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Business advisers point out how the county could have avoided its surprise shortfall in Penny for Pinellas funds.
By LISA GREENE
© St. Petersburg Times, published February 4, 2001
If Pinellas County were Pinellas Corp., shareholders would be asking the top guns some tough questions right about now.
How could a company be so misguided in its financial projections that it now must cut as much as $162-million in future spending -- cuts that will delay road widenings, building construction and endangered land buys?
"Smart executives have learned they need to really closely monitor their financial performance," said Marty Donsky, marketing manager for technology practices at PricewaterhouseCoopers in Tampa.
"In the private sector, negative surprises often result in decapitation. The CEO gets his head cut off by Wall Street."
Interviews with analysts and financial experts show that Pinellas County's approach to cost control and financial planning is radically different from the rules that govern the corporate world.
The county got itself into hot water by ignoring three major principles that guide good business:
Make careful forecasts.
Track costs closely.
Respond quickly to make hard choices.
Most of the county's building, road and parks projects are funded by its local sales tax, the Penny for Pinellas. The Penny is projected to bring the county more than $700-million in the next 10 years.
But last week, county officials admitted there will not be enough money to accomplish all the projects scheduled for the next 10 years. Reasons include county commissioners taking on new million-dollar projects that were never scheduled and seriously underestimating the cost of the ones that were.
Unchecked ambition and bad math have left department heads searching for ways to save money. Managers in the county's road department identified $53-million worth of projects that could be killed. Other potential cuts are expected to be announced this week.
In the spring, commissioners will be left to decide which projects to keep and kill. In the meantime, the finger-pointing has begun: Some commissioners say county employees should have let them know the Penny budget was out of kilter, while those employees say commissioners should have known because they were provided adequate financial statements.
Donsky doesn't know what happened in Pinellas. But he offered a different picture of how budget forecasting should work. A large corporation may spend months preparing an estimate of what a major project should cost, he said.
Inflation would be carefully factored in. Each component of the project would be measured. Factors that could change the cost, such as the price of oil, would be monitored.
"It's one of the single most important things companies do -- projecting their future," said Carla N. Cooper, equity analyst with the Robert W. Baird & Co. brokerage firm.
Corporate boardrooms are littered with the ghosts of CEOs whose companies didn't meet such predictions. Lucent Technologies spent too much to expand too fast, missed earnings targets repeatedly last year and fired its CEO. Here in Tampa Bay, chief executive David Grimes and his chief financial officer left Sykes Enterprises last year after the company's earning projections fell short and sloppy accounting practices came to light.
But in Pinellas, planning drew little scrutiny. Fred Marquis, who retired last fall after 22 years as county administrator, said county officials used "plug numbers" to guess how much a project would cost once it got started. County planners put together a list in 1996 that included some projects that wouldn't be done until 2010.
"They're even worse than estimates because nobody had any idea at all what's going to be needed 14 years out," Marquis said. "Within the Penny itself, there are a lot of plug numbers. There's no way in the world to really have a handle on every single project."
Some defended the county. Local governments often project further into the future than private companies do, they said, making accurate forecasts harder. David F. Scott, a University of Central Florida finance professor who sits on two corporate boards, added that accurate estimates take staff time -- time that government workers may not have.
One thing analysts do know is the importance of closely tracking costs so adjustments can be made along the way.
"You're tracking cash flows daily. With capital projects, it's the same thing," Scott said. "We're going to have continual reporting procedures."
And if a project becomes more expensive than expected, the company takes notice. "You deal with it quarter by quarter, year by year, board meeting by board meeting and not have it come out and surprise everybody," Cooper said.
The bottom line: Good companies make tough choices. And they make them before a change becomes a crisis.
New Commissioner Ken Welch, a Florida Power Corp. accountant, said the county must become more accountable. He and Commissioner Barbara Sheen Todd have called for regular updates and tracking of the Penny funds.
Welch said commissioners must be ready to change their plans and to say no to new projects.
"You have to manage expectations," he said. "It's not an endless bucket of money."
- Staff writer Edie Gross and researcher Caryn Baird contributed to this report.