pfm consultants recommendations for cumberland county's 2014 budget

8/14/2019 PFM Consultants recommendations for Cumberland County's 2014 budget

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MULTI-YEAR FINANCIAL PLAN CITY OF BETHLEHEM

Cumberland County EIP:

Opportunities and strategies

November 13, 2013


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Cumberland County EIP: Opportunities and Strategies DRAFT SUBJECT TO CHANGE 2

Cumberland

s structural challenge

As discussed in our Financial Trend Analysis, the Countys structural challenge is that recurring revenues are notgrowing as fast as its recurring expenses. To keep the budget balanced, the County has to reduce the projectedgrowth in spending, increase the projected growth in revenues or both. This report provides ourrecommendations on how to achieve those objectives through means other than property tax increases.

General Fund Financial Results and Projections ($ Millions)

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

$70.0

$80.0

$90.0

2010 2011 2012 2013 2014 2015 2016 2017

Revenues Expenses Fund balance


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MethodologyDepartment evaluation

PFM subject matter teams met with County departments to discuss operations, opportunities, challenges and priorities(August - September)

Teams requested and reviewed additional information from County staff (September - October)

PFM conducted additional comparability and best practice research (September - October)

Financial trend analysis

PFM reviewed the County's historical financial performance from 2008 - 2012 in the General Fund and other major fundswhere relevant (August - September)

PFM reviewed the County's multi-year financial projections, described alternate projection methodologies and analyzed themajor trends that contribute to the structural imbalance between revenues and expenditures (see October 30 report)

Input from public and others

Cobalt Communications Group conducted a mail and online survey to gather information on resident values andpriorities (See November 6 report)

County Controller and his staff provided useful ideas for where the County could reduce costs and increase non-taxrevenues (July - November)

PFM used the County's prior analysis and guidance from the Solicitor's Office to identify non-mandatory services(October)

PFM met with the County's senior management team throughout the process (Directors of Planning, Finance, IMTO,Facilities and Human Resources)


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When we label a service as mandatory, we are focused on whether the County is required by federal orPennsylvania law to provide that service . We do not consider services that are required by the Countys ownordinances or other actions to be mandatory because the County has discretion to change those mandates.

Please note the following in reviewing the list of non-mandatory services:

! There are many federal or state laws that regulate how the County provides a particular service, if it chooses todo so. These regulations do not always mean that the County must provide the service.

! Pennsylvania law requires that Cumberland provide some services in a specific way because it uses the ThirdClass County form of government. For example, the County has separately elected row officers, like the

Prothonotary and Register of Deeds, because State law requires those positions for this form of government.The County could gain some autonomy from these requirements by adopting a Home Rule Charter as othercounties have done.

Our list of non-mandatory services excludes those we consider practically necessary, even though they are notexplicitly required by federal or Pennsylvania law. For example, there are few laws requiring the County to useemail in its daily operations, but the County will do so for practical reasons. Therefore, the County needs some

kind of email support function, even if there isnt a law requiring it. This is true of several support functions, likefacilities management or vehicle maintenance.

What

s a mandatory service?

In many cases the County has discretion over how it provides mandatory or practically required services. Othersections of this report discuss options for delivering some of those services differently. This section is focusedon areas where the County has discretion whether to provide the service at all.


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Evaluating non-mandatory services

Should wekeep it, reduceit or expand it?

MandateReview

Mission andMeasures

CommunityInput

(Survey)

GeneralFund Cost


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General Fund direct net contribution ($000s)

According to the 2013 budget, the dark bars show the General Funds direct net contribution for programsbudgeted outside the General Fund and light bars show the General Fund contribution for programs budgetedwithin the General Fund. Please note these are budgeted contributions and actual amounts may vary.

$111$141 $144 $158

$206 $230

$391$424 $430

$644

$738

$0

$100

$200

$300

$400

$500

$600

$700

$800


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Recommendations: Programs to keepBased on the information we have collected in Cumberland and elsewhere, we recommend you continue to fund thefollowing non-mandatory services:

! Finance s multi-year projections, benchmarking and performance measurement , the Planning Department andIMTO

s GIS functions . These are key tools for making future decisions, including those related to resource allocation.The strength of these services helps distinguish Cumberland County from its peers

