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Review of the Proposed Capital Program 2012-2014 Capital Budget

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Review of the Proposed Capital Program 2012-2014 Capital Budget Montaukett Learning Resource Center, Eastern Campus, Suffolk County Community College SUFFOLK COUNTY LEGISLATURE Gail Vizzini BUDGET REVIEW OFFICE Director May 13, 2011 William J. Lindsay, Presiding Officer and Members of the Suffolk County Legislature Dear Legislators: Accompanying this letter is the Budget Review Office Review of the Proposed 2012-2014 Capital Program and 2012 Capital Budget. The proposed program is significantly smaller by $282 million than the previous adopted capital program. The Legislature has the opportunity to determine whether the proposed program sufficiently plans for the County’s on-going and long- term needs. In doing so, consideration must be given to the limitations of County staffing resources, particularly in the Department of Public Works, which is responsible for progressing the majority of the capital program. Among the policy issues for your consideration in the adoption of the 2012-2014 Capital Program and Budget are: Is a reduction of $282 million from last year reasonable or will it jeopardize the County’s ability to maintain our structures and mitigate future replacement costs? What are the County’s options in terms of a long-term debt management policy? How do we manage escalating debt service costs due to prior authorizations for General Fund projects and the fact that commitments to land acquisition and the construction of the Replacement Jail Facility comprise a significant component of our outstanding indebtedness? Are we prepared for the potential impact on property taxes or reserves, considering the slow growth in sales tax revenue due to the economy and the significant two year operating budget shortfall? How can we prepare for the loss of proceeds from the tobacco revenue which will expire in 2014? What is the appropriate level of current and future commitment to the capital needs of the Suffolk County Community College, to maximize state aid, preserve our investment in college infrastructure and to coincide with the state five year aid plan for community colleges? My staff and I remain ready to provide whatever assistance the Legislature may require during the capital program and budget evaluation and amending process. Sincerely, Gail Vizzini, Director Mailing Address: P. O. Box 6100, Hauppauge, NY 11788-0099 (631) 853-4100 FAX: (631) 853-5496 e-mail: [email protected] SUFFOLK COUNTY LEGISLATURE William J. Lindsay, Presiding Officer Vivian Viloria-Fisher, Deputy Presiding Officer District 1 Edward P. Romaine 2 Jay H. Schneiderman 3 Kate M. Browning 4 Thomas Muratore 5 Vivian Viloria-Fisher 6 Sarah S. Anker 7 Jack Eddington 8 William J. Lindsay 9 Ricardo Montano 10 Thomas Cilmi 11 Thomas F. Barraga 12 John M. Kennedy, Jr. 13 Lynne C. Nowick 14 Wayne W. Horsley 15 DuWayne Gregory 16 Steven H. Stern 17 Lou D’Amaro 18 Jon Cooper Clerk of the Legislature Tim Laube Counsel to the Legislature George Nolan SUFFOLK COUNTY LEGISLATURE The Budget Review Office Gail Vizzini Director Robert Lipp, Ph.D. Deputy Director Allen Fung Director of Information Mgmt. Rosalind Gazes Chief Legislative Analyst Joseph Schroeder Energy Specialist Diane Dono Senior Legislative Analyst John Ortiz Senior Legislative Analyst Robert Doering Legislative Analyst Craig Freas Legislative Analyst Jill Moss Legislative Analyst Cary Flack Office Systems Analyst III Joseph Muncey Assistant Legislative Analyst Anthony Oliveto Office Systems Analyst I Laura Provenzano Office Systems Analyst I Laura Halloran Legislative Technician Benny Pernice Legislative Technician Sharen Wagner Principal Clerk TABLE OF CONTENTS Section Page Introduction I-III Summary: Findings, Recommendations and Project Status Updates 1 Pay-As-You-Go 28 Measures of Debt Burden 32 Analysis of the Proposed Capital Program 37 Suffolk County Land Acquisition Programs and Policies 49 Capital Projects Included in the Proposed Capital Program and Budget As Previously Adopted and Requested by Departments 58 Debt Service Impact 61 Index of Capital Projects 62 Individual Capital Project Reviews 71 2012-2014 Proposed Capital Program Schedule 455 Introduction Similar to last year, the proposed Capital Improvement Plan is smaller than the previous year and is once again overshadowed by a significant operating budget shortfall. Last year the 2011-2013 Proposed Capital Program was $49.4 million less than the previous three year capital program. The 2012-2014 Proposed Capital Program is $282 million less than the 2011-2013 Adopted Capital Program. In light of the economic downturn and the County’s substantial pipeline debt, the Executive provided Departments with restrictive parameters to guide their capital requests. Despite that, the Proposed Capital Program is $436 million less than departmental requests over five years. This is indicative that the County has significant capital needs that were not included in the proposed program. Debt service that the County is obligated to pay for capital projects, financed