June 18, 2003 News & Opinion » Featured story

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The tobacco trick 

Jack Doyle uses smoke and mirrors to make the county's budget woes disappear

It's interesting to note which political events attract television news coverage.

            When Monroe County Executive Jack Doyle held a press conference last August to announce sweeping spending cuts in the face of a massive budget deficit, the carefully coifed, heavily make-upped TV news reporters swarmed the Public Safety Building on Fitzhugh Street. That evening, Doyle's pledge to cut 700 positions in county government, slash spending on health and social services and the arts, and close county parks on weekdays, among other austerity measures, was beamed into homes throughout the area, with attendant footage of outraged critics expressing their shock and anger.

            Three months later, when the county legislature met and passed a bipartisan budget that raised taxes and restored some funding, over Doyle's veto, the news crews were on hand again to document the tense vote and the protests that preceded it.

            But when the lej met this June to debate an equally momentous budget decision, there wasn't a cameraman in the chamber. And because county lawmakers made the decision they did that night, you probably won't see Doyle or the two candidates vying for his job this year --- Republican County Clerk Maggie Brooks and Democratic Mayor Bill Johnson --- discussing the county's budget crisis in any substantive detail. Compared to last year, this fall's formal budget deliberations in the lej should be a snoozer.

            The county's budget drama has been deflated, but the deep problems that caused it have not gone away. And the pain from past cuts is still being felt. If anything, say Democratic county legislators, the administration's most recent action, supported by the Republican majority in the lej, will only inflate our budget woes in the future.

It all happened rather fast.

            On June 3, the news broke in the Democrat and Chronicle: Doyle plans to use $36 million of the county's share of national tobacco settlement funds to close a big budget deficit from last year and an equally large gap anticipated this year.

            That money is part of $142 million the lej set aside in 2000 to pay off debt on capital projects and build new ones. (See "Up in smoke," below, for more detail on this deal). Fifteen million dollars would come from funds earmarked for construction of a Juvenile Justice Center. The other $21 million in tobacco money represents cash already spent on the county jail expansion and facilities for Monroe Community College. Doyle would have to borrow $21 million, by selling bonds, to cover the reallocation of those funds from capital projects to the operating budget.

            Before any of this could happen, the law the county passed in 2000 that stipulates how tobacco money can be used had to be amended by the legislature.

            The matter went before the Ways & Means Committee on June 4, and all hell promptly broke loose. (It's a shame the local networks all passed on this meeting --- it would have made great television.)

            Democrats voiced strong objections to the plan, questioning its legality and necessity, complaining that they had too little time to analyze its details, and calling the proposal to create more bond debt an irresponsible scheme that will burden future generations. Exchanges between Democratic County Legislator Kevin Murray and Republican Committee Chairman Jack Driscoll were especially heated. Personal objections were lodged and apologies demanded. Democratic Minority Leader Stephanie Aldersley remarked that it was the most contentious committee meeting she'd ever attended.

            When the dust settled, the measure passed the committee on a party-line vote.

            On June 10, just a week after the plan was made public, the full legislature met and debated the issue anew. Democrats raised the same objections, but once again, after a prolonged, contentious debate (none of which made the airwaves), the measure passed by a party-line vote.

Democrat Murray's doubts about the wisdom of the tobacco plan are compounded by concern over how it's been allowed to go forward so quickly, with so little public attention or debate, and in the absence of concrete information regarding the county's actual fiscal situation.

            "The reality of this thing is it is the most important step we've taken since the day we passed the budget [last fall]," he says.

            That budget followed "a two-and-a-half-month period with lots of analysis and everything else," Murray continues. "We just did a major overhaul of that budget... with very little fanfare. The idea is: OK, we'll just continue on as if this was a minor modification of erroneous assessments or something. It wasn't."

            The Democrats fear that Doyle's tobacco fund reallocation will effectively whitewash the county's budget crisis --- postponing action on, or even discussion of, real solutions to the crisis. At the Ways & Means Committee meeting, they expressed shock that the county was already so deep in the hole.

            "We passed the budget only six months ago that supposedly was balanced," Murray says. "Now, we're told, 'Nope, it's not even close to being balanced.'"