! Central booking is a best practice that helps law enforcement agencies spend more time on patrol and less time onadministrative functions. By providing this service, the County is subsidizing its municipalities, enabling them to providethe same level of patrol coverage at a lower cost. This is a worthwhile investment, though the County should use any

opportunities for cost recovery, like the recent fee increase! The Pennsylvania Permanency Initiative in Children and Youth Services is a best practice that helps reducea child's length of time in temporary placement and find a permanent home. The County s investment herereduces the need to invest time and money in other parts of the child placement system and has significantnon-financial benefits for children

! The same is true of the Criminal Justice Planning and IP programs that help reduce prison headcount

Functions like the Coroner

s Highway Safety program , Vector Control, Weights and Measures , and the Archives currently have a minimal or no impact on the General Fund. They should be reviewed in terms ofwhether they continue to be the best use of other limited resources like staff time and facility space. If they canbe effectively tied to the goals in the County s Balanced Scorecard and their impact can be measured, thentheir contribution to the County

s overall mission will be clearer.


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Recommendations: Other services As the survey demonstrates, Cumberland County government scores well on overall resident satisfaction. It has a higher rating (66)than other similarly sized counties in Pennsylvania (61) and across the country (62). Cumberland has lower scores on residentsatisfaction with tax levels (50 for fairness), though they are not out of line with other counties in Pennsylvania (53) and nationally(49).

The multi-year financial projections show a recurring, structural challenge and the underlying trends that drive the County s projectedfinancial performance will be hard to reverse quickly absent dramatic action. Thoughtful, deliberate action starting now and continuinginto the future will help the County maintain overall resident satisfaction and mitigate resident frustration over tax levels. From theperspective of non-mandatory services, the County should focus on the following:

! In prior years the County has made a policy decision to support programs like the Agriculture Extension , the Conservation

District (which has a small General Fund subsidy) and other farmland preservation activities . These are valuable programs thathave gained the support of the constituents who use them. But, from the broader perspective of all county residents, their surveyscores were low relative to other service areas. The non-mandatory services with the lowest positive responses in favor of theCounty s continued involvement were technical assistance to farmers (52%) and farmland preservation (66%). It s a matter of policypreference and prioritization whether the County continues to fund these programs at their current level, potentially at the cost ofmarginally higher property taxes given the County s structural financial challenges

! The County s General Fund contribution for Drug and Alcohol Services is relatively low in return for giving the County morediscretion over how these services are provided. Quality service in this area reduces the demand on other Human Service or criminal

justice functions. Because these services scored low relative to other services on continued County involvement (66 percent), theCounty should take a closer look at the survey cross tabs for more insight on how to respond

! The Sheriff

s Office has a couple activities that are not mandatory and a couple others that are practically necessary, though it isnot mandatory that they be provided by the Sheriff (e.g. County building security). The Sheriff

s Office has few performancemeasures in the budget and little explicit connection to the goals in the Balanced Scorecard. Office staffing levels have remainedstable (42 44 full-time equivalents) and its expenses have grown at a lower annual rate than the General Fund overall (3.1 percentversus 5.2 percent between 2008 and 2012). The Sheriff

s staff have a good grasp on where their resources are deployed and candescribe their reason for doing so. The Commissioners and Chief Clerk should meet with the Sheriff to discuss how to better measurethe impact of those decisions. That, in turn, would guide decisions on whether there are opportunities to reduce costs withoutsignificantly impacting service quality


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The Claremont Nursing and Rehabilitation Center (CNRC) is a $26million operation that does not currently receive any General Fundsubsidy. However, the Center had operating deficits in 2011 and 2012and the Centers Finance Director projects a deficit in 2013.

The County is adding rehabilitation services at the Center with the hopeof increasing operating revenues enough to eliminate the operatingdeficit. County Finance is concerned that, absent the successfulcompletion of this project, the Center may need a General Fundoperating subsidy as soon as 2015. According to the 2012 audit, theCenter had $4.0 million in unrestricted cash at the end of last year.

What about CNRC?

Adding rehabilitation capacity will not guarantee that the Center will eliminate its operating deficits and keep itsbudget in balance indefinitely. Some key variables that determine the Centers financial position are:

! Bed occupancy! Payer mix: Some patients have higher reimbursement/payment rates than others! Changes in federal Medicare and Medicaid reimbursement rates! Nursing Hours per Patient Day (resource allocation)! Staff salary costs! Staff benefit costs

County government can influence some of these variables through negotiations with the employee bargainingunit. Other variables, like bed occupancy, are hard for the County to control because they are partially or entirelydriven by outside forces.