with borrowed funds in previous years, is expected to add to the operating budget shortfall. General Fund principal and interest payments are projected to increase by $7.7 million in 2012, an additional $15.8 million in 2013, and $17.5 million in 2014. Increases in 2013 and 2014 are mainly due to loss of off-budget relief from tobacco bond proceeds. There are no easy solutions in the short run to address rising debt service costs, as they are based on authorizations made over the past 20-years. Once current operating budget problems ease, we believe the Legislature should consider long term solutions such as: (1) returning to a more aggressive debt repayment schedule (using a 50%-Rule instead of a level debt service repayment schedule), (2) incorporating pay-as-you-go financing in the operating budget, and (3) establishing a policy or guideline to restrict bond authorizations. On a brighter note, some budgetary savings can be expected beyond 2014, due in part to the winding down of borrowing for Phase I construction of the jail in Yaphank (CP 3008) and completion of off-budget relief from the proceeds of tobacco bonds. As a result of the near completion of the jail, for the first time in ten years pipeline debt of $427.8 million (for countywide mostly General Fund purposes) has decreased by $83.1 million compared to March 2010. In addressing the significantly reduced size of the 2012-2014 Proposed Capital Program, the Legislature must consider several factors in weighing the extent to which to include funding for projects that are proposed to be reduced or were not included. The capital program is a long range planning document. It typically takes a few years before debt service associated with capital projects works its way into the operating budget. The process involves: In June 2011, the funding level for capital projects will be adopted as part of the 2012 capital budget. Throughout 2012, resolutions will be adopted to appropriate funds and authorize bonds for individual capital projects. Public Works and other departments then progress capital projects to the point where the Comptroller bonds for the cash needs of projects. Borrowing could take place as early as 2012, but more likely funding for most projects would not be needed until 2013 or 2014. Should no spending take place within five-years, Local Law 15-2002 requires that projects be closed, unless reauthorized by Legislative resolution. I Finally, operating budget debt service incurred to finance projects typically does not start until one-year after the funds are borrowed. The payback period is up to 20-years. As a result, decisions made in adopting the 2012 capital budget are not likely to have a noticeable impact on the County’s current significant operating budget shortfall. What the Legislature must weigh in its deliberations is the impact of the capital program on future operating budgets against the many capital needs that the County has. In this review of the capital program, the Budget Review Office notes several areas in which increases in funding should be considered. Indicative of a shortfall in proposed funding, twenty-one previously adopted projects totaling $97 million are discontinued. The policy issue facing the Legislature in amending the capital program is to weigh the capital needs that are not funded against future costs. More specifically, some of the areas detailed in this report include: Several proposed College projects are discontinued or have understated costs. One consideration is that inclusion of these projects in the capital program will maximize the likelihood of the College obtaining approval from the state for 50% aid. It has been documented that more County tax dollars leave Suffolk than come back in the form of aid. Funding College projects with 50% State aid would partially offset this equation. As a rule-of- thumb, the benefit of injecting state or federal dollars into the local economy has a multiplier of about two, but varies depending upon the individual project. o Discontinued projects include (1) CP-2159-Learning Resource Center-Grant Campus, which would require $30.8 million to adequately fund; (2) CP-2120-Health and Sports Facility-Eastern Campus, at $16.75 million; (3) CP-2118-Renovation to Sagtikos Building- Grant Campus, at $6.1 million; and (4) CP-SCC01-Parking Expansion-Ammerman Campus, at $3.24 million. In addition, $10.3 million would be needed to adequately fund and reschedule CP-2149-Infrastructure-College Wide. Several proposed sewer district projects understate estimated costs and do not properly schedule funding to reflect anticipated progress. Included here are: o (1) CP-8108-Outfall at SD #3-Southwest, which would require an additional $100 million to adequately fund; (2) CP-8153-Sewer Expansion for the Smithtown and Kings Park Main Street Commercial Area, at $30 million more; and (3) CP-8170- Improvements to Sewage Treatment Facilities-SD #3-Southwest, at $20 million more. Numerous road projects were not included that are in last year’s capital program. In our opinion the fiscal commitment to Energy Conservation is insufficient.
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