HomeMy WebLinkAboutMINUTES - 12061983 - T.1 THE BOARD OF SUPERVISORS OF CONTRA COSTA COUNTY, CALIFORNIA
DATE: December 6, 1983 MATTER OF RECORD
SUBJECT: Presentation by Donald L. Bouchet, County Auditor-Controller,
relating to County finances.
Donald L. Bouchet, County Auditor-Controller, appeared
before the Board this day to discuss the impact of the Health
Services Department deficit on the total County financial
picture; and
Mr. Bouchet reiterated the information .detailed in his
November 28, 1983, memorandum to the Board (a copy of which is
attached hereto and by reference incorporated herein) ; and
ilr. A. P . Lomeli, County Treasurer-Tax Collector,
appeared and explained how the County's credit rating could
be affected by the County' s cash flow problems; and
Following comments by Board members , the Board approved
the recommendations of its Finance Committee as set forth in the
following order.
002
RECEIVED
Office of J ]D.P,,,
COUNTY AUDITOR-CONTROLLER
Contra Costa County „!r;
Martinez, California U _? 1983
J. R. OLS:UN
November 28, 1983 CLERK BOAPD 0.= SUPc'RVI
CONTR COSTA CO.
B ..
TO: Supervisors Tom Powers, Nancy C. Fanden, Robert I. Schroder,
Sunne Wright McPeak and Tom Torlakson
FROM: Donald L. Bouchet, Auditor-Controller
SUBJECT: Hospital Enterprise Fund Deficit
This is a follow up to Mr. Wingett's memorandum to me dated November 18,
1983, subject "Projected Health Services Department Deficit". That memo states
". . . it is our intention to reduce expenditures and increase revenues to
the extent necessary to achieve a balanced fiscal condition at the end of the
fiscal year."
It is extremely important that the County take immediate steps to
eliminate the $10 to $11 million shortfall this fiscal year for two reasons:
(1) cash flow problems, and (2) legal budget act requirements.
(1) Cash flow. My staff has modified the monthly cash flow projection for
F.Y. 1983-84 (which was developed for the rating agencies) to reflect the
projected hospital enterprise funds "deficit" of $10 to $11 million which was
discussed in Mr. Wingett's November 14, 1983 letter to the Board. Since that
deficit arises because expenditures exceed revenues, the cash flow deficit
increases accordingly. The revised cash flow indicates that unless action is
taken to reduce expenditures and/or increase revenues, the Treasurer would
probably have to register County warrants (instead of cashing them) in May
1984. At that time the County would have already intrifund borrowed all there
is in the self-insurance reserve funds (approximately $18,000,000) and there
is no other legal source of borrowing since the contracts for our $64,000,000
borrowing program forbid interfund borrowing (i.e. from other funds in the
Treasury besides the County's own self-insurance reserves). Furthermore, such
a condition would be fiscally unsound since it would eliminate any safety
margin for unforseen fluctuations in cash flow and/or self-insurance
payouts.
(2) Legal Budget Act Requirements. The County Budget Act requires a balanced
County Budget. It is not completely clear as to how the Budget Act requirements
apply to enterprise fund financing. However, it is my "judgement that the same
requirements -- i.e. for a balanced 'budget -- also apply to enterprise funds.
Otherwise the logic and purpose of the budget act could be circumvented. with
disastrous long range results.
Although enterprise fund deficits can occur through failure to realize
estimated revenue (as was the case in F.Y. 1982-83), an entity cannot knowingly
have a deficit budget. This is why steps must be taken immediately to correct
that deficit in the remaining months of this fiscal year.
003
• •Supervisors Tom Powers, .Nancy C. Fanden, November 28, 1983
Robert I. Schroder, Sunne Wright McPeak and Tom Torlakson
Hospital Enterprise :Fund Deficit
i
Another reason for the urgency of taking corrective action relates
to the County's ratings by the rating agencies for our short-term borrowing.
We now. enjoy the top ratings from Moody's and Standard and Poors 'but those
ratings have been tenuous due to the County's declining reserve balances in
the last few years. After the final budget was adopted, I responded to Moody's
request for updated information by pointing out how the Board had recognized
the importance of an adequate reserve and had appropriated $5 million to the
reserve for contingencies to start building the reserves to a safer level. If
the County doesn't take positive steps to correct the fiscal situation, our
ratings are in very serious jeopardy (they may be anyway). If 'our ratings are
lowered, our borrowing costs will 'increase by 'hundreds of thousands of dollars
this fiscal year alone.
The only way the budget deficit can be eliminated is by increasing
revenue (e.g. by raising rates or selling property) and/or by decreasing
expenditures. If the deficit is not made up in the enterprise fund, it must
be made up by increased contribution from the County General Fund -- which can
come only from the reserve for contingencies, decreased General Fund expenditures,
and/or increased General 'Fund revenues.
If you have any questions regarding this information, please call me
(372-2181).
DLB:mp
cc: M. G. Wingett
John B. Clausen
A. S. Leff, M.D.
A. Lomeli
i
004
4 + t
fro: BOARD OF Sh ERVISORS /
FROM: Finance Committee Contra
Costa
DATE: December 6, 1983 County
SUBJECT: Health Services Deficit
SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION
Mr. D. L. Bouchet, County AuditoraController, was present at our
December 5, 1983 meeting to discuss and explain the fiscal implications to
the County of the Health Services Department projected deficit as outlined
in his November 28, 1983 memorandum to Board members.