            Democrats have long complained that the county administration fails to provide them with enough financial data to make informed budgetary decisions. Those complaints reached a fever pitch during the Ways & Means Committee meeting earlier this month, as Murray grilled finance department officials for hard figures to justify the tobacco money reallocation.

            "I had to ask about 10 times for a simple question," Murray says, "which was, 'What is the county administration's projection of the deficit for 2002?' They gave me ranges and 'we're working that out.'"

            In fact, now over six months into 2003, the administration still hasn't completed an audit of last year's finances. At the Ways & Means meeting, administrators said new accounting rules, imposed industry-wide after recent high-profile corporate accounting scandals, are to blame for the delay. Their best estimates place 2002's gap somewhere in the neighborhood of $18 million.

            This year's projected $18 million deficit (give or take a few million) is also a guess. Future projections are, by nature, uncertain. But Murray and his fellow Dems are frustrated by what they perceive to be mixed financial signals coming from the county administration.

            For example, the 2003 budget, passed last November, counts on $30 million in savings on social service costs realized by the reorganization of several county departments. Doyle recently announced that $18 million in savings has already materialized as a result of that reorganization, which his administration initiated.

            "We get a report that says we've made $18 million in savings to social services and everything is going great," Murray says. "Then we get a recommendation: 'Oh, by the way, we're running big deficits and we need to use tobacco money...' That is not the way to run an operation."

            "Unless we come to grips with what numbers actually are true of the past, how can we even discuss what is going to happen in the future?" Murray says.

            Republican Majority Leader Bill Smith has no sympathy for the Dems' complaints. "We all get the same reports, the quarterly updates, the various benchmark memos that come out, and we all have access to the finance director to ask questions that we have," he says.

            "I just don't see what the problem is," he continues, then adds, "I guess the problem is that for the last year and a half or so, none of the answers to questions are terribly happy ones, but the information's there."

The options for balancing the budget without using tobacco funds are not happy, either --- raise taxes or cut spending. And in this highly political year, those topics are poisonous. The mainstream media has been content to largely ignore the issue of tobacco money reallocation, the financial effects of which will be slow to materialize. But public discussion of tax increases or severe spending cuts all but guarantees significant media attention --- nearly all of it inevitably negative.

            "Clearly, decisions into the future are going to be difficult, given what we're facing now," says Murray, "because you're dealing with both revenue and expenditures. No one wants to raise any revenues [taxes] and no one wants to cut any expenditures."

            Majority Leader Smith disputes this. He says he's perfectly willing, even eager, to cut spending --- and his actions last year prove this. Smith and most other members of the Republican majority in the lej supported Doyle's deep cuts to the county's social service contracts with outside agencies right up to the final budget vote.

            "We tried to control spending in the last budget, and the Democrats defeated that and put a tax increase in its place," Smith says. "The very people who are now saying we have to make an effort [to reduce spending] stymied it the last time around."

            Smith is already sharpening his ax in preparation for this year's budget, despite the prospect that Doyle's tobacco fund reallocation will make cuts unnecessary.

            Using the tobacco money "takes care of the deficit that exists," Smith says, "but we have to look at next year's budget and --- as the old saying goes --- prepare for the worst and hope for the best."

            "Maybe the economy will turn around and the sales tax revenues will go back up," he continues, "but we have to be prepared for another austerity budget. I'm going to work that much harder this year to get cuts. The taxes that were raised last year were raised to fund programs that 99 percent of the people who live in Monroe County have never even heard of, much less have ever relied upon. I'm going to look at exactly those programs again."

            As opposed to "those services that most people use most of the time, like the library and the parks, that kind of thing," Smith says, he's keen to cut "these marginal things," such as health and social service programs that the county is not mandated to provide. Though they're "worthwhile programs," says Smith, who represents much of Pittsford and part of East Rochester, "you have to make decisions and assess just who and how many people rely upon some of these marginal programs."

            Based on Smith and his fellow Republicans' past budgetary decisions, programs offered by the Urban League of Rochester would be considered "marginal." Even with the restorations passed in last year's bipartisan budget, the Urban League lost about $250,000 in county funding.

