A Critique of ESI Financial Report

Video recorded on Wednesday, October 14, 2020

At the October 14, 2020, Board of Supervisors meeting, Mr. Frank McCarron, a retired CFO, expressed his dissatisfaction with the Econsult Solutions, Inc. (ESI) financial report that was submitted to Newtown Township. He said that the Township did not get what ESI promised to deliver and questioned the new hire recommendations. Mr. McCarron advised the supervisors that “any tax increase will be a lot more palatable for residents if you are seen as doing your part to keep expenses under control. Every department head should be pursuing revenue and cost saving strategies. If the ideas I mentioned are not worthwhile, then negotiate amongst yourselves and prioritize your spending needs.”

Transcript

[The following are the opinions of Mr. Frank McCarron, a Newtown Township resident.]

I reviewed Econsult’s report and I don’t believe that they delivered what they promised you. Here are 3 areas where I believe they missed the mark

First, Newtown Township was supposed to receive from Econsult SIX different reports. They are listed on page 18 of their Technical Proposal and some were due to [the Board of Supervisors] from 1 to 4 months prior to the final report. In fact, Econsult was supposed to use their first five reports as a guide to create the final report. See also their engagement letter dated February 18, 2020 under Scope of Work. I submitted a “right to know” request and was told these first five reports don’t exist. I was told the information was just incorporated into the final report.

Here is an example of how that may have hurt you [Newtown Township]. In the final report, there is a really good analysis of police compensatory time and overtime. Econsult wants [Newtown Township] to lower police overtime by 30 percent by 2023. That’s in their recommended Scenario 3 (read "Consultants Propose Three Scenarios to End Newtown Township's Deficit Spending – All Involve Significant Tax Increases).

But the problem is, you just signed a new contract through 2023! Maybe if you had received this information in one of the earlier reports that you were promised, you could have taken this up in the current contract you just signed.

Second, the public was supposed to get a chance to comment on Econsult’s findings before the final report was issued. There is an in-depth discussion on page 20 of their Technical Proposal dated September 20, 2019, under Step 4, of what this public meeting was supposed to be about. As far as I know that meeting never happened. At the August 26th meeting of this Board, Steven Wray of Econsult referred to what I believe was the public survey meeting as this review meeting. And I submitted a comment to the Board at your last meeting asking you to correct the Minutes of August 26th that there was no public meeting. 

Third, the final report does not appear to contain the scope of work that I believe is expected under the STMP Strategic Management Planning Program and for which you received a grant. I expected to see recommendations along the lines of the report that Econsult prepared for the Borough of Pottstown. Econsult included the Pottstown report in their Technical Proposal to you as an example.

5 Budget Measures

And according to Econsult, an STMP report is supposed to help you implement five budget measures. I want to talk about each measure and give you some suggestions.

1. The first measure is Cost Containment. Your baseline forecast shows that general operating expenses will grow to be 20 percent higher in 5 years. From $12.3 million in 2020 to $14.6 million in 2025 - an increase of $2.3 million per year. Econsult does not tackle this increase with cost containment measures. For the Borough of Pottstown, on the other hand, Econsult proposed budgetary savings growing to over $1 million per year that were mostly cost containment measures - Largely made up of personnel cost savings. ii. See Section 13.2 for Pottstown’s Summary of Recommendations.


2. The second measure is adoption of best management practices to achieve operating efficiencies. But this is what Econsult says in their Summary of Recommendations (Section 12.5) about efficiencies: “Major expenditure recommendations pertain to improving efficiency by way of increasing personnel.” In other words, instead of spending 20 percent more in 5 years, they are recommending you hire 10 more employees and spend 30 percent more in 5 years.
   
   So their way of having you deal with spending $14.6 million by 2025 from an efficiency perspective is to spend $15.9 million instead!
   
   Econsult highlighted an operating efficiency measure in their discussion of the staffing of the Police Department. They just didn’t propose that you do anything about it. Econsult said that Chief Hearn’s analysis shows that we need 12 more officers.
   
   And if you think about the impact of the Jointure, I can understand that. The Jointure steers to you all the commercial development that the other Townships do not want, all of which require Emergency Services: More restaurants (fire risk), Establishments serving alcohol (DUI risk) and Retail (petty theft risk) Upper Makefield and Wrightstown preserve their rural makeup without those risks, and without the costs. The problem is we can’t afford 12 officers, so the forecast only includes 3.
   
   In terms of staffing (and this is the operating efficiency issue), Econsult refers to an “ideal” police staffing ratio of one supervisor for every six officers. Out of a department of 29 [according to the Manager's 2021 recommended budget report, Newtown has 26 full-time police officers plus 1 Lieutenant and 1 Chief], we now have 13 officers with a rank of corporal or above, excluding the Chief. If we hired 12 more officers for a complement of 41, then we would be in a 3:1 ratio. But if we only hire 3 officers, then with a complement of 32, Operating Efficiency calls for less supervisors and more regular patrol officers. After discussing all this, Econsult chose not to address it. So does that mean the solution is to live with supervisors performing regular patrol officer duties?


