Porter County officials got a glimpse into what the future holds for the county’s fiscal health, and as far as fortune telling goes for the General Fund, there is no fortune to tell of.

On Tuesday, both the County Board of Commissioners and the County Council received a preliminary report from Todd Samuelson and Bob Clifford, consultants from H.J. Umbaugh & Associates, on their comprehensive study of the county’s finances which are taking hits from the state’s property tax caps, decreased state funding, reductions in income taxes, inflated health insurance costs and other external factors the county must deal with.

The study forecasted the county’s coffers will see nearly a $2 million drop in revenue next year due to circuit breaker losses and $1.7 million of that will come from the General Fund.

In order for the county to make up for these funding gaps and hold on to its reserve funds, the county would have to come up with ways to increase revenue or reduce budgets within the General Fund, Clifford said. The county council may start taking such actions when it heads into 2013 budget hearing sessions which start next Tuesday.

“There is going to be cuts. There has to be,” said Council member Jim Biggs, R-1st, one of the major players in pushing for a county financial plan be done.

“There is a decrease in revenue and an increase in the need of our services. Eventually, that is going to break. It’s not sustainable. If I had a dollar for every time I heard the county auditor say that I could buy you all dinner tonight,” said Biggs.

From the general fund, $25 million – more than 70 percent – was spent on personnel costs in 2011 and it could be where the council does most of its cutting.

As revenue continues to decline, costs for health insurance, utilities and fuel continue to rise.

Samuelson started the discussion on a positive note saying that compared with other counties in the state, Porter has “a strong financial position” largely because of its almost $220 million in reserve funds made up mostly of funds generated from the sale of the hospital ($173 million) and Major Moves ($20.5 million).

Even without the cushion from the reserves, Samuelson said the county is still in good shape due to its wealth. The county has the fourth highest per capita personal income in the state and unemployment is below the state and national averages, Samuelson said.

Average cash reserves in the General Fund in the past have been in excess of 17 percent of total expenditures, but that will decline. Umbaugh recommends cash reserves be maintained at 15 percent in order for the county to have enough to pay services until the May tax bill revenues begin to flow in. In order to sustain the 15 percent in 2013, the General Fund must be reduced by $1.8 million.

Biggs said the hospital money in reserve is only a “life jacket” for the county and should not be directed as a funding source for any recurring costs. Fellow Council member Karen Conover, R-3rd, gave her opinion that hospital sale money should not be used for any operating costs.

Use of the $163 million in hospital sale proceeds requires a unanimous vote from both the council and commissioners. The money can start being used when the hospital opens which happens to be this Saturday.

Only a majority vote is required to tap into the hospital sale’s generated interest fund which is currently at $11.6 million according to figures from the county treasurer’s office.

Samuelson said if interest rates were where they had been just a few years ago, at five percent, the county could have made up for the losses through investing its reserves, generating almost $10 million per year.

“Lost or lack of interest income is devastating to not just (Porter), but all counties. I don’t think people focus on that too much but it’s a real loss,” said Samuelson.

The investments made by County Treasurer Mike Bucko are bringing in maximum interest amounts for the county, Samuelson and Clifford said, but they will not be enough to counter the losses.

Possible actions the county could take to help make up for General Fund declines include having departments report all receipts on a monthly basis, monitor spending and focus on available revenues rather than expenses.

One more thing Umbaugh suggested is the county create a stormwater utility in the unincorporated areas, and other areas not currently paying a fee, to help pay for drainage projects. The county’s current drainage improvement needs total between $25 million and $30 million.

Clifford and Samuelson said the county could lobby state lawmakers to create legislation for the creation of a “local public improvement bond bank” to make more out of its investments. The county could also create a foundation for endowments as another option.

Samuelson said the county has also seen yearly shortcomings of about $2 million in its distribution of the county economic development income tax (CEDIT) funds since 2010.

The local income tax option created by the county was anticipated to have an annual growth factor of three percent per year, estimated to grow from $6.5 million in 2009 to $7.2 million in 2013, but instead has declined to $4.2 million due to the slowed economy.

The cities receive a larger portion of CEDIT revenues than the county. From the $20.2 million distributed in 2012, $6.1 million went to cities while $6.9 million was being used for homestead credit. By law, the county must dole out $3.5 million in CEDIT annually to the Northwest Indiana Regional Development Authority.

As General Fund levies have declined, the county has become more reliant on CEDIT funds to pay for operations, such as infrastructure needs and for E-911, Biggs said, and the county would need to take a closer look at how to prioritize use of those funds, placing public safety at the top of the list. Biggs mentioned that CEDIT funds may be utilized to open the third pod of the county jail.

More could be used to Band-Aid the shortfalls in the E-911 department once its rainy day fund runs out next year. Biggs said the budget would be running at a deficit of $2 million per year.

Samuelson said other counties Umbaugh has worked with typically use a larger proportion of income tax dollars in combination with property taxes. Porter is one county that uses property taxes almost exclusively to fund its General Fund.

Biggs and Council member Jeremy Rivas, D-2nd, indicated CEDIT will play a bigger role in this year’s budget hearings. As the council works to set the General Fund, Rivas told the Chesterton Tribune that it is likely the council will seek use of hospital sale interest money to support budgets.

A council review of the CEDIT plans, which are part of the commissioners’ budget is scheduled for Tuesday, Sept. 4.

Clifford said CEDIT is expected to remain flat for the next two years at least. No council member made any mention of the possibility of raising the CEDIT rate which is currently at .5 percent.

But even if the rate is increased, it is not likely to give the boost the county needs to sustain its coffers as the county only receives a fraction, Samuelson said. He said the county has the option to explore using five other local income taxes the state allows.

Each county has its own unique set of challenges but all are facing pressure from the state, Clifford said.

In comparison to counties of about its size such as Tippecanoe, Hendricks, Elkhart and Johnson, Porter has a lower tax rate in its average of all units of about $2.00 per $100 of assessed valuation. It also has the highest per capita spending of its peer group indicating its higher wealth.

Counties with lower assessed values per capita have higher tax rates which have pushed them toward the circuit breaker limits.

However, Porter does have a higher expense per capita and larger circuit breaker loss than Johnson and Tippecanoe.

While the Umbaugh report indicates many hardships, County Auditor Robert Wichlinski said it does not include the losses the General Fund will take from assessment appeals, which he said could be significant.

The assessor’s office has sorted through close to 8,000 backlogged appeals since 2010.

Wichlinski said he will provide the council members in the next few days his figures detailing the loss from assessment appeals as well as an up-to-date report on how the tax caps are affecting the different areas of county funding.

Biggs said the county needs the information on its finances to put together a comprehensive operations plan, which would need to be created by the county commissioners.

All Council members were in attendance Tuesday with the exception of Council President Dan Whitten, D-at large.