            Just who and how many people relied on the "marginal programs" the Urban League is no longer able to provide? League President William Clark mentions women on welfare and youth in the juvenile justice system. Programs the Urban League worked on to help women on public assistance enter the workforce and help juvenile offenders return to society were among those cut last year.

            In 2002, Clark says 34 young adults took part in the Juvenile Delinquency Diversion Program, in which judges mandated supervision as an alternative to incarceration. Of those 34, 30 have had no further involvement with the court system, Clark says. The $60,000-a-year program was eliminated last year. In 2001, the Urban League's Kiosk program found jobs for 92 of the 108 social service recipients involved in it. In the last nine months before Kiosk was eliminated in October 2002, Clark says 36 of 77 participants found full-time, unsubsidized employment.

            "Just about every service that the county provided that was not mandated by the state was eliminated," says Clark. Cuts to preventative programs are "short-term solutions to long-term problems," he says. "If you don't have preventive services, you're gonna end up filling up this expanded jail, because there's no place for our young people, and people who are looking for gainful employment, to turn."

            "If using the tobacco money will ease the amount of additional reductions that this community would receive, I'm all in favor of it," Clark continues. "But at the same point in time, we need to be looking down the road at how we're gonna begin to fix this problem."

That's exactly what a very different public figure has been advocating: Tom Richards, former chairman, president, and CEO of RGS Energy Group, the parent company of Rochester Gas & Electric.

            Richards was nominated by Doyle to serve on the Blue Ribbon Commission formed during last year's budget crisis to analyze the county's finances and make recommendations for balancing the budget in future years. He sees the problem with Doyle's tobacco plan as being two-fold.

            "One is that, unless the deficit goes away, you're creating a cliff for yourself," he says. "It's only going to be worse when you have to deal with it next year. And also, when you borrow money to pay for operating expenses, in the long run, that's a pretty expensive way to do business."

            In a press release announcing his plan, Doyle wrote that today's "very favorable interest rates" make borrowing money through bonding an attractive option. But the total cost in future interest is difficult to discern, in part because it's as yet uncertain how much bonding will be necessary to cover the 2002 and 2003 deficits.

            Spokesmen for Doyle did not respond to requests from City for a figure. Republican Majority Leader Smith says he's seen a figure, but cannot recall it or provide it.

            "It's possible that, once you're in the jam, using the tobacco money may have been the least expensive option," Richards says. "But the real thing to focus on is that we cannot continue to fund deficits by borrowing money. These budgets are supposed to be balanced, and they're not. I know it's difficult. It's a hard thing to do. But this is no long-term course of action, clearly."

            Asked how he would have voted on the tobacco reallocation issue, Richards says he would first ask for up-to-date information on last year's finances and this year's projections. But he would also demand "a plan for how we're going to do this, so we don't have to keep borrowing money."

            Republicans have expressed hope that a turnaround in the national economy and efficiencies realized by efforts such as the reorganization of county social service departments will help balance the books in future years. While Richards agrees that those developments would help, he cautions that both factors combined would still do little to keep the county out of the red.

            For example, he says that unlike the state and federal governments, which rely heavily on income tax, the county's principal sources of revenue --- sales and property taxes --- would not increase significantly enough in a rebounding economy to make much a difference in its finances. He also points out that Rochester's ailing local economy "has been affected by some long-term structural changes" --- such as the declining fortunes of the area's Big Three employers (Xerox, Kodak, and Bausch & Lomb). "We were having difficulty as an economy before the recession, so we have some harder work to do here in order to bring back our own economic growth," he says.

            Richards is currently serving as chair of Greater Rochester Enterprise, a public-private partnership dedicated to fostering economic growth. Earlier this year, his name was widely circulated as a possible candidate for county executive. Though he ultimately decided against entering politics, he's keenly aware of the political pitfalls the county's current fiscal situation presents for candidates.

            "This is a year when it's pretty important [county exec candidates] be specific, because it's pretty clear that it's a problem we're not going to be able to avoid," he says of the budget crisis. "Even if it can be put off beyond the election by borrowing and doing other things, it'll be there with a vengeance right after that."

            "I think the question to ask the candidates for county executive, whoever they are, is, 'Well, how are you going to balance the budget? What are you going to do?'" Richards continues. "You can tell us what you're not going to do, but what are you going to do? And I don't mean be efficient and hold a meeting. I mean, what are you going to do?"

