The Fiscal Fast Lane
When a county is growing like Topsy, its finance officers have to move even faster--just to keep up.
Loudoun County, Virginia, no longer has the luxury of time. When H. Roger Zurn, its treasurer, started in his position nearly a decade ago, county money was parked in investments for up to two years while finance officers sat back and watched returns compound and grow until they were needed. The county, an hour's drive from Washington, D.C., had a sleepy, agricultural-based economy and a treasurer's staff of 30.
Zoom forward to 2005. Loudoun is the fastest-growing county in the nation. Its economic base leans heavily on high technology companies and their well-paid workers, and its budget has quintupled since Zurn's early days on the job. The population has nearly tripled to 220,000. Schools are bursting with children, with 3,450 new students expected next year. New schools need to be built, and that's not all. The three new fire stations under construction may be just the beginning of what's needed for fire safety. And then there's the need to widen roads and keep sewer capacity up to date.
All of this requires money over and beyond general revenues. For Zurn's office, this means understanding a wide range of government enterprises and overseeing new funds for them. Increasingly, that has meant major visits to the municipal bond market. There have been two bond sales in the past two years, the most recent for $71 million. For a county with deep roots in a rural economy, those dollar amounts "are pretty tremendous," says Zurn. And that money has to be managed-- invested safely at the best possible rates and available when each of a wide variety of projects needs its bills paid. Not surprisingly, Zurn's job has been transformed from relaxed to revved. "If you like things evolving and changing," he says, "this is the place to be."
For Zurn, that evolution has meant not just more money and responsibilities to manage, it's also put his fingers in many more pies. With that has come the need to tap into new technologies to satisfy increasing demands on his and his staff's time. Riding herd on growth can be a split-personality experience--one that demands the flexibility to be creative in meeting new and unforeseen challenges and the strength to be level-headed in keeping the enterprise on an even keel. Much of what Loudoun and its treasurer's office face is typical of the challenges other fast-growing counties across the country are experiencing.
Zurn's office in the city of Leesburg is emblematic of the county he serves. Exit the front door to the left and there's a two-lane road and a quaint old-town section with brick sidewalks, a reminder of slower times. Head right and the road opens up into five lanes of asphalt that go past strip shopping malls and are dotted with heavily used center turning lanes for cars to get from one parking lot to another.
Loudoun's divergence is even greater than Leesburg's. The eastern part of the county has blossomed into a dense suburb of Washington, D.C. But it is also home to large companies such as America Online and the recently expanded Dulles International Airport and its high-tech corridor. Townhouses sell for more than $400,000.
The western part of the county, however, remains distinctly small town. Properties are typically three to 10 acres in size. There's plenty of open space. Still, even here there are emerging pockets of growth, and they have infrastructure needs. Leesburg, which sits on the dividing line of east and west, is growing rapidly, as are other towns such as Round Hill, Lovettsville and Hamilton. The county's budget and investment policies have to accommodate them all.
The speed of the growth has been so surprising that the county can't be sure of the size of its property tax base until year-end assessments are done, and then it finds that its predictions are low. "What you think is going to happen in two years, happens in six months," says Zurn. "Nothing stays as planned in this county anymore." For example, last year Zurn thought there would be a 12 to 15 percent increase in assessed value on real estate, "which is a darned good average assessment." Instead, it was closer to 20 to 25 percent, which, as Zurn points out, "makes things interesting." His office expects many irate phone calls as well as demands to fund services.
With such impressive growth, it's unusual now if investments stay put for more than 12 months. Long-term investment and its gift of compounding interest are a thing of the past. "We're keeping our portfolio relatively liquid," says Zurn. Like treasurers and finance officers in other rapidly expanding localities, he concentrates more on managing cash flow.
And he is doing it in house. Some of the other burgeoning counties around the country take a different approach. Kern County, California, for instance, has contracted with an investment firm to manage the money for a $15 million construction project. And many county school systems have their own financial officers handling investments for them. Not so in Loudoun. "All of it runs through this office," says Kathryn H. Tidgewell, deputy treasurer-investment officer, whose role is investing available funds and working with county agencies on what their funding needs are.
What that imposes on the treasurer's office is oversight of funds for an empire of many fast-growing parts. Seventy percent of Loudoun's general budget, for example, underwrites the school budget. With the crunch in school construction, 80 percent of the county's construction budget will go toward the building of schools. The money to pay for that has to be managed by Zurn's office.