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In tandem with the departments current efforts, the County should consider the following options and establish aplan in 2014 to address the operating deficit.

Reduce to mandatory function and staff accordingly

The County could do only what is required by Act 101 of 1988 and reduce costs accordingly. This primarilymeans developing the 10-year waste management plan and annual reporting. If the plan is developed toprovide capacity through contracts with external waste disposal facilities, the cost of maintaining the plan shouldbe minimal. However, this option does eliminate the County as a full-time access point for waste relatedcustomer service inquiries and requests from residents and businesses for additional waste related services.

Keep current functions and adjust fees accordingly

The County could adjust fees further for existing services or charge fees for services that are currently availableat no cost. Increasing the fee charged for the Yard Waste Equipment Program or adding a gate fee to theHousehold Hazardous Waste drop-off program could help to reduce the operating deficit. However, it could alsoprovide a disincentive to participate in the Countys programs.

Re-consider transfer facility

In the early 1990s, the County started to build a transfer facility in Silver Spring Township until circumstancesprohibited the project from moving forward. Centre County constructed a transfer facility in 2002. Since 2007 itswaste-related expenditures have not exceeded waste-related revenue. A brief review of Act 101 and discussionwith department staff suggests that operating a transfer facility would provide new opportunities for grant and feerevenue. Other Third Class counties (Chester and York) operate landfills that generate revenue through wastedisposal fees and other sources of income.

Recycling and Solid Waste Options


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III. Public Safety and Criminal Justice


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Growing E911 subsidy

The County funds several operations outside the General Fund and supports those operations with aGeneral Fund subsidy. The E911 subsidy is the fastest growing subsidy (see next page) and one ofthe fastest growing parts of the General Fund budget. The County projects that the General Fundsubsidy will be $3.0 million in 2013, which is lower than budgeted but still quadruple the 2008 amount.

The County issued debt to fund the new E911 center in 2008. That debt is being repaid outside the

General Fund, so it does not impact the subsidy amounts shown above. The General Fund subsidyto E911 did increase by $300,000 per year from 2009 to 2013 to retire debt related to non-facilityE911 infrastructure (mostly computer equipment).

The County projects that the General Fund subsidy will continue to grow in 2014 and beyond. Sincethe majority of the General Fund revenue comes from the property tax, this means a growing portionof the E911 Centers expenses are being funded by the property tax.

Five-Year Gen. Fund Change 2008Actual2013

BudgetPercentGrowth

Total Public Safety Exp. $1,204,618 $4,151,390 244.6%

General Fund Subsidy to E911 $715,530 $3,338,446 366.6%

Subsidy as % of Total Exp. 59.4% 80.4% 35.4%

Department of Public Safety General Fund Impact Five-Year Change


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E911 call volume

The Department of Public Safety (DPS) provides E911 services to Cumberland and Fulton Counties. Ithandles two types of calls 911 emergency calls and administrative calls (e.g. requests for reports, non-emergency inquiries).

Since 2008, administrative calls have made up nearly 72 percent of all calls on average. So most callvolume is non-emergency related, though the share of 911 calls have increased since 2008. From 2007to 2012, total 9-1-1 calls increased by 11.1 percent. Call volume reached a peak in 2010 and declinednotably through August 2013.

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

0

50,000

100,000150,000

200,000

250,000

300,000

350,000

400,000

2008 2009 2010 2011 2012 2013 (est.)

911 & Administrative Calls and Cumulative Percent Change (2008-2013)

9-1-1 Calls Admin 9-1-1 Calls Percentage Change Admin Calls Percentage Change


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911 & 10-digit calls2012

% 911 Calls % 10 Digit Calls

Cumberland County 36.4% 63.6%

3rd Class County Average 53.4% 46.6%

In 2012, the Department of Public Safety received approximately 266,000 total calls, or 1.05calls per resident. Other Third Class counties averaged approximately 343,000, which isalso 1.05 calls per resident.

Over 63 percent of Cumberlands total calls were 10-digit calls and the rest were 911.Conversely, 10-digit calls accounted for 47 percent of all calls in other Third Class counties.This suggests the Countys 10-digit calls, which could be handled through a 311 system or

some other means, may drive significant costs for Cumberland County.

