HomeMy WebLinkAboutMINUTES - 08122008 - D.2 s� L Contra
TO: BOARD OF SUPERVISORS
FROM: John Cullen County Administrator a,,,j'i= 1� Costa
DATE: August 12, 2008 Sr--co-
County
SUBJECT: FY 2008-09 Budget
SPECIFIC REQUEST(S)OR RECOMMENDATION(S)'&BACKGROUND AND JUSTIFICATION
RECOMMENDATIONS:
1. ACKNOWLEDGE that the Board of Supervisors adopted a Final FY 2008/09 Budget on May 6,
2008;
2. ACKNOWLEDGE that property assessments, and the resulting drop in tax revenues are due to
the housing market meltdown and.will have significant impact beyond those already anticipated
by our budget;
3. ACKNOWLEDGE that other local changes are occurring in energy, gasoline, and health that will
affect FY 2008/09 expenditures;
4. DECLARE the Board's intent to adopt changes to the FY 2008/09 adopted budget that
rebalances annual expenses and revenues;
5. DIRECT Departments, in cooperation with Labor Relations, to begin the meet and confer
process with employee representatives regarding.the impact of program reductions and
changes in the terms and conditions of employment for affected employees;
6. DIRECT the County Administrator to return to the Board with recommendations, appropriation
and revenue adjustments that rebalance our FY 20'08/09 Budget;
7. DIRECT the County Administrator to designate a date for Bielenson hearings if needed; and
8. ACKNOWLEDGE that these adjustments to the FY 2008/09 Budget solely address local
issues and pending action by the State regarding its FY 2008-09 budget may require
subsequent adjustments to this Budget.
CONTINUED ON ATTACHMENT: X YES SIGNATURE:
RECOMMENDATION OF.COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE
PROVE OTHER
U
SIGNATURE(S):
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ACTION OF BOARD ON� APPROVE AS RECOMME
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LADED OTHER
Ar
VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE
AND CORRECT COPY OF AN ACTION TAKEN
UNANIMOUS(ABSENT
/����� AND ENTERED ON THE MINUTES OF THE
� BOARD OF SUPERVISORS ON THE DATE
AYES: NOES: SHOWN.
ABSENT: ABSTAIN:
ATTESTED 000/"I
CONTACT: Lisa Driscoll(335-1023) JOHN CULLEN,CLERK OF THE BOARD OF SUPERVISORS
AND COUNTY ADMINISTRATOR
CC: All County Departments
BY DEPUTY
,
August 12 2008
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Page 2 of 6
BACKGROUND:
Why are we doing this?
While we believed we were being conservative by reducing our Assessed Valuation growth by over
50% of our normal budget in the FY 2008/09 budget, time has shown an even more significant
decline due to the impact of the sub.-prime market downturn. The reduction is expected to continue.
Additionally as we pointed out in the planning for our FY 2008/09 budget, there are many other
factors over which the County has little or no control (such as Federal and State budgets, economic
changes, health care costs, and demographics) that will affect the ultimate size of the County's
budget and consequently the County's budget challenge. The County is now facing a local gap for
local property tax, energy costs; andhealthcare premiums. All of these elements are driving the
need for a current year budget rebalance/reductions.
What's happening to counties around the State?
Throughout the State, many counties have already made program cuts, eliminated vacant positions
or moved employees to avoid layoffs. For example, Santa Clara County, after a number of years of
continuous budget reductions, had to lay off 55 employees this year, and started the process this
week. Kern County was forced to eliminate 54 positions, and in Los Angeles County, 767 positions
were eliminated to help close a'$406 million hole. Budget cuts in the tens of millions are
commonplace: more than $60 million axed in Sacramento County and more than $50 million here in
Contra Costa County.
Suburban and rural counties took cuts, as well: San Luis Obispo County was faced with an $18
million gap and Marin County cut $5.6 million out of its!budget. Calaveras County reduced its budget
by $2 million; the deficit was $800,000 in Del Norte. Placer County just announced it was being
forced to lay off eight staff members from its building department due to the declining housing
market. Yet, in other departments, the demand for services is growing, putting an additional strain
on overworked personnel.
