities, however, we noted that these monthly reports were not being currently reconciled with the County’s golf revenue bank account.Section 6.4 of the contract between KSM and the County of Union requires the County to advance funds to KSM. These funds are then used to pay the operating expenses of the golf facilities. Advances under certain conditions are permitted by the Local Fiscal Affairs Law. This type of advance is not specifically listed as an exception.

Audit Findings - 2010

Music Fest 2010During March of 2011, the Union County Prosecutor’s Office commenced as inquiry into the operations of the County’s 2010* Music Fest Program (and) issued a report 9that) concluded that no criminal conduct was evident by any County employee associated with this event, however, the report did identify deficiencies in the system of internal control. The management of the County of Union prepared a corrective action plan addressing the findings in the report.* After Richard Childs’ internal audit department was up.

Other Screw-Ups

OPEB calculations in audit Claiming a government insignia can be trademarkedRubber-room employees (Lapolla, Kolbeck,…)

Stockton Example

Sheet A-4 of 2011-12 budget tome (page 14 of 412) notes that a “new senior management team” looked at the books and found:

“an unfortunate practice of inter-fund borrowings, deficit spending, over leveraging and drawing down cash from internal service funds, all of which have quietly put the City’s General Fund at greater risk. From our examination, much of this has not been highlighted for City Council’s attention as a clear policy choice, but instead resulted from an accumulation of staff decisions at various levels of the City, and was buried in the myriad of financial details forwarded to the Council.”

Union County Example

• Open Space Trust• OPEB Trust

What it looks like

Union County is running a structural deficit that they are hiding with additional debt justified on dodgy grounds.They need to get grants, set up trust funds, build unnecessary projects so as to can skim off a portion of the proceeds to pay operating expenses. That’s why they manufacture projects.

Projects

• Galloping Hill Clubhouse • Solar Panels• Bollwage Parking Garage• Family Courthouse• Child Advocacy Center• Ice Rinks in Oak Ridge Park• Replacing Culverts• Oakwood Park – New Providence