Lake County Fiscal Rangers

Florida State Pension TimeBomb - facts from Orange County Mayoral Candidate

This is very good information about the pension liability and unfunded liabilities faces by Florida taxpayers.  It is reason enough to vote out every incumbent elected official in Florida.  A similar problem exists in the OTHER Orange County, in California where the 3% unfunded pension just for Sheriff deputies is about to force the County to declare bankruptcy.  I moved here in 2006 from that "OC" and get frequent emails from one County official on the issue.

vj

This is from an email sent out by Matt Falconer, who is running for Mayor in Orange County, FL:

Most taxpayers are not aware that virtually every public employee and elected official is part of the Florida Retirement System. Every year taxpayers pay up to 23% of the employee's salary into the FRS fund. The FRS is a "defined benefit" system which means the members are guaranteed levels of income regardless of the performance of the retirement fund. If the fund loses money, the taxpayers make up the losses. It is a great system, unless you are a taxpayer.

Pensions were designed to keep older people from having to work late in life and starving. But in Florida, I have seen a public employee retire at 42, with an annual pension starting at $85,000. The top annual pension payment in the State of Florida is $285,268.32 a year, for not working. The defined pension benefit increases 3% every year for public safety (1.6% for others). In 30 years this retired civil servant will be making $692,421.09. At that point our public employee has not worked in 30 years.  

So you are thinking this is just an odd example. Of the top 100 retirees in Florida the "average" pension is $155,870 a year. In 30 years those 100 people will be costing the taxpayer $37,833,903 a year, or an average of $378,339. So you are thinking these people all must work in Dade County. Sorry, in Orange County the top retiree pulls in $186,471 and there are 16 (soon to be 20) retirees making $100,000 or more a year without working.

Here is a startling fact. There are 1,000,000 state and local government workers in Florida. What happens when they all hit retirement? In 30 years we will have two retirees collecting pensions for each government job. But the real problem is the hidden fact that pension plan is not actuarially sound or self funding. The fund lost $31.1 billion last year, or 25% of its value. The taxpayer is liable for the fund making a 7.75% return each and every year, so the gap in value is now $40 billion and the taxpayer has to pay again.

Assuming a 7.75% return is not achievable, which I think it a good bet in the future economy, what is the taxpayer's liability? I ran an analysis using the current fund value and a 3% annual return over 40 years. I compared that figure to a 7.75% return on the current targeted fund value (the fund value we should be at now). If I am correct and our annualized return is only 3%, we will be $2.3 TRILLION short in the pension fund in 40 years. If the yield is 4% we will be $2.2 TRILLION underfunded. And if someone invents a pill making people live ten years longer these numbers will double. What this means to you is your taxes will increase dramatically over the next two decades.

Our local government pension time bomb reviles the social security problem at a federal level. But we can do something about it. We can simply shift to a defined contribution system where we put the retirement funds into the employees 401k account like the private sector does. But in order to make this simply shift we need political leaders with the courage to reform the system. My first vote as Orange County Mayor will be to convert all future employees to a defined contribution plan. I will stop public pensions from being a threat to our children's future. For myself, I will never, ever accept a public pension for public service.

Do you think it is fair the taxpayers are working into their 70s so their civil servants can retire in their 40s?

Do you think government workers deserve a better pension plan than the taxpayers who pay their salaries?

Do you want to leave your grandchildren with a $2 trillion liability?

Have any Mayoral candidates ever mentioned this problem?

Are you ready to elect a leader with the courage and convictions to make things right?

Folks, I can and will fix our broken government but I need your help. I need you to send this message to everyone on your email list. Please visit my web site and donate so I can compete with the well funded special interest groups.

Together we can build a better future for our children. 
 
Matthew Falconer
www.MatthewFalconer.com
Matthew@MatthewFalconer.com 

A Clear Explanation of just WHO will pay for upcoming Obama & Democrat Tax Increases

Thanks to friend Riley Warddrip for sending me this - it is a speech from a business owner to his employees, and quite clearly explains how the Obama tax increases will affect employees in many businesses, and is similar what was happening in California before I moved to Florida in 2006.  I recommend you

Lake County Board Terminates County Manager Cindy Hall

Final update:  12:50 pm - Note : I just added the County's official press release at the bottom

Note:  Also added yesterday's article by Lauren Ritchie at the bottom

Monday, Oct. 5, 2009 - Leesburg, FL -  Today, the Lake County Board of Commissioners voted 5 to 0 to terminate County Manager Cindy Hall.  They were at a special meeting held in Leesburg to discuss plans, objectives and other issues. however after some emotional discussions, the Board Chairman, Welton Cadwell, after talking to County Manager Cindy Hall during a break, returned to the meeting and said he wanted a motion to terminate Cindy Hall.   In my opinion, it was a mutual decision.