As was said early this summer, a convergence of storms is occurring including: nationwide
economic declines, Federal Government deficit reduction measures,California State's growing
budget deficit, the impact of the housing market collapse on local property tax revenues, and,
increased costs and fund priorities associated with providing public services, makes maintenance of
the current year's countywide service delivery levels impossible. Significant cuts have and will
continue to be necessary.
What's happening with the State Budget?
Negotiations are currently focused on the concept of budget reform, budget stabilization or a
spending cap, depending on who is describing the goal they wish to achieve. CSAC has expressed
support for budget reform designed to stabilize the state budget and processes. However, Counties
have serious concerns over a spending.cap that seeks'to lock in current expenditure levels. Such
an approach, for instance, would make it virtually impossible to address the gap in the
administrative costs of social service programs. Thatgap is $1 billion in the budget year and
counties are backfilling a substantial amount of that bill.
It was apparent that all parties recognize that the State's cash issue was real but it has not
generated significant pressure to force a budget agreement at this point. The dynamics of the
discussions could take a different shape with all members back in Sacramento and not necessarily
confined to legislative leadership to develop a budget package.
We were troubled to hear that suspension of Proposition 1A and Proposition 42 remain as options
to help fill the budget hole. Republicans acknowledged that portions of Proposition 42 committed to
projects may be exempted, but held out little hope for Proposition 1A. Democrats continued to insist
that they do not support suspension of either.
CSAC and, of course Contra Costa County, continues to oppose the suspension of Proposition 1A
and/or Proposition 42. We must continue our efforts and make this issue visible in our county, as
well as communicate our opposition to our legislative delegation. Such borrowing does nothing to
resolve the state's structural deficit and simply shifts the pain to the local level. Our County has
already adopted a budget relying upon those revenues.
August 12, 2008
Page 3 of 6
What happened with our local property tax?
Property tax revenues are resources that'our County relies on to provide important local programs
and services. As is shown in the table below, in the last ten years Contra Costa's total tax rate base
has grown an average of 8.39%.
Tax Year GROWTH
1999/00 6.72%
2000/01 9.39%
2001/02 10.74%
2002/03 8.02%
2003/04 8.33%
2004/05 9.26%
2005/06 10.51%
2006/07 11.96%
2007/08 8.80%
2008/09 0.21%
We `routinely' budget 7% growth in the General Fund for property tax related revenues. Because of
the known housing market problems, we reduced our estimate for FY 2008/09 to 4% or 50% of the
FY 2007/08 growth. On July 1, 2008, at the close of the roll we realized that we had over-estimated
our growth, which came in at 0.21% countywide. Additionally, Antioch's value declined by 8.84%
and Brentwood's by 8.78%. The news was not all bad; Lafayette experienced 6.07% growth and
Orinda experienced 4.81% increase over'the prior year.
This lack of growth in assessed,valuations translates to loss of anticipated revenue in the current
year. The following table briefly outlines the property tax related revenue issue for FY 2008/09.
Tax in Lieu
Current Of Vehicle Current
Secured` Unitary' License Fee Unsecured Totals
General Fund 4,006.,375 375,507: -3,805,038 793,115 -6,642,791
Library 871,881` 3,410 0 64,710 -803,761
Contra Costa County Fire 3,851,675, 12,911 0 333,300 -3,505,464
East Contra Costa Fire -1;423,0731' 15,802 0 51,923 -1,360,348
Totals 10,158,004 407,629 -3,805,038 1,243,048 -12,312,364
Additionally, the housing market has impacted, and continues to impact, supplemental property
taxes. There is $9.4 million currently budgeted in supplemental property taxes in FY 2008/09 for
these four funds.
What's happening with energy costs?