This report to-the Board provides explanatory information with respect to
the two major concerns linked to the deficit; namely, the cash flow
projections and the legal requirements imposed by the County Budget Act.
Cash Flow
The County is borrowing $64 million on a short-term basis which must be
repaid in fiscal year 1983-1984. This borrowing is necessary for cash flow
purposes. A cash flow statement is furnished monthly to the rating agencies
in order to maintain the county' s marketing position.
Resolution No. 83/854 was adopted by the Board of Supervisors which specifies
that self-insurance trust funds in the approximate amount of $18 million may
be used only for the purpose for which established and may at the discretion
of the Treasurer be loaned to the County General Fund to meet temporary cash
flow needs.
The County Auditor-Controller has reflected the total borrowing of the $18
million and a projected $11,0 million deficit in the last cash flow state-
ment. It appears that with this scenario there will be a deficit balance
of about $200 ,000 in the month of May, 1984. There is no margin for
variances in cash receipts which is a very hazardous situation. As an
example, if the State refuses to approve our AB 8 plan by January, 1984,
payments under AB 8 (excluding the population component) and for MIA patient
services may be withheld which could result in a cash shortage of about $12
million. Obviously, this would be a very serious cash flow problem.
If there is no cash available in the County Treasury to cover warrants
issued for payment of salaries and bills, the warrants would .be registered
and returned for lack of sufficient funds to cover the payment. The Finance
Committee recommends that the Board of Supervisors clearly indicate to all
that such financial condition will not be tolerated and such measures as
necessary will be implemented to maintain the fiscal integrity and reputation
of this County.
CONTINUED ON ATTACHMENT: XX YES SIGNATURE:
RECOMMENDATION OF COUNTY ADMINISTRATOR XX RECOMMENDATION OF BOARD COMMITTEE
XX APPROVE OTHER
SIGNATURE(S) Supervisor T. Torlakson Supervisor S. W. McPeak
ACTION OF BOARD ON December 6 . 1983APPROVED AS RECOMMENDED OTHER
0J
VOTE OF SUPERVISORS
X UNANIMOUS (ABSENT ) I HEREBY CERTIFY THAT THIS IS A TRUE
AYES: NOES: AND CORRECT COPY OF AN ACTION TAKEN
ABSENT: ABSTAIN: AND ENTERED ON THE MINUTES OF THE BOARD
OF SUPERVISORS ON THE DATE SHOWN.
CC: County Auditor-Controller ATTESTED December 6 . 1983
County Administrator J.R. OLSSON, COUNTY CLERK
Director Health Services AND EX OFFICIO CLERK OF THE BOARD
County Treasurer-Tax Collector
M2e2/7-e2 BY DEPUTY
2.
Budget Act Legal Requirements
As indicated by the County Auditor-Controller, the County cannot and- should
not knowingly allow expenditures to be made exceeding revenues thereby
resulting in a deficit budget. Consequently, early action must be taken to
either increase revenues, decrease expenditures or a combination of both.
Budgets are adjusted during the fiscal period to reflect changing conditions.
Revenues may be increased to reflect actual collection experience. The
County cannot, however, increase budgeted revenue through the use of borrowed
funds when legally permitted.
It is abundantly clear that the County is experiencing severe financial
difficulties which must be addressed as soon as possible . All measures
which offer some potential for revenue production and expenditure reduction
must be considered.
Recommendation
It is recommended that the County Administrator be directed to complete or
arrange for an analysis of the following alternatives to assist the Board
in making such determinations as necessary:
1. Increasing rates charged for health services to produce
revenue and increase cost recovery.
2. Reduction of expenditures of the Health Services Depart-
ment in areas which will not have a detrimental impact
on the delivery of health services.
3. Determine the fiscal impact of services being delivered
to patients who are not the county's legal responsibility.
4. A proposal to develop revenue through disposition of
surplus County Hospital beds , as per adopted policy.
5 . Review the amounts, period of time and reasons for
delay in payment by the State and Federal agencies of
County claims.
6 . The potential for production of additional revenue
estimated at about $3.5 million from the sale of
surplus lands--Blum Road, Glacier Drive and Pacheco.
7. The sale of buildings owned and used by the County,
their remodel for new county use and their subsequent
lease-back to the county. The Richmond Building is a
candidate for this procedure.
8. The potential for a further reduction of the employer
contribution for the employee retirement system for the
remainder of fiscal year 1983-1984 .
9. Review of all county general fund .'revenue and expendi-
ture experience to date to determine the potential for
budget adjustments which may be of benefit.
10 . Investigate the potential savings which may be realized
through curtailment of temporary help and overtime pay-
ments.
11. Develop alternative plans for establishment of an
employee work furlough program without pay for the
remainder of fiscal year 1983-1984.
000'
3.
It is recognized that development of information on these alternative
scenarios will take some time to complete and that projected final deficits
have not been validated as yet by the consultants who are being considered
to develop this information. It is imperative, however, that various
alternative strategies be developed which can be put rapidly in place. The
Board may wish to consider the establishment of interim measures which will
be subject to further modification or elimination once the numbers are
validated.
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