I was there at the meeting, which had been publicized in an article written by Lauren Ritchie in yesterday's Orlando Sentinel Lake section.    All five members of the Board were there, plus Cindy Hall & the County Attorney, two members of the public, myself and Orlando Sentinel reporter Steve Hudak.

The meeting was not publicized in the Board meeting section of the County website, and if Ritchie had not written this ARTICLE HERE (also added below), I would not know about the meeting.

The "Retreat" meeting agenda was vague and listed subjects such as "Open Discussion, Space for Constitutional Officers, Space for Alan Grayson, "Goals, Priorities and Vacant Positions".

However, after a discussion regarding changes in building space for the Sheriff & US Rep. Alan Grayson (see my post on this later this week), the meeting evolved into a discussion of management issues related to Cindy Hall, who was at the meeting.   The discussion was driven by Commissioner Jimmy Conner, and input from Elaine Renick and Linda Stewart.   Commissioner Jennifer Hill and Board Chairman, Welton Cadwell were more reserved.

My Summary:

The Board in the past has been receiving pressure regarding Hall's "management" style and various problems reported in the press.  Recently, there was the settlement of a lawsuit where a receptionist was fired by Cindy Hall and the manager had made a statement that seemed to be age discrimination.  Then there was the most recent case where Hall's staff laid off 12 employees by offering a severance package that promised they were "eligible" for unemployment, although they also received severance and health benefits.  The employees were not fired, but agreed to leave based upon what was offered them.  Then, it turned out the State would not give them the unemployment coverage, and one or more employees are working with attorneys to obtain compensation for the "lost" unemployment they would have received.  One of those people was at this meeting and told me she had hired an attorney from Ocala.   She said she tried three attorneys from Lake County but they all claimed there might be a conflict of interest and would not take her case.

Additionally, there has been friction in how the County staff and managers that report to Hall have acted on such issues as procurement decisions (i.e. hiring vendors from outside the County vs hiring local vendors), and personnel issues (even going back to the Lee Johnson studies we have covered on this blog),   At the meeting, Jimmy Conner also brought up the issue of hiring management and staff who were never required to move to Lake County.  Conner compared that practice to one used by Lake County Tax Collector Bob McKee, who apparently requires most new hires to move to Lake County if they do not already live here.

Board member Jimmy Conner has been vociferous in demanding improvements from Hall.

After the discussion today, it seemed clear that Conner and Renick wanted more involvement in County Management decisions, and more "change" in how some business decisions are made.   In comparison, based upon today's discussion, it seems that both Welton Cadwell and Cindy Hall prefer a hands off management approach where the Department managers are not "micro managed", and where Hall backed up her manager's decisions, even if some Board members wanted changes.   Thus, in my opinion, Hall could have agreed with Conner, Renick and possibly Stewart and micro managed her direct report managers and developed improvement action plans, but after discussion with Welton, decided to accept termination procedures rather than possible future "micro managing".    Hall has an employment contract with the County, and according to what I heard, it may include a 6-month salary severance provision (which is less than I expected).

Issues discussed included:

- The apparent unhappiness with Hall's management style by two or more Commissioners may have started as early as the firing of the receptionist about two years ago, which resulted in the fairly recent out of court legal settlement.  That case was documented in this blog in the Lee Johnson research study, which is in the "pages" section of this blog.

- Jimmy Conner was adamant that "Hands off" management style "won't work with me. I won't ever be satisfied with a hands off style".

- Commissioner Hill explained that about two years ago, County Manager Hall gave up a "deputy County Manager" position in order to hire more qualified managers, and rely upon their skills, thus the philosophy of hands off really started then.  (Note:  We have previously written in this blog that there didn't seem to be a top level management control system to detect problems like exceeding overtime budgets and other issues that a sound business management system would have detected and reported. After this meeting, it seems that Hall would back up managers no matter what mistakes happened, and she may not have then implemented stronger management reporting or systems to detect and prevent repetition of the same problems.   We had also mentioned before that Hall's group did not have a Controller position, thus there didn't seem to be anyone who ensured good management controls were in place.).   Hill also explained that Hall's style was more like a "Board of Directors" where each department manager ran their department without micro-management.