According to a recent publication in ABAG Power, the increases seen in the crude oil market have
resulted in a corresponding increase in the natural gas market. There has been a 30% increase
in natural gas commodity prices in the last six months'. The commodity price (NYMEX Henry Hub)
for natural gas is currently at $13.36/decatherm or $1:336/therm. This would be a record for a
winter month when gas rates are high. Natural gas rates are normally the lowest in the summer
because the demand is the lowest. Fortunately, as members of ABAG POWER, we have about
45% of our natural gas load hedged with fixed rate contracts which run through June 2009. The
result is that if gas rates remain where they are, ABAG POWER says we are looking at only a
19% increase in commodity costs over budget. The straight-line budgetary impact of a natural
gas increase of 19% would result in a $4,00,000 budget imbalance.
PGE stated that natural gas prices have risen 30% in 2008 and statewide rainfall has totaled
about 70% of normal. On June 10th, citing higher natural gas prices and lower supplies of
hydroelectric power, PGE submitted a request to the PUC for electricity revenue increases. They
are asking for a rate increase of 4:5% starting in October. The straight-line budgetary impact of
an electricity rate increase of 4'.5% for 9 'months would result in a $258,000 budget imbalance.
August 12, 2008
Page 4 of.6
The County consumes about 900,000 gallons of unleaded and diesel fuel a year for its vehicles.
The FY 08/09 fuel budget is an average of$3.24/gall6n for fuel ($3.20/unleaded and
$3.60/diesel). We are currently charging our customer departments at $4.24/gal unleaded and
$4.83/gal for diesel. Assuming the same usage for this new FY at these prices for the entire
year, we are looking at a budget imbalance of $ 836,000 for unleaded vehicles and $120,000 for
diesel vehicles (primarily Road';Fund vehicles and Sheriff buses). Additionally, we are also seeing
rate increases or fuel surcharges coming in from some vendors due to fuel costs. The budgetary
impact is unknown at this time.`
What's changing with healthcare premiums?
The budget was developed in the February/March timeframe. At that time and in anticipation of
countywide healthcare reform, the FY 2008/09 budgetincluded no increase for healthcare
premiums. The County recently completed negotiation on 2009 premiums which are estimated to
cost an additional $2.9 million in FY 2008/09, which will be partially offset with savings from the
elimination of dual coverage for unrepresented employees and retirees.
What's happening with our debt?
Real estate experts readily admit that the scope and duration of the housing downturn is proving
difficult to pinpoint. Growth in County general purpose,;'revenues may continue to be slower than our
long-run average for awhile and, accordingly, we must',be vigilant in controlling the cost side of the
equation. One cost component that remains relatively,stable is debt service, as the County has
been careful to issue debt only when prudent and has been successful in obtaining significant debt
service reimbursement from Federal and State sources. The County's policy of issuing only fixed
rate debt has been a resounding success: Where many agencies in the Bay Area have struggled
and paid a hefty price to restructure variable rate debt and swaps when those sectors of the market
imploded last February, the County completely avoided the risks that such bond structures pose.
In addition, the County refinanced a large portion of ou"r lease revenue bond debt last year, resulting
in $8.0 million of present value savings over the term of the bonds.' The rating agencies have noted
that the County's debt burden is "moderate", as Standard & Poor's indicated in a recent credit report
on the County.
Where does all this place us?
General Fund
We currently have an imbalanced FY 2008/09 budget and the picture is likely to be worse next
year. At this point, we are not 'recommending any specific options -these are presented for
consideration/discussion. Budget and services delivery-wise, given forecasted revenue changes
and cost impacts, we must consider what types of changes we should make for the current year
as well as the number of years our revenues may continue to be depressed/decline. We must
develop both a short-term and'"long-term'''strategy. Some of our options for budget rebalancing
may include:
• The County could implement countywide cost reduction solutions spread evenly among our
departments. For FY 2008/09 departments took a percentage cut to total net County cost
reduction —this options of spreading the problem has often been used in the past. Because of
the size of the.problem, this remains a viable option.
• The County could choose to eliminate specific programs either instead of or in addition to
across the board reductions. Normally these types of choices would be for non-mandated
programs or programs with significant match requirements.
• The County could spend some of its reserves.