Comparative View of Emergency vs. Non-Emergency Call Volume

Call volume comparison


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Recommendation: Spending review

General Fund Subsidy to E911 ($ Millions)

$2.37

$0.72

$1.43 $1.89

$2.25

$1.91

$2.98$3.51

$3.83 $3.87 $3.91 $3.95

$0.00$0.50$1.00$1.50$2.00

$2.50$3.00$3.50$4.00$4.50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Given recent growth in the General Fund subsidy, the lack of growth in General Fund resources and the comparisons to other

Third Class counties, the County needs to take a closer look at E911 operations to identify opportunities for operationalefficiency. The County s financial projections assume that the level of subsidy will level off in 2015 (see graph below), but theplateau is close to $4.0 million annually. Key areas of focus should include:

! Capital expenditures (equipment, software/hardware and associated training)! Administrative call handling

Pennsylvania DCED provides peer-to-peer reviews for certain areas, like information technology. The County should see if PEMA has a similar program for E911. If not, the County could apply for additional funding through DCED (i.e. a second phaseof EIP) and get external help. The County s potential participation in the shared service assessment with other regional PSAPs

will also be valuable.


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In 2011 Cumberland County had just under 3,300 new filings. Comparatively the average new filingsamong the other Third Class counties was slightly more than 4,500. Cumberland Countys new filingsincreased by 1.2 percent from 2008 to 2011. The number of new filings for the other Third Class countiesdecreased by 1.7 percent during the same time period.

In 2011 Cumberland County had the lowest per capita incidence of violent crime and property crimeamong Third Class counties. From 2008 to 2011, the Countys incidence of violent crime per capitadecreased by 2.4 percent and its incarcerated persons per capita increased by 5.6 percent (the highestamong Third Class counties).

Given the Countys relatively low-level of crime per capita and its relatively high incarceration rate percapita, the County should further explore the amount of low-level offenders in its prison and whetherthere are alternatives to incarceration.

Cumberland County Criminal Filings

2011 PA UCR Data CumberlandCountyAverage of Other

3rd Class CountiesRank

(of 12)

Total Part I Crimes Per 100K 1,687 2,447 12

Part I Violent Crimes Per 100k 107 259 12

Part I Property Crimes Per 100k 1,580 2,188 10

Total Part II Crimes Per 100K 3,075 4,754 12

2011 UCR Crime Types Cumberland County versus Other Third Class Counties


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The Countys 2013 budget allocates $31.7 million to criminal justice functions. The County projects it will spend $29.0

million from the General Fund, or 43.0 percent of that Funds total, for criminal justice this year. These figures do notinclude the debt service associated with the prison following its 2011 expansion.

From 2008 to 2012, General Fund criminal justice spending grew by $6.4 million or 28.9 percent. The prison had thelargest increase over this period, with spending rising from $8.4 million in 2008 to $12.1 million in 2012. Spendingdrivers include additional staff related to the prison expansion (107 full time equivalents in 2008 versus 119 in 2013),moving Central Booking into the General Fund in 2010 and higher costs for dietary management services.

Data shown below are actual General Fund operating expenditures for 2008 through 2011, estimates for 2012 andprojections for 2013.

Criminal Justice overview

$13.7 $13.9 $14.9 $16.1$16.4 $16.6

$8.4 $8.9$11.1

$11.9 $12.1 $12.4

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

2008Actuals

2009Actuals

2010Actuals

2011Actuals

2012Estimate

2013Projected

Prison All Other


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From 2007 to 2011, total expenditures increased by 27 percent from $9.4 million to $11.9 million. In 2013, total expenditures for the

prison are projected to be $12.4 million, including Central Booking.Cumberland County Prison estimates that its average daily cost per inmate was $78.12 as of August 2013. Through this period,inmates had an average length of stay of more than 48 days. In 2012, the Prisons average daily cost per inmate was $73.41 andinmates had an average length of stay of 45 days, including pre-trial and sentenced inmates.

From 2007 to 2011, Cumberland County Prisons average daily population (ADP) increased by 14.4 percent from 340 to 389.Compared to other Third Class Counties, Cumberland is one of two counties that reported a growing ADP during this period and its jailpopulation per capita grew by the largest amount of any Third Class county (8.1%). During this period, 8 of the other 11 countiesexperienced declines in per capita incarceration, and the other two experienced very slight increases (0.2% and 2.2%).

It is important to note that the Countys ADP is the smallest among Third Class counties and Cumberland accepts prisoners from other jurisdictions, thus, making it easier to have a larger percentage increase. However, the per capita increase remains an exceptionamong other Third Class counties.