-  Commissioner Renick asked if Hall had attended meetings of the County procurement selection committee, not to micro-manage, but to understand how the system worked and Hall said no (or not in a long time.)   Renick said "I admire her (Hall's) loyalty to managers and her defending them, but you don't do that if you don't know what they are doing...".

- Commissioner Conner brought up procurement issues, and said his problem was with the vague "rfq" (request for qualifications)  process where they decisions could be subjective.  Although Conner had been outspoken in the need for hiring local vendors at prior Board meetings, the Board had never really made a decision to define a policy, thus Hall did not change staff direction (i.e. by  defining a local preference policy for suppliers).  Hall mentioned that the current "business friendly" policy does not contain a "local preference" condition in it, but the Board could add one.

- Commissioner Cadwell more than once said they should not defer the issue because it is hard for a County Manager to only have only 2 or 3 Commissioners supporting her decisions. 

-  Although it might seem that some of the Board was trying to impact who was selected as vendors, that was not the case.  The entire Board was cognizant of the need to maintain the "integrity" of the vendor selection process.  Welton Cadwell said there was a time when in Umatilla he could have defined who got work (I assume he had an elected position in Umatilla many years ago), but that is not the case these days, and they need to protect the integrity of the system.   Linda Stewart repeated her earlier recommendations that they need a scoring system to give some points in the selection process for local vendors (much like the Federal Government gives employment points to Veterans).  Conner said that when he was a School District Board member, he sat on a vendor selection committee, but that is not done in the County government, so Commissioners have less input into procurement decisions.  However, Conner later told me he was not in favor of a Commissioner being on the vendor selection committee.  Attorney Sandy Minkoff said that some recent Grand Jury reports indicated there was a trend to remove non-procurement people from selection committees due to recent big procurement scandals occurring in other Florida Counties.

- After Cadwell announced his decision to request the decision to terminate Hall, Renick questioned the action, asking "if the problem is with some of the managers, and we know some managers are failing, can't we request that Cindy take corrective action"...   The general consensus was no, because that bypassed the authority of the County Manager...   However, in my opinion, it seemed like Hall didn't want to go that route, and had already decided to not modify her management style.   Cadwell reflected that if they take that approach, then the challenges to Hall's direction might be endless.

Observations:

- The decision to accept termination seems to be one made by Hall as part of a professional and personal policy to not have to react to Board challenges which may not ever end.   Welton also supported that action, saying the Board needs to do what is best for both the County and for Cindy.   Another manager might have read the political winds, and adopted some of the Commissioner ideas, including sanctions or improvement plans for some managers, etc. but Hall did not.  I have been in a similar situation twice, so you sometimes get tired of the problems and look forward to other opportunities.

- In my opinion, it seems that some of the Board members may complain that a business practice is deficient, but they don't follow it up with a resolution for action.  For example, they have talked about the need for local vendors to receive priority, but never acted by proposing or implementing a policy for it.

- Existing County managers might want to pay more attention to issues discussed by the Board, EVEN if they don't initiate a policy change, because the days of "hands off" management style may disappear with a new County Manager and that Welton will not be the Chairman after December. 

- I personally believe the County should hire a very experienced consulting firm like KPMG or others, to review the existing departmental management systems and reports, develop a "risk analysis" and develop an improved management control system that identifies management and performance indicators, then detects and reports exceptions to policy in time to PREVENT negative problems.  Then they should hire a manager who will use such a system to identify and act upon needed changes.  Currently, it doesn't seem like some managers know how to define risk or departmental performance indicators.   Since there are also many apparent problems with personnel practices, a professional firm needs to review all those practices, and assess current management capabilities and make policy and staffing recommendations to the Board to bring Personnel practices in line with other major organizations.   Under Hall's "hands off" approach, if she had a manager who lacked skills to define sound management controls and systems, the pattern of continued snafus would continue, either from lack of written status reports, or lack of ability to define and act upon needed improvements once a snafu occurred.

I may add more items HERE as I think of them later this week... you can post comments to this blog.

vj 

=======================================================

Click the link below to see 1) the County's official press release on the termination, and 2) Lauren Ritchies column from yesterday.

North Lake County Hospital District Update - Legislator's Deny Referendum Request

Tavares, FL - Oct. 1, 2009 - Yesterday was the annual Legislator's Delegation meeting of the Florida State Legislators from Lake County.  Held at Lake Sumter Community College, the purpose is to hear from various constituent groups requesting various actions.  For "local" issues, the delegation can initiate "local laws" that could be successful. 