• The County could attempt to enhance revenues.
• The County can sell property assets as the market will allow.
• The County could implement countywide changes;to our salary and/or benefit structure.
Benefit cost reductions can' be made,countywide, such as: elimination of the County's subsidy
of the employees' basic retirement rate (this subsidy alone costs the County approximately
$18.5 million annually); implementing a new retirement tier; reducing benefits such as
healthcare and vacation; eliminating alternative work schedules; and/or implementing
involuntary time off periods'for either!#ecific weeks (Christmas to New Years) or a specific
number of hours.
August 12, 2008
Page 5 of 6
• The County could implement rollbacks. Employee salaries can be rolled back across the
board, thus reducing not only the cost of salaries',but the cost of employee taxes and
retirement (a one percent rollback would save approximately $8.7 million annually).
• The County could make systemic changes to our health care,delivery system, such as
transitioning the County's Hospital., Health Plan and clinical services to an Authority, District, or
other legal structure. The goal of the governance 'change would be to develop a model
potentially similar to Kaiser i.e. composed of the Hospital , Medical Group and Insuring
Organization which would align incentives to provide quality medical care in the most efficient
and effective manner possible. Overtime such a change could dramatically reduce the
growth rate of the County responsible portion of health care services.
• The County could use some combination of all of these solutions. Obtaining many of these
options would require meet and confer processes;,with our employee organizations.
East Contra Costa Fire Protection District
The East Contra Costa Fire Protection District has enjoyed aggressive revenue growth over the past
several years. Due to this growth the District was able�to increase service-level and provide 24/7
service for its approximate 240 square mi„les service area. In addition, due to prudent fiscal
management, while improving service levels, the District was able to accrue an estimated $6.2
million fund balance thru 2007-08. This reserve represents approximately 50% of the annual
operating budget.
Unfortunately, this area of Contra Costa County's assessed value has been devastated and it is
estimated that there will be a drop of approximately 7% in assessed value in 2008-09 and potential
decreases thereafter. Further complicating the issue is that the fire service configuration is two per
engine which is below neighboring communities and the National Fire Protection Association
recommendations. The District compensation levels is also far below neighboring districts.
In order to weather the next few years, expansion plan's may have to be curtailed, remodeling plans,
necessitated by structural damage or failure may have'to be limited to developer fee accounts, and
negotiations should reflect the economic distress. Fortunately, the $6.2 million reserve is available
to ride out the storm. At this time, the District is considering these and other options in order to
minimize use of reserve balance.
Contra Costa County Fire Protection District
As was described above, the Contra Costa County Fire District is also anticipating significant
shortfalls in the 2008/09 revenue forecast. The District has approximately $13.7 million in available
reserves. The reduction in funding may be addressed,,as needed in-several ways, some of which
are: postponing major capital purchases(including replacement fire apparatus and facility remodels;
use of fund balance reserves; and reduction in force/rolling brown-outs of fire stations.
Library
In the past, the library has endured tremendous reductions in service as a result of State take away
of local property tax. Consequently, the Board of Supervisors has ensured that library funds be
used to maximize library open hours and'buy new books. In recent years as property has increased
in value, the Board has set aside funds to ensure that our community libraries can continue to
weather these very difficult times. The library currently; has approximately $10 million in reserves.
The library forecasts that it can'maintain the existing hours of operation and materials budget over
the next 2- 3 years due to its existing reserves, prudent fiscal management, existing and enhanced
public/private partnerships, fund-raising and the very strong support received by library support
groups and volunteers.
Why can't we just use reserves for the entire problem?
While all four funds we've discussed have some level of reserves, by Board Policy (and due to the
relatively small size of the reserves) they'are not to be'used for on-going expenses. Each entity will
have to review and rebalance their budgets with minimal reliance on reserves. The Board has
previously acknowledged that the County's practice of using fund balances and other reserves to
balance its budget was not sustainable, and that the County would be better served by adopting a
August 12, 2008
Page 6 of 6
plan of action to reverse the trend. Additionally given the multi-year, outlook on Federal, State and
local revenue improvements, reliance on reserves is not a long-term solution.