Cumberland County Prison

County 2007ADP2008ADP

2009ADP

2010ADP

2011ADP

Change(%)

2011 Inmates per100k in Pop.

2011 Cost PerInmate Per Day

Berks 1,198 1,164 1,083 1,052 1,046 -12.7% 253.4 $75.35Chester 941 940 936 895 898 -4.6% 178.2 $76.46

Cumberland 340 356 367 385 389 14.4% 153.9 $72.14Dauphin 979 988 949 943 943 -3.7% 350.6 $95.99Erie 657 632 600 611 628 -4.4% 223.5 $68.54

Lackawanna 886 890 943 702 742 -16.3% 346.5 $58.83Lancaster 1170 1,152 1,131 1,129 1,098 -6.12% 209.7 $53.59Lehigh 1,411 1,379 1,158 1,133 1,268 -10.1% 359.3 $54.26Luzerne 717 730 730 661 600 -16.3% 187.1 $132.28Northampton 836 779 809 801 792 -5.3% 265.1 $87.59Westmoreland 543 512 506 497 524 -3.5% 143.8 $78.68York 2,148 2,253 2,256 2,299 2,378 10.7% 544.5 $44.43Cumberland Rank 12 12 12 12 12 1 11 7

Avg (w/out Cumberland) 1,044.2 1,038.1 1,009.2 974.8 992.5 -6.6% 278.3 $75.09


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The County should also consider expanding its pre-trial services and programs . According to 2011 U.S.Department of Justice (DOJ) data, nationally two-thirds of county jail inmates are defendants awaiting trial annuallycosting taxpayers nearly $9 billion dollars. Nationally, pre-trial inmates remain in jail for an average stay of two weeks,often because they cannot make bail payments.

Pretrial release programs are generally used for offenders with non-violent charges and limited criminal history. Pretrialrelease uses supervised recognizance with tools like ankle-brackets, phone check-ins, drug testing or other means ofdefendant contact and supervision. The Vera Institute of Justice has conducted extensive research on pre-trial releaseprograms and found that individualized risk assessments and supervision help reduce pretrial failures. Participation inpretrial release programs creates the dual benefit of limiting the number of people in jail awaiting trial and keeping

defendants in the community, maintaining employment and family contact.The County currently offers some pre-trial services, but could enhance its offerings. Coupling enhanced supervision withmonitoring and assistance in employment, education, mental health, housing, and substance abuse can prove to bemore cost effective than incarceration and/or re-incarceration.

Successful pre-trial programming can divert certain eligible defendants who pose a low-risk to society and provideexpenditure relief to the County prison. By reducing the Countys pre-trial ADP, the County could potentially generatesavings in the form of reduced expenditures on inmate medical costs, food costs, and (if ADP is sufficiently reduced)prison staff costs. If the County invests in additional pre-trial programming that reduces its pre-trial ADP to a level

whereby it can reduce its security staff by 5 percent, it could save an estimated $175,000 annually, net of assumedprogram costs. Counties around the Country have invested in expanded pretrial release programs to yield notablesavings, as much as $7 per day per inmate in Broward County, Florida.

Additionally, the County could realize an opportunity to enhance alternatives to incarceration and case processing tohelp reduce pre-trial population costs, building on recent work funded through PCCD that reviewed results of theCountys alternatives to incarceration.

Reduce Pre-Trial Population: Expand Services


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In 2005 the Texas State Legislature mandated that the majority of county and municipal courts in the state usebest practices for fine and fee collection efforts, some of which are used in Cumberland County. They include:

! Staff dedicated exclusively to collection activities;! Expectation that all court costs, fees and fines are due at the time of sentencing or pleading;! Defendants unable to pay in full on the day of sentencing are required to apply for an extension of time;! Application information is verified and evaluated to establish an appropriate payment plan for the defendant;! Payment plans are usually strict (e.g. 50 percent of the total amount due must be paid within 48 hours; 80

percent within 30 days; and 100 percent within 60 days);! Alternative enforcement options (e.g., community service) are available for those who do not qualify for apayment plan;! Defendants are closely monitored for compliance and action is taken promptly for non-compliance;! A county or city may contract for collection services on delinquent cases;! Application of statutorily permitted collection remedies, such as programs for non-renewal of driver s license orvehicle registration; and! Issuance and service of warrants, as appropriate.