The big, first subject I am writing about here ( I will add a separate posting on the other subjects later) was the proposal from Marilyn Bainter, an elected Board member of the North Lake County Hospital (Tax) District, who requested the Delegation initiate a local law to eliminate the current law establishing the Hospital District and 1 Mill tax.  That law gives about $12-million in property taxes to two local hospitals, and she wants to replace it with a referendum to let voters decide if the tax should be continued.    Marilyn Bainter spoke for 15 minutes and 6 other tax opponents (including me) spoke for 3 minutes each.   The Hospital representatives also received 15 minutes, and then there were about 15 more of them each speaking for 3 minutes.

Senator Paula Dockery did not show up.   Also out sick was Rep. Stephen Precourt.  Thus, attending the meeting were Florida State Senator Carey Baker, Rep. Marlene O'Toole (who chaired the meeting), Rep. Charles Van Zant  and Rep. Alan Hayes.

The Decision:  Only Rep. Charles Van Zant backed Marilyn and said there should be a referendum.  Carey Baker deferred any position by saying the Constitutionality of the law should be reviewed (although he knew about this issue for a year), Alan Hayes said due to the economy it was not a good time for change, and Marlene O'Toole said that the issue is a local issue and opponents should run candidates for the Hospital Board to get "change".  Thus, except for Rep. Van Zant, the delegation avoided any action to improve the oversight of the tax funds and prevented voter input by denying 3 to 1 to have a referendum as requested by Bainter.

My primary conclusion is that at this time, the existing Hospital Tax District law is REALLY badly worded and needs significant revisions, if not elimination.  The problem is the law only says that the tax funds of about $12-million are split between the two hospitals for "continued hospital services" WITHOUT ANY oversight requirement, NO conditions on how the funds are to be spent, NO status reports (except standard audited financials), and NO requirement for an audit trail to ensure funds are only spent to benefit Lake County residents (some Leesburg Regional Medical Center funds may subsidize the Villages Hospital and residents of Sumter and Marion counties who do NOT have such a tax).   Basically, the Hospitals can spend the money on any usage (including marketing services, high salaries, pensions, etc. ) and are not questioned by the Board.   Thus Marilyn has raised many issues, and the Hospitals have scrambled into defensive mode to come up with different reasons to justify the tax.  But, because neither the law or the Board have provided any specific guidelines on how to spend the funds, status reporting, oversight methods, etc., some taxpayers question justifications for the tax.  This problem of defining justified spending and reporting is compounded by the Board, who don't ask questions or explain the justification for their votes, thus any observer is left with the belief they either are not open minded, don't care about oversight (by "trusting" the Hospital staff to spend appropriately), or don't think they have a need to justify their decisions to the public.

At the bottom of this posting is a good overview of the meeting by David Donald of the Daily Commercial, except they take "loss" numbers from the Hospitals to "justify" the continuation of the 1 mill tax without also disclosing the net profits reported on the Hospital financials, even AFTER absorbing the "losses" , but the numbers do not agree with values stated by Marilyn Bainter.  Thus the Hospitals justify the taxed by showing all sorts of loss figures on different categories of client.  In contrast, Marilyn and supporters justify elimination of the need for the tax by focusing on high net profits of the hospitals even AFTER they absorbed the losses they talk about. 

Following the Daily Commercial article, I have attached a comment from LRMC's attorney, Phil Braun, who supports continuation of the existing tax law without any referendum or revisions for oversight.   Braun talks about losses from bad debt and Medicaid, which are considered by the Federal government to be costs they SHOULD absorb in order to be a non-profit hospital, thus I don't consider them a valid reason to justify a tax only used in 10 of 67 Florida counties.  

My opinion:  A referendum vote is needed where the hospitals can make their pitch and the law can be revamped to provide needed structure, conditions, status reporting, sunset (termination) provisions and oversight systems if passed.
vj

Alien Takes over Minds of Four previously Thrifty Lake County Commissioners

I have this "death ray" 1950's floor heater that also helps detect aliens.  I had to use it last week to determine that a flying space alien had indeed taken over the minds of four of the Lake County Commissioners.

Then, if you use 3d glasses (or drink Rose Wine to tint your eyes red like I did), I could actually see the alien hovering over the Commissioners at last week's meeting.  The alien looks suspiciously like the Flying Nun (portrayed by Sally Fields in the old TV series).

What, you ask, did the alien do to the Commissioners (while excluding Elaine Renick)?  

Sally Field's Flying Nun - the Alien who altered our Commissioner's minds...