Timetable/Process
Following your guidance today,rthe County Administrator's Office will work with Departments to
develop rebalancing plans during the month of August. Once plans are evaluated, the County
Administrator will return to the Board with',a total balanced budget. At that time Department Heads
will know which, if any, positions maybe affected by reductions necessary to rebalance the budget.
Departments, in cooperation with Labor Relations, will if necessary, begin the meet and confer
process with employee representatives regarding the.impact of potential program reductions on the
terms and conditions of employment for affected employees. Bielenson hearings will be scheduled
if needed. Early planning will allow Departments a reasonable period of time to meet and confer,
and permit them to implement all budgetary required actions prior to October 1, 2008. It is important
to complete the process as quickly as possible so that corrective action can be spread over as many
months as possible.
Conclusion
The County Administrator will continue t6work with departments to develop scenarios and options
for providing reduction necessary to rebalance the budget. The County Administrator will return to
the Board in September with an update and recommendations for rebalancing our budget.
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ADDENDUM
August 12,2008: Agenda Item D.2
On this day,the Board of Supervisors considered adopting the'County Administrator's recommendations
regarding the Fiscal Year 2008/09 County and Special Districts Budgets.
John Cullen, County Administrator, introduced the item_rioting that in addition to any budget-balancing
actions the Board examines, it should also be mindful of any changes to the State budget that will affect
counties. He added that staff is not making any recommendations today for any new actions and said this
is just an update with information on some options. He said that with the Board's guidance today, staff
can work with the departments and return the matter to the Board in September 2008.
Supervisor Bonilla asked for the amount of the County's reserve fund.
Mr. Cullen responded that the:reserve is currently$118 million.
Supervisor Bonilla commented that she is concerned thatltoday's recommendations could affect policy
and asked for clarification. She said she wouldn't want actions to be tied to policy decisions without
taking a broader look at the organization,what we're trying to accomplish, and where we're going.
Supervisor Piepho suggested it would be useful to separate Contra Costa County Fire and East County
Fire as special districts, clarifying that they are not General Fund departments.
Supervisor Uilkema said she thinks the Board's Finance Committee needs to further review the issue,
taking both short-term and long-term into'consideration. She said it is with the long-term issues that the
Board needs to have a policy discussion. She requested a''cost estimate on implementing a voluntary time
off policy,with more detail on the potential savings and true feasibility.
The Chair called for public comment and.the following people spoke:
Rollie Katz,Public Employees Union,Local One,noted that the County could change its policy
on reserves if needed,adding that reserves are by definition intended for"rainy day"use.
■ Mariana Moore, Contractor's Alliance of Contra"Costa, suggested looking at the most cost-
effective ways to deliver services, including through community partnerships.
■ Jerry Taller,Martinez resident, suggested developing a new retirement system.
Supervisor Glover noted that through these discussions we have an opportunity to look at all our options.
Supervisor Gioia said we have to understand the impacts,,service cuts will have on the vulnerable
populations in our community. He.added that information from the upcoming total compensation survey
is necessary for the discussion.
Supervisor Bonilla indicated she was not comfortable moving forward with short-term fixes alone, and
said these plans would be better received'if they were part of a'16ng-term plan.
Supervisor Uilkema said the Board should also be considering the impact that timeframes could have on
any potential savings and whether if,by deferring action,the Board was minimizing any potential
savings.
Supervisor Piepho said more comprehensive information°is needed in order to start prioritizing.
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August 12, 2008: Agenda Item D.2
Addendum
Page 2 of 2
Mr. Cullen asked if the Board''was indicating that this should come back to the Finance Committee.
Chair Glover responded that yes, it should, after which it should.also be returned to the full Board.
Mr. Cullen noted that the next?Finailce Committee meeting is scheduled for September 15, 2008, after
which the matter could be returned to the Board at its September 23, 2008 meeting at the earliest.
This item was informational only and,no vote was taken. '
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