The treasurer's office has not been able to expand staff to keep pace with the county's growth. Even while the county was doubling and tripling in population, the treasurer's office added only three positions. A tight budget precludes hiring more personnel, Zurn says. To keep on top of its workload, the office looks instead to automation. Fortunately, its needs have dovetailed with the information technology revolution and, as home to many high-tech companies, its mindset turned naturally in that direction. Zurn likes to brag that his office "has been on the cutting edge of Web-based information and payment." The county developed a Web-based tax and property information system that not only has taken pressure off the staff but also has become a model for several surrounding counties. The Web site has a section for new residents on topics such as how to get the vehicle decal proving taxes were paid and how to research property records, and valuable information for long-time residents about past payments and taxes due.
Even so, the treasurer's office gets 80,000 calls a year from taxpayers who don't realize they can get tax and homeowner assessment information online. "We're the educator for a lot of county services," says Tidgewell. "We're trying to get them to understand we have online capabilities." Part of that latter effort is letting residents know about the service in all mailings the county sends to its citizens.
Fast-growing San Bernardino, California, understands Loudoun County's pain. Its annual budget has tripled since 1998--it's now at $3.15 billion--and the growth rate is expected to be 4 to 5 percent a year for the next 10 to 15 years. Managing the incoming and outgoing revenue behind that is, says Dick Larson, the county's treasurer-tax collector, "quite a juggling act."
Larson agrees that automation is the way to get a handle on it. Last year, his county got 362,000 phone calls from people asking how much they owed in taxes and when payment was due. To cut down on that volume, the county is moving to electronic transactions as much as possible and directing residents to the county's Web site. As in Loudoun County, every piece of mail the treasurer's office sends to homeowners, real estate agents and others tells the recipient how to go to the Web site for further information. IT staff members are continually developing Web pages to answer the needs of real estate and escrow officers.
A SPECIAL CASE
When growth is at a fast pace, even the collection of taxes can be overwhelming. Some of Loudoun's revenue comes from its share of the state's 4.2 percent personal property tax on motor vehicles. The sheer volume of new vehicles in the county and the accompanying paperwork work plus all the phone calls about the twice-a-year payments weigh on the treasurer's office. And the rules regarding that tax may be changing, creating even more challenges for the treasurer's office.
Loudoun and other Virginia counties will need all the high-tech help they can get to deal with those. A tax that used to be straightforward, if unpopular, underwent radical change in 1998 when the newly elected governor, James Gilmore, made good on a campaign promise to do away with the car tax. It had to be done incrementally, so step one was to replace a portion of the money counties received from the tax with a state subsidy. Localities billed car-owning residents for a portion of the tax; the state then paid the localities the portion car owners no longer had to pay. Naturally, the state and its counties had to create computer programs to handle the data and complex calculations.
Under Gilmore's plan, the state was eventually supposed to fork over to counties 100 percent of what the tax had been worth to them. But then Gilmore's term as governor was up and a new governor with a different philosophy and set of campaign pledges was sworn in. And, perhaps even more to the point, the state's financial bubble burst. Facing deficits in its budget, the legislature froze the subsidy at 70 percent in 2001. More recently, the state capped the total amount that could be returned to the counties at $950 million, putting counties in competition with each other for how much they will get each year.
If a legislative plan under consideration this session is approved, it would apportion an amount for each county that would be the same from year to year. That would be a disaster for fast-growing Loudoun. As more people move in, revenues from the car tax should increase proportionately. But if the car-tax reimbursement from the state never increases, Loudoun's population will grow without the revenue to keep pace.
This complicated and unwieldy responsibility--and its potential impact on residents--lands smack in the middle of Zurn's office. With the changes in the car tax, there will be, Zurn points out, three different tax rates on residents' bills. One would reflect the state tax rate. Another, what the state should have paid in a subsidy but didn't. And then, because the vehicle tax only applies to $20,000 of the vehicle's value, the county would tax the value above and beyond that. "People will be scratching their heads saying, 'What are they doing?'" says Zurn. And undoubtedly, they will be flooding his office- -not necessarily the Web site--to ask for clarification and possibly to vent anger at the mess.