Well, about 2-3 weeks ago, they acted in a sane manner and refused to fund a $90-million Judicial Expansion building project, which would have required additional bonds and debt.  Instead, they said to the architect to come back with a plan to live with the cash they had on hand from a prior bond issuance, which was about $36-million.  Additionally, they had some savings from the parking structure and some sales tax revenue, so i think the total available was about $42-million.  So, that was the plan.

But, then the architect and staff ignored the instructions (or got new consensus behind closed doors) and came to last week's Board meeting with a Powerpoint showing a starting price of about $42-million, then adding little things like $3-million for outside bricks, etc to ring up a new total of $55-million.   Yes, they showed a low ball "barely acceptable" alternative which would have been within the original budget.  But, the Board's four alien altered Commissioners, with LITTLE discussion (indicating to me there were backdoor discussions), voted for the FULL optioned $55-million project.  The architect even let slip that one empty floor could be used for FUTURE court room expansions beyond (I assume) the planned 6 court rooms being added. 

Commissioner Elaine "NIagara" Renick was the lone holdout, as indicated in the article below.  She reminded the Board that they had agreed on about $42-million, so why was the price tag so much higher?

Where did they get the extra money, you ask?  By committing future sales tax revenue of about $3-million per year to get from about $40-million to $55-million and other sources below.

So, the figures I get are:
-  $36-million in the bank from prior bond issuance
-      3.6 million saved from parking lot construction budget
-      6-million taken from County general fund (see my comment below about dvd's and curator)
-     9+million - obtained from using $3-million per future year's sales tax revenue for 3+ years
============
    $55-million   total   (rounded...) This is my calculation using info from the article below and guessing.

So, all you County employees that will be laid off next year because the Board has spent future general fund and sales tax revenues on bricks and an empty floor might start looking for work.    Or, the alternative is the Commissioners will plead not enough income, and raise taxes because they took current and future short term funds to pay for a long term project.

My facts might not be completely correct - I tried to get the info from the County offices and County Manager Cindy Hall, but did not receive anything except the original minutes and Powerpoint from back in the July (the $90-million version).   Even the July 17th article by Lauren Ritchie on the Judicial expansion is no longer on their website.

So, all you folks wondering how the Board could cut $16,000 in Library DVD funds and the History Museum curator to save about another $100,000 might wonder about priorities when the four members of the Board voted to spend the full $55-million, adding about $15 or more million dollars to the judicial building budget.  On his blog, Jimmy Conner crowed at a community meeting about approving a Judicial expansion without adding debt, but didn't mention the higher actual price tag, or where the added funding came from.  He barely talked about the expansion approval, but wrote two entries on firing the curator to save about $100,000.

Tomorrow, I go to the Board meeting to see if the Alien Flying Nun has still infected the Board and where they will overspend next.  Hopefully, they have purged the alien influence and this won't happen again.

Meanwhile, I hope the County Auditor (supervised by Neil Kelly) will be watching to see what controls exist to ensure fair, competitive bidding for all the construction contracts and sub-contracts, and that they ensure US citizens are used for all work.  I mean, there couldn't be any deals for awarding sub-contracts to contributors to Board members BEFORE the project was approved, were there?   

WE will be watching.   And, hopefully, so will the Daily Commercial, which  published this editorial about the original $90-million spending plan.
vj

More Questionable Personnel Practices at Lake County Government

Updated at 4:3o pm - The blog, Right Side of Lake, published an email from County Manager Cindy Hall which seems to indicate this issue was discussed by her in a memo about 10 days ago.  It is at the link below the article.  vj

Lake County, FL - Lauren Ritchie dropped another cannonball on the backs of the Lake County Commissioners in her Sunday, Sept. 27 column where she outed another personnel blunder committed by County Management.   It seems when the County HR Manager and County Manager encouraged certain staff to resign while getting some severance, they also encouraged to resignees to also illegally file for unemployment compensation, saying the County would not contest any such filings.  The County Manager Cindy Hall did this without informing the Board, and as Ritchie points out, the extra unemployment comp costs to the taxpayer could have exceeded $160,000, and would have been buried in other accounts and not approved by the Board.

Ritchie says it all below, but how much of this must continue while the Commissioners still retain the County Manager and personnel Director after a continuous series of questionable human resources decisions (covered in earlier postings)?

At what point does this indicate that the County Commissioners need to go by ignoring these types of practices.  This one was most likely illegal. 

At what point do we call these practices fraudulent instead of "improper"?