Under the model Texas program, courts have been able to increase their collection rates significantly. Accordingto data from the Office of Court Administration, participating counties have had their collection rates grow from 36percent to 66 percent on average.

Case study: Best practices in court fee collection


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IV. Rethinking employee compensation


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Projected salary increases

Hypothetical Salary Progression

The Countys multi-year projections assume 3.0 3.5 percent annual increases in total full-time salary costs,which is a reasonable assumption given the existing salary structure. That structure is set up to provideemployees with a base wage increase that functions as a cost-of-living adjustment (horizontal movement in thechart below) and a step increase that functions as a tenure-based adjustment (vertical movement).

The projected 3.0 3.5 percent annual increases are equal to a 1.0 percent base wage increase and a stepincrease each year. The chart below shows the net impact of receiving both increases each year. Since theCOLA and step increase rarely both take effect on January 1st, the Countys total annual spending on eachemployees salary would rise by less than shown below.

The problem is that total County revenues are only projected to grow by 1.0 percent per year without taxincreases, so this salary growth rate will eventually drive expenditures out of balance with revenues, holdingother factors constant.

Source: Non-Union Employee Salary Schedule, Grade 13, Assumed 1.0 percent annual COLA

Year 1 Year 2 Year 3 Year 4 Year 5

Step 5 27.28$

Step 4 26.41$ 26.67$

Step 3 25.53$ 25.79$ 26.05$

Step 2 24.69$ 24.94$ 25.19$ 25.44$

Step 1 23.84$ 24.08$ 24.32$ 24.56$ 24.81$

+3.6%

+3.4%

+3.4%+3.3%


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Options inside the structureThe County has options for increasing employee salaries within its structure without granting two increases per

year to all employees. They include:! Providing only cost-of-living adjustments in a given year (horizontal movement on page 51). The Countysfinancial projections assume a 1.0 1.5 percent annual COLA. The County could grant a higher COLA andfreeze all steps, achieving savings relative to the baseline

Example: All employees receive a 2.0 percent COLA and no step increase versus the 3.5 percent annual wageincreases in the Countys baseline projection. That change saves an estimated $375,000 for one year and $2.0million over five years

! Providing only step increases in a given year (vertical movement on page 51). This increases wages for currentemployees without raising the entire scale and creating higher starting salaries for future employees. Additionalconsideration may be given to employees who are already on the highest step and would have their wages frozenin this situation (i.e. one-time bonuses)

Example: All employees receive a step increase, which is roughly equal to 2.0 percent raises, versus the 3.5 percent annual wage increases in the Countys baseline projection

! Providing step increases to employees within certain pay grades, targeted for strategic reasons

Example: Theres a step freeze for all employees except those at the lower end of a scale whose salaries are lowrelative to the labor market

! Delayed application for pay increases. In this situation we recommend that the timing for the raise be clearlystated at the beginning of the budget year and not left open-ended, which creates uncertainty for employees overthe timing and size of salary increases

Example: Provide a base salary increase of 2.0 percent effective July 1 instead of January 1


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Options outside the structure

There are also options for providing incentive-based compensation without abandoning the step structure.

Cumberland Countys new gain sharing program is a creative step in that direction. It incents employees to take on theresponsibilities associated with vacant positions in return for additional cash compensation. The County eliminates thevacant position and keeps the benefit-related savings and a portion of the salary savings. The employee gets the rest ofthe salary savings. Montgomery County, Maryland has a different approach to gain sharing with one of its major bargainingunits (see next page).

Similar to Montgomerys approach, another option is a reward program that provides cash or other rewards to employeesfor exceptional contributions to established goals or innovative practices that result in quantifiable savings. Rewardprograms are less formal than a fully developed pay-for-performance structure and the reward triggers can be changedannually to meet to fit the Countys changing resources and goals. To avoid the perception of favoritism and gainemployee buy-in, the reward program should have clearly stated criteria for reward recipient selection and an inclusivecommittee for reviewing reward candidates.

Loudon County, Virginia has a different approach that provides merit bonuses to all employees based on savingsachieved across the entire government. This approach looks more like the profit sharing model in the private sector.

In March 2012 the Loudon County Supervisors voted unanimously to create a meritbonus pool from which one-time payments could be made to employees if savingswere identified and achieved against the 2013 budget allocations. Late in the 2013fiscal year, the County reviewed the projected savings achieved and awarded a bonusequal to 2 percent of base salary to its employees (1 percent for those employed part ofthe year). Employees must also have an individual rating of meets expectations orhigher on their most recent performance evaluation to receive the bonus.