            City tried to ask that question of Johnson and Brooks after the tobacco plan was announced. Do they think it's a good idea? What would they do?

            Neither candidate responded.

            Privately, several Dems expressed hope that Johnson would comment on the tobacco plan, and frustration that, thus far, he has not. His campaign has, however, posted City's first article about the plan ("Borrowing time," June 4) on Johnson's campaign website --- a site that, naturally, only contains news clips that contain real or implied criticism of Brooks' and/or Doyle's actions.

            Interestingly, two Republican county legislators whose support for the tobacco plan was particularly vocal in the lej chambers --- Jack Driscoll and Sean Hanna --- also failed to respond to City's requests for comment. Driscoll is challenging Republican Henrietta Town Supervisor Jim Breese this fall for the town super post, and Hanna is rumored to be considering a run for the top spot in his town, Webster.

            Murray and his fellow Dems aren't totally opposed to Doyle's tobacco plan and, again, they realize the other options are unpalatable, politically and otherwise. But, like Richards, they also want the administration to develop a plan to balance future budgets.

            Toward that end, the Dems submitted several referrals to the administration last February, requesting that it implement the recommendations of the Blue Ribbon Commission it created. For example, Murray submitted a referral on February 10 requesting that the county exec provide a comprehensive, multi-year revenue and expenditure plan with his budget proposal.

            To date, the administration has not responded.

Up in smoke

In 2000, fearing that cigarette companies could go bankrupt before all the tobacco settlement money was realized, Monroe County sold its rights to $761 million in future settlement payments for $142 million in cash. That money was set aside to pay for past and future county projects.

            County Executive Jack Doyle now wants to use $36 million of that money to cover deficits in the 2002 and 2003 operating budgets. Over half of that money, $21 million, has already been spent on expanding the county jail and constructing new facilities for Monroe Community College. Doyle would borrow $21 million, by selling bonds, to cover those funds in the capital improvement project budget.

            At the county legislature's June 4 Ways & Means Committee meeting, Democrats expressed suspicion of the legality of this fiscal maneuver. The name "Enron" came up a few times, eliciting grumbles of protest from Republicans across the aisle, who are comfortable with the plan and feel that's an unfair comparison.

            Is the plan legal? The county's finance department believes it is. That belief is based on the legal opinion of the county's bond counsel, which in turn has noted the precedence set in Nassau County.

            Because the tobacco settlement money is tax-exempt, counties had been limited in the ways they could apply those funds without paying a hefty tax penalty. But Nassau County had recently used some of its tobacco money to help close a huge deficit in its operating budget, and given that county's financial distress, the Internal Revenue Service had allowed the transfer to happen without imposing a penalty.

            During the Ways & Means meeting, administrators revealed that they've been watching the situation developing downstate since February, with an eye toward whether a similar maneuver would be allowed in Monroe County.

            (In theory, using tobacco funds to cover operating deficits or debt on projects with for-profit elements was always legal, but the tax penalty resulting from such use would make it unwise. Finance officials also said during the meeting that they previously considered using tobacco funds to pay down the debt on Frontier Field. But since Frontier is home to for-profit sports franchises, they doubted the IRS would let them do that without a penalty.)

            Thus far, Monroe is apparently the only other county in the state to propose using its tobacco funds in this manner. But it most likely won't be alone for long.

            Robert Gregory, Executive Director of the New York State Association of Counties, says other counties are becoming increasingly aware of the option, and given their common fiscal stress, will almost certainly consider it.

            "I don't have a list," Gregory says, "but I certainly can tell you that counties across the state have difficult financial budgets, and many were put in a position where they had to raise property taxes significantly last year. Given the fact the IRS' review [of Nassau's situation] cleared the way to use some of these funds in that way, counties may look at that as a method of dealing with this."

            Former State Senator Rick Dollinger, a lawyer who's currently advising Mayor Bill Johnson's campaign for county exec, says he's been looking into the legality of Doyle's plan. "I'm not 100-percent convinced the county can do it," he says, "but I have not [yet] found a smoking gun."

            No pun intended.

--- Chris Busby

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