VJ

FiscalRangers.com Plan to Profit from Lake County Rezonings Killed by County Commission

I always wanted to be a commercial developer.  The wealthy developers make money by buying land (or options on the land) using fancy drawings of the project to get other people's money (OPM - i.e. dumb investors), then getting elected zoning boards or officials to allow zoning changes to build projects that are more profitable than those allowed under the old zoning structure.  An example can be the Lake Nona bio-tech center in Orlando - I bet the land was originally zoned for agriculture, then rezoned to allow multi story commercial buildings.  That one worked.  In contrast, Church St. Station in Orlando has gone through up and down cycles, and the shopping center near Plaza Colina in South Lake County got a Walmart instead of promised high end shopping. 

I used to travel to Houston and marvel at a Houston area County where there was NO zoning (which may have changed since then), so you never knew what would be built near you.  A friend who was a Corporate Controller bought a new fancy brick house in a new housing complex, which included neighbors like NFL football players.  Then the summer came, and they found what was on the other side of the tall trees bordering the upwind side of the tract.  Yup, a dairy farm, complete with all the smells associated with cows.   You could also find mortuaries next to fast food restaurants, etc.

So, with zoning you get some safety in knowing what will be constructed in different zones, but if the officials allow frequent rezoning for developers, you get Houston or Plaza Colina's shopping center.

That is the issue with the recent decision by the Lake County Commission on Tuesday, Sept. 22nd, when the Commissioners rejected a well organized plea from Mr. "P", a developer, to rezone his land in downtown Sorrento, a community focused on the "country life" with horse breeders and large lots.  I attended the meeting to see if the developer would win and get his land rezoned.

There were numerous outspoken residents against the commercial development, including a horse breeder who had twice had her land rezoned by developers in South Florida.  She had researched the Sorrento area and gambled no one would rezone the areas around her new Sorrento aread planned horse breeding facility which fit in the current zoning plan.

And, the developer had lots of outspoken supporters, and if the decision had gone his way, FiscalRangers could have used that decision as a precedent to build a Dairy Queen in my housing tract.  I mean, there is a vacant lot where a house burned down, and I think it would be great for my combination Dairy Queen, Mortuary (to get the vote of Welton Cadwell), a branch courthouse (to get the vote of Commissioner Jennifer Hill) and a guppy preservation pond (to get the votes of Elaine Renick and Linda Stewart).  I couldn't figure out what I needed to get a vote from Jimmy Conner.

But, the Commissioners, especially Linda Stewart, were on to me, and four of them killed Mr. P's rezoning request, eliminating a precedent that I could use in creating my commercial development empire.  I think they are taking this personally and don't like Dairy Queens.

But, the country life advocates for retaining their existing zoning in the Sorrento area are really happy.  Especially because all the developer's literature supporting the rezoning kept saying the area would get a Publix, but Stewart got them to admit the developer had NO DEAL with Publix, and the development could end up getting some other low end anchor tenant like Walmart. 

So, maybe I will have to find another rezoning precedent to get my Dairy Queen Mortuary Courthouse and Guppy Pond facility.

The sanitized version of the zoning hearing below is from the Orlando Sentinel.  
vj

Palm Beach FL County Recovering from String of Corruption Charges

Palm Beach County has been going through a string of corruption investigations since January of this year, and now they are establishing an ethics office AND an Office of Inspector General.

I would rather have a beefed up internal audit department.  As the article mentions, the IG will be selected by a panel of attorneys and law enforcement people, without any auditors involved.  Thus what happens is the focus will be to hire an attorney, probably a former prosecutor, whose focus will be on after the fact investigations, and not prevenention.  Attorneys do NOT know how to define internal controls nor are they oriented to spending time to review systems and recommend improvements.  Instead, their mode of operations is to use a fraud reporting hotline to get tips, or setup stings, rather than implement preventive or detection programs to prevent corruption from happening.

That is what a good internal audit department would do, and that is why that is what they need, not another attorney.   Read the article at the link below.
vj

Marily Bainter Response to Daily Commerical Op Ed supporting Hospital Tax

Our earlier post on the North lake Hospital District included a link to the Daily Commercial's op ed column supporting the continuation of the hospital tax.    That is even though the law establishing the Hospital Tax District in North lake County had NO conditions on how the funds were to be spent, and NO specifications for oversight procedures, and NO requirements for the Hospitals to provide specific audit trails of how the funds were to be spent.  The Daily Commercial wants the tax to continue because the Hospital management said they need the money.  