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HSAs are savings accounts created by individuals to pay for healthcare. Contributions are made pre-income tax andemployees can take their accounts with them if they leave their jobs. While employees and employers contribute to theaccount in some HSAs, County employees do not contribute in Cumberlands HSA. Cumberland County contributes $800annually for single coverage and $1,600 annually for family coverage.

HRAs are medical care reimbursement plans established by employers for employee health care. They are funded solely

by employers, and excess employer funds can be carried over from year to year. Employees cannot take the accountbalance with them if they leave County employment. Employees pay medical costs using the HRA and then out of pocketuntil the health plan deductible is met.

If employees choose the HSA plan, they do not contribute toward the premium cost. If employees elect the HRA plan, theycontribute $80.14 for single coverage and $206.83 for family coverage, buying the higher level of coverage.

Post retirement employees may remain on the Countys health care plans if they pay the full premium cost.

Health insurance overviewCumberland County offers two healthcare plans, both of which are Preferred Provider Organization (PPO) plans offered

by Capital Blue Cross with a high-deductible and a savings option. High-deductible plans are defined by the KaiserHealth Benefits Survey as plans with a deductible of at least $1,000 for single coverage and $2,000 for family coverage.

PPO Health Savings Account (HSA) Plan

High deductible ($1,250 single/$2,500 family) but Countycontribution results in deductible cost to the employee of$450 single/$900 family

Employees do not contribute towards the premium

Deductible applies to medical & prescription drug coverage 65% of Cumberland County employees enrolled

PPO Health Reimbursement Account (HRA) Plan

High deductible ($3,300 single/$6,600 family) butCounty contribution results in deductible cost tothe employee of $300 single/$600 family

Employees contribute toward the premium

Deductible applies to medical coverage only 35% of Cumberland County employees enrolled


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Annual premium trends (family coverage)

Source: Kaiser Health Benefits Survey 2007-2012 national average estimates include public and private sector

The same trends hold for family coverage. The Countys premiums are now higher than the national average and they

have grown at a faster rate than the national average for HDHP-SO plans.! The premium for family coverage under the Countys HSA plan was 7 percent higher than the national average in 2012($15,506 versus $14,447). The Countys premium increased by 30 percent from 2007 to 2012 versus 23 percent for thenational average! The premium for family coverage under the Countys HRA plan was 22 percent higher than the national average in 2012($17,729 versus $14,447). The Countys premium increased by 31 percent from 2007 to 2012

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

2007 2008 2009 2010 2011 2012

County H.S.A. County HRA National Average

Total Annual Premium for Family Coverage


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Health Benefits - Trends and optionsManage premium costs with wellness incentives

The total annual premium for each County health plan is increasing at a faster rate than the national average forsimilar plans. Other employers offer wellness programs to improve employee health and lower medical carecosts. Cumberland County currently receives funds from Capital Blue Cross for a wellness program and hashired a consultant to support this effort. There are a host of incentives and programs that the County could offerto promote employee health including different premium contribution rates for smokers and non-smokers andfinancial incentives for participation in the wellness program.

Adjust employee contribution

In 2012 the average employee contribution toward premium costs for HDHP-SO in the United States was 17percent. Cumberland County employees are only required to contribute if they elect to buy-up into the HRA plan.The County could consider establishing an employee contribution toward the core plan in order to offset theincreasing costs, particularly since the majority of County employees have this plan.

Explore self-funding

Self-funding is an arrangement in which an employer funds medical expenses and contracts with a third partyadministrator (TPA) to provide administrative services and process claims for the groups medical and dentalbenefit plan. The percentage of covered workers in a plan that is completely or partially self-funded has increasedover time from 49 percent in 2000 to 54 percent in 2005 and to 59 percent in 2010. Employers may find savingsby moving to a self-funded plan since more of each dollar can be allocated for paying claims and eliminatinginsurance commissions, risk charges, insurer profit and other costs involved in obtaining coverage from anexternal insurer. However, offering a self-insured plan means the employer assumes the financial risk related tooffering health insurance.

Sources: Kaiser Health Benefits Survey 2007-2012 national average estimates include public and private sector


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Two other approachesSome governments facing more severe fiscal strain have taken more extensive measures to control health care costs.