3. The third measure that Econsult was supposed to help you with is Revenue Enhancement. Econsult’s version of revenue enhancement is for you to raise the millage rate from 4.5 to 11.75 mils. And to put this in context, the millage rate in 2016 when Delancey Court [where Mr. McCarron lives] was built was 2.5 mils. Econsult wants you to impose a millage rate that is almost 5 times higher than when Delancey Court residents moved in.
   
   I would argue that raising the millage rate is not what’s meant by "Revenue Enhancement." Instead, look at Section 4.4 of their report, item ADM01. Econsult recommends you hire a full-time code enforcement officer. Econsult also recommended that you increase zoning and permit fees collections so the position becomes self-sustaining over three-years. But then they say in a footnote: “The revenues generated from hiring a new code enforcement officer were not included in future revenues, to remain conservative in our analysis.”
   
   That’s ridiculous. If you believe in the revenues, then you include in the forecast and hold someone accountable. If you don’t believe in the revenues, then you don’t fill the position.
   
   And while we are talking about the Code enforcement officer, other Townships use this as a split position. Both Wrightstown and Doylestown have a split Fire Marshal / Code Enforcement Officer. But if you still want a full-time Code Enforcement Officer for $60-$80 thousand and are not willing to include the offsetting revenues in the forecast -You have two administrative assistants in that department whose salaries are already in that range. Either train one to be the Code Enforcement Officer or remove one of the positions. Maybe [Micah Lewis, the Township Manager] can take a second administrative assistant in lieu of hiring an Assistant Township Manager.


4. The fourth measure is the implementation of long-term economic development strategies. A lot of these ideas were already suggested by the Finance Committee. What’s missing from the forecast, is how much money you are willing to expend to accomplish these strategies. Hiring an Assistant Township Manager is not enough. You need to hire experts: consultants who can find an employer to occupy the former offices of Lockheed Martin or who could develop the Business Commons into a mixed-use property. That takes real money.
   
   And if you are not willing to spend the money, keep in mind that Econsult’s Scenario 3 has you returning to deficit spending by 2024 and falling below your reserve threshold by 2025. So plan for 3 years of expenditures to implement these long term strategies by 2024. And, maybe you can get grant money to pay for these consultants...
   
   The other consultant you need is a Certified Grant Writer. This person can find you money for long-term projects, as well as pursue other grant money that the other Townships in Bucks County seem to be getting.


5. The fifth measure is the pursuit of intergovernmental cost sharing strategies Here is a matter that Econsult did not address: You have a 10-year contract for police services for Wrightstown that was entered into in 2012 and is expiring in 2022. Wrightstown may have 1/6th the population and 1/5th the police response calls, but it’s square mileage to patrol is about the same as Newtown. You should be getting twice as much as what you charge Wrightstown right now. If the Police Department needs more officers, then negotiate a new contract with Wrightstown to pay for them. And in my view the Jointure itself should be contributing to police officer funding.

So What Went Awry?

Maybe before Covid-19 everyone thought a tax increase would be enough. The Econsult manager left in the middle of the engagement, so maybe their analysis just didn’t get fleshed out. There was useful information in their report to work with...[but] I believe it will be more difficult to manage all that has to be done without some of the separate reports that you were promised.

Fire Department

I had a Facebook chat with the Volunteer Fire Association. With or without the SAFER grant, you should be hiring 2 or 3 more career firefighters so you can reallocate scheduling to cover weekends (read "The Volunteer Newtown Fire Association is at a Turning Point"). If you do not get the SAFER grant, you should press Newtown Borough to pay for these firefighters.

If you do get the SAFER grant, I understand that the plan is to hire a Deputy Fire Chief. I don’t think you can afford this position based on your long-term forecast, and I say that because I don’t think you can afford a Fire Chief -unless you can get the Jointure to contribute to that cost.

To cover the fire risks from commercial development being directed to Newtown Township, I rather see you hire only 3 firefighters and spend $100 thousand per year as incentives towards retention of volunteer firefighters - similar to Northampton Township. And maybe you can get a grant for that.

But if you do decide that the organizational structure calls for both a career Fire Chief and a career Deputy Chief, just bear in mind that these two career positions probably will cost you over $1.0 million over the next 5 years.

One thing going in your favor: the five-year baseline forecast strikes me as too conservative. Historically expenditures have been under budget. EIT revenues so far in 2020 are looking good. But with COVID-19 still affecting the Township, and all the uncertainty around EIT, I would urge as much belt tightening this year as you can tolerate. And any tax increase will be a lot more palatable for residents if you are seen as doing your part to keep expenses under control. Every department head should be pursuing revenue and cost saving strategies. If the ideas I mentioned are not worthwhile, then negotiate amongst yourselves and prioritize your spending needs.