I need the money also.  I want to open a Dairy Queen to improve local health by providing subsidized ice cream using healthy milk to low income people.  But, I want the same wording in my agreement - no specific requirements on how the funds are to be spent, so I can spend it on relatives, transfer funds to other operations or pay myself a REALLY BIG deferred compensation payment (like a pension).  

Kudos however to the Daily Commercial for actually printing Marilyn's response.

Original Editorial from Daily Commercial, Sept 23

Below is Marilyn's Response

Hospital tax will hurt businesses

Hospital tax will hurt businesses- by Marilyn Bainter - Sept 23 - Get it Here or read it below

In reference to your editorial (in Wednesday's edition), you mentioned the North Lake County Hospital District took a healthy step in the right direction.

Maybe a healthy step toward the bottom line of two very financially healthy hospitals, but not a healthy step for the taxpayers and the economy of Lake County. The two nonprofit hospitals together made $28.4 million in profit in 2007 (the latest available reports for both hospitals).

How much profit do you think a nonprofit hospital should make?

Years ago our nonprofit hospitals made a deal with our government to provide charity care for total tax exemptions to include no federal income tax, no state corporate tax, no local ad valorem tax or sales tax and have access to charitable donations that are tax deductible to the donor and tax-exempt bond financing. These are all exemptions that we in the community have to make up for with our taxes.

A recent study done by the Government Accountability Office for the Finance Committee of the United States Senate states, "Among the government standards and industry guidance used by nonprofit hospitals, consensus exists to define many activities and their associated expenses-charity care, the unreimbursed cost of means-tested government programs, and many other activities that benefit the community-as community benefit. However, consensus does not exist to define bad debt and the unreimbursed cost of Medicare as community benefit".

The latest numbers provided by Agency for Health Care Administration shows the amount of chari percent for Leesburg and 3.09 percent for Florida Hospital Waterman. The magic number for disproportionate share funding for Medicaid is 11 percent.

While you say the owner of a $150,000 home may pay only $100, that could be spent locally with one of our small businesses to keep them in business another day. Or that $100 may help that homeowner pay the mortgage that month. The $100 that a small business would save may keep them from laying off another employee for a day or two longer. We do not need to be subsidizing rich corporations while letting our small businesses that pay taxes in Lake County fail.

There are only 10 counties left in the state that have an ad valorem tax to support hospitals. In their legislation there are definite purposes which our legislation does not have. While this tax was necessary, when Lake County was small and rural in order for us to have a hospital and care for the indigent in the days past before Medicaid and Medicare, we are now living in different times.

The majority of the crowd that gathered at the tax hearing in favor of the tax had some kind of financial interest, either directly or indirectly. There was a carnival atmosphere down to the refreshments being passed out. Appeasement of special interests is hardly a basis for public decision that affect all of North Lake County taxpayers.

The members of the North Lake County Hospital District cannot make unbiased decisions without investigating all the data. Serving on both the taxing board and hospital board, which has happened, also would seem to have some bearing on their decisions. In some states certain associations with institutions that receive public money is grounds for prosecution.

Marilyn Bainter

Trustee, North Lake County Hospital District

The basis for this letter includes the 990 forms for the hospitals, their audited financial statements, and the United State Government Accountability Office (GAO-08-880 Nonprofit Hospitals).

Wall St. Journal on Curtailing Non-Profit Hospital Tax Breaks

This July, 2009 article describes efforts by US Senators to pare back the tax breaks received by non-profit hospitals.   It is relevant in lake County because, as we just posted earlier, Lake County taxpayers also are taxed 1 mill to provide even more taxpayer funding of the two local hospitals.  As the article describes, it is getting harder and harder to identify the difference between for profit and non-profit hospitals.
vj

• JULY 10, 2009

Senators Consider Curtailing Hospitals' Tax Breaks

Exemptions, Historically Tied to Charity Care, Expected to Fall in an Overhaul; Industry Says It's Already Taking Hits

By BARBARA MARTINEZ

Senators working on health-care legislation are considering provisions to pare back the billions of dollars in tax breaks enjoyed by U.S. hospitals.

More than half of the 5,482 hospitals in the U.S. are nonprofits that don't pay federal, state or local taxes, according to the American Hospital Directory. This status is rooted in the 19th century: the first U.S. hospitals almost exclusively served the poor; others paid for medical care at home. The tax exemptions were meant to help hospitals shoulder the costs of providing such free care.

But in the past decade, some nonprofit hospitals have amassed big cash surpluses, even as they engaged in aggressive bill-collection tactics. Some provide less in charity care than the value of their tax breaks.