Option 1: County schedules specific dollar amounts for its annual premium contributions

Hypothetical example: The County pays $5,000 toward the premium for single overage in 2013 and employees pay$500. The County commits to increasing its contribution by 5 percent in 2014 ($5,250) and 5 percent in 2015 ($5,513).

If the total premium cost increases by more than 5 percent in 2014, then the County still pays $5,250 as scheduled. Theemployees cover the cost above 5 percent, or they may switch to a health plan with a lower premium cost. If the total

premium cost increases by less than 5 percent, then the County still pays $5,250 and the employees contributiondecreases.

Option 2: The County commits to increasing the total compensation per employee by some amount, includinghealth insurance

In this model the County calculates the total cost of compensation per employee, including the cost of health insurancein the form of its premium contributions. The County commits to increasing total compensation per employee by a fixedpercentage each year. If there is a significant increase in the cost to provide employee health insurance, thenemployees can decide to either take the scheduled compensation increase in the form of higher County contributions tothe cost of health insurance instead of larger wage increases, or vise versa.

These approaches are uncommon, especially for governments with Cumberland

s financial profile. But the guidingprincipals are useful more broadly.! Counties have limited resources to increase total compensation and health insurance is part of that compensation! Employees who make a significant contribution to the cost of health insurance have a greater vested interest incontrolling the costs for medical care and medical insurance! Employees may exercise their interest in controlling costs by changing their coverage, if they have options available


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V. Managed competition


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In our review we noted several services that Cumberland County provides in-house using its own staffwhere other governments provide those functions by contracting with businesses, non-profits or otheroutside entities. The functions marked with an asterisk were previously handled by an outside entity inCumberland County, though in some cases it was several years ago.

! Delinquent property tax collection! Facility cleaning**! Facility security: The Sheriff is the mandatory security provider for court facilities

! Help desk functions and other IMTO functions**! Nursing home! Payroll preparation**! Property assessments**: They are not done annually! Prisoner transportation: This is usually handled by the Sheriff in Pennsylvania counties! Shared ride/demand service (County Transportation)! Vehicle maintenance

Managed competition: In-house or outsource?


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What is managed competition?

Managed competition is a useful strategy for evaluating the potential benefits of providing a servicein-house versus the potential benefits of outsourcing, using a defined set of criteria that culminates ina beneficial decision for the governments constituents.

In a managed competition process, a government issues a Request for Proposal (RFP) for a definedset of services under a specific set of parameters. Outside providers and the Countys employeesare invited to submit a proposal to provide those services at a specific cost. The County thenevaluates the proposals and selects the one that best meets its selection criteria.

Just as the County crafts other RFPs to meet its needs, it can design these managed competitionRFPs to reflect its priorities for providing a service a certain way. The RFP might require that theservices be provided at a certain frequency, at a specified maximum cost or using employees with aminimum level of compensation. More restrictive bid requirements will narrow the field of competitorsand potentially make it harder to achieve savings or service innovations. But they also allow theCounty to address some of the non-economic reasons for providing services in-house, like qualitycontrol.

In some cases the government provides additional support to its employees during managedcompetition so they can communicate their subject matter expertise in the proposal. That mitigatesan advantage that the private sector entities may have from their greater familiarity with preparingformal proposals.


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Case study: Pittsburgh managed competition

Managed competition is not the same as privatization or direct outsourcing, wherethe public sector employees do not have an opportunity to compete. It is possiblefor the public sector to compete and win in managed competition as Pittsburgh sexperience indicates.

! Animal Control Public sector wins: City employees submitted a stronger,more professional bid and demonstrate their ability to offer a more comprehensiverange of services than their primary private sector competitor. City employees wonthe bid and the function remains in-house.

! Refuse collection Public sector wins: City employees submitted the winning proposal tocollect garbage. To address the private sector

s cost advantage, employees proposed changes instaffing levels per vehicle and collection routes.

! Fleet services Private sector wins: The City issued an RFP to private providers for fleetmaintenance and, in consultation with its Act 47 Coordinator, selected one company as the bestprivate sector option available. Then the City conducted a managed competition process betweenthe private provider and the City employees. The private provider won and agreed to abide by theterms of the collective bargaining agreement that existed between the City and associatedemployees. Most employees were given priority consideration in the application process for jobswith the provider or transferred to other positions in City government.

pfm consultants recommendations for cumberland county's 2014 budget

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