Helping drive the debate is the idea that any federal health-care overhaul that provides for the uninsured would reduce the need for charity care.

Looking Back at Federal Plans for Health-Care Coverage

Journal articles on changes to health-care coverage from the 1940s through 1960s

• Multibillion Dollar Medical Plan Drafted By Federal Officials (March 17, 1945)
• President Suggests U.S. 'Reinsure' Private Medical Insurance Groups (Jan. 19, 1954)
• Social Security Measure Would Add 15 Million Persons, Boost Payroll Tax, Spend Large Sum on Hospitals (May 25, 1945)
• Insurance Companies, Nonprofit Plans Score Gains Among Elderly (July 16, 1962)

One change being floated by Senate Finance Committee leaders Max Baucus (D., Mont.) and Charles Grassley (R., Iowa) is that hospitals would be required to offer a minimum amount of charity care, limit charges to the uninsured and tame their collection practices -- or face an excise tax.

Sen. Grassley has been a vocal critic of nonprofit hospitals for the past few years. "It has been increasingly difficult to distinguish the activities of for-profit hospitals from the activity of charitable hospitals," he said during a May hearing on health care.

That kind of talk has nonprofit hospitals nervous and they have a lot to lose. In a report issued in December 2006, the Congressional Budget Office estimated nonprofit hospitals were spared $12.6 billion in taxes annually, on top of the $32 billion in federal, state and local subsidies the hospital industry as a whole received each year.

Hospitals are already expected to shoulder some of the costs of a health-care overhaul. This week, the hospital industry agreed to receive $155 billion less in government payments in the next decade than it would get under current rules. It said the savings would go toward covering the uninsured.

Still on the table in Congress are other measures that are potentially expensive for hospitals, such as a proposal to withhold Medicare and Medicaid payments from hospitals in the cases of patients readmitted for the same problem within a certain period of time.

Taken together, these cuts could have significant financial repercussions on an industry that accounts for nearly a third of every dollar spent on health care.

"We're no different than everybody that comes to the table, in that reform is great as long as my ox doesn't get gored," said Jim Skogsbergh, president and chief executive of Advocate Health Care, an Oak Brook, Ill., nonprofit system of 11 hospitals.

Hospitals argue they're being targeted at a time when their balance sheets are under pressure from the recession.

Hospitals also caution that, whatever its final shape, the legislation being cobbled together in Washington is unlikely to provide coverage to everyone, and there will still be people unable to pay their bills.

None of the health-care proposals circulating on Capitol Hill, for instance, provides coverage for illegal immigrants.

Aside from pinching revenues, the loss of tax exemptions also would raise the cost of borrowing for nonprofit hospitals. They now issue tax-exempt bonds, letting them borrow money for significantly lower interest rates than for-profit institutions.

"For every billion dollars a hospital borrows, it could cost $20 million to $30 million more," said Paul Mango, head of McKinsey & Co.'s health-care consulting practice. "It's a lot of money."

In addition, donations that nonprofit hospitals rely on for capital improvements, for example, could be jeopardized because they would no longer qualify as tax-deductible charitable giving.

Even if Congress doesn't take away the industry's tax breaks, hospitals are concerned lawmakers will require them to provide a minimum amount of money in free care or community-outreach projects to avoid taxes.

"That's awfully simplistic," said Bruce McPherson, president and chief executive of the Alliance for Advancing Nonprofit Health Care. "Then it just becomes a numbers game." Mr. McPherson said he would rather see a "softer" measure, where hospitals are individually judged on their outreach programs in the context of their own communities.

Among the levies nonprofit hospitals avoid, property taxes are the biggest -- drawing scrutiny as counties and municipalities struggle to fill budget gaps.

In Wisconsin, many cities are strapped and cutting back on local services, said Jack Norman, research director at the Institute for Wisconsin's Future, a nonprofit organization that advocates modernizing the state and local tax systems.

The group published a report last year concluding that the state's 124 tax-exempt hospitals and medical centers had a combined property value of $5.8 billion -- and could be paying $117 million in property taxes annually.

Mr. Norman noted that the state's nonprofit hospitals were among the biggest beneficiaries of the many services provided by local governments, such as law enforcement, fire departments and snow removal. They "should be contributing to the property-tax base," he said.

Wisconsin nonprofit hospitals provided $234 million in charity care to the poor, said Eric Borgerding, Wisconsin Hospital Association's executive vice president. "That alone exceeds any property taxes that might be paid," he said.

Write to Barbara Martinez at Barbara.Martinez@wsj.com

Printed in The Wall Street Journal, page A