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HomeMy WebLinkAboutMINUTES - 09272011 - SD.5PDF Return SD. 5 To:Board of Supervisors From:David Twa, County Administrator Date:September 27, 2011 Contra Costa County Subject:General Fund Preliminary Year-End Close-Out Report FY 2010-11 APPROVE OTHER RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE Action of Board On: 09/27/2011 APPROVED AS RECOMMENDED OTHER Clerks Notes: VOTE OF SUPERVISORS AYE:John Gioia, District I Supervisor Gayle B. Uilkema, District II Supervisor Mary N. Piepho, District III Supervisor Karen Mitchoff, District IV Supervisor Federal D. Glover, District V Supervisor Contact:Lisa Driscoll, County Finance Director, 925-335-1023 cc:Robert Campbell, County Auditor-Controller I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Board of Supervisors on the date shown. ATTESTED: September 27, 2011 David Twa, BY:June McHuen , Deputy RECOMMENDATION(S): ACCEPT attached report of General Fund preliminary close-out figures for fiscal year 2010/11. FISCAL IMPACT: This report is for informational purposes only and has no fiscal impact. BACKGROUND: The report is attached. CONSEQUENCE OF NEGATIVE ACTION: This report is for informational purposes only and has no action. CHILDREN'S IMPACT STATEMENT: None. AgendaQuick©2005 - 2021 Destiny Software Inc., All Rights Reserved General Fund Preliminary Year‐End Close‐Out Report FY 2010/11 This report is in response to the Board of Supervisors’ request for annual year-end reports that monitor the implementation of the County’s fiscal policies and position. Contra Costa County has long focused on its mission of providing public services which improve the quality of life of our residents and the economic viability of our businesses. As the County completed Fiscal Year 2009/10 and moved into Fiscal Year 2010/11, national, State and local events continued to challenge this public service mission. Nonetheless, the Board of Supervisors focused on improving the County’s fiscal health and providing services more efficiently and effectively. Focusing on these areas for improvement continued to allow the County to better manage its resources, lower its expense growth, improve its revenues, and build reserves. Fiscal Year 2010/11 presented multiple challenges for the County – not the least of which was the expiration of nearly every labor contract within the County. The County Administrator’s Office worked closely with Department Heads to develop a recommend budget that adhered to adopted fiscal policies and to achieve financial targets including • Requiring departments to absorb their increased costs of doing business, • Plus their share of local revenue loss, • And their other post-employment benefits (OPEB) prefunding requirement. No department was free from impact. The budget was adopted including $3.3 million in general fund reserves and other one-time only funds from a variety of sources, the most significant being ARRA (Federal Stimulus funds) and ATA (furloughs). A budget of $1.218 billion was adopted, which included the use of $34.4 million reduction to net County cost. The budget required the elimination of $23.5 million in programmatic expenditures including reduction of 78 funded full-time equivalent positions. The required reduction was especially alarming when considered with previous actions taken to reduce the County and Special District Budgets by over $90 million in FY 2008/09 and $65 million in FY 2009/10. The Fiscal Year 2010/11 Budget, which was approved by the Board of Supervisors on May 3, 2010 assumed: • a 5% decline in assessed valuation/property taxes; • a 3.4% increase in pension costs; • the elimination of 78 full-time equivalent positions; • continuation of negotiated employee compensation concessions in the form of six furlough days for most represented employees and all unrepresented management personnel; • significant modifications to health care premium subsidies; and • heavy reliance on one-time revenues. At mid-year, the Board of Supervisors formally reviewed the FY 2010/11 Budget pursuant to the County’s fiscal policies including budget, reserve, and debt; at that time it was noted that the overall General Fund budget was technically balanced. By year end, General Fund revenues – both on- going and one-time – had exceeded expenditures. There were several major contributors to the balanced budget: 1 • completion of negotiation with several unions, which included two-years of savings in furlough days; • reduced employee benefit costs due to negotiated freezes to health insurance cost increases; • significantly higher than normal retirements; and • actual decline of 3.38% in assessed valuation/property taxes (4.9 billion decrease in the local tax base) rather than the 5% originally budgeted. The end of fiscal year 2010/11 marked the fifth year of operations after the adoption and implementation of fiscal policies. Although the year began with a balanced budget, as was stated above, the County continued to face several significant challenges including labor negotiations and additional declines in the economy (interest rates and property taxes). Despite these challenges the budget remained essentially balanced, due to constant monitoring and adjustment – although structurally unbalanced. County departments continued to provide public service with ever declining service hours. The chart below shows the change in the operational General Fund revenue and expenditure lines over the last ten years. The figures for FY 2010/11, presented in millions, reflect unaudited data. The projected trajectory of our expenditures and revenues assumed in the FY 2011/12 Budget and adjusted by carry-forward are also included. Change in General Fund Actual Status 1,000 1,050 1,100 1,150 1,200 1,250 1,300 1,350 2001-02 Actual 2002-03 Actual 2003-04 Actual 2004-05 Actual 2005-06 Actual 2006-07 Actual 2007-08 Actual 2008-09 Actual 2009-10 Actual 2010-11 Actual 2011-12 Budgeted TOTAL EXPENDITURES GROSS REVENUE Unreserved Fund Balance The Board of Supervisors’ adopted General Fund Reserve policy established specific goals regarding the County’s total and Unreserved General Fund balance. The County has continued to exceed the minimum Unreserved General Fund goal of 5% of each year’s projected revenue. The County has not however, achieved its informal goal of 10%, which is more prudent for a County of this size (discussed further below). In the FY 2004/05 preliminary close-out presentation to the Board, it was reported that general fund reserves had fallen to 5.5% and that the trajectory for FY 2005/06 was less than 4% unless the Board made significant changes in fiscal policy. As was noted above and illustrated below, changes 2 11.7% 9.7% 7.3% 5.5% 8.3%9.1%9.6% 8.6% 8.6% 9.4% 9.4% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 2001-02 Actual 2002-03 Actual 2003-04 Actual 2004-05 Actual 2005-06 Actual 2006-07 Actual 2007-08 Actual 2008-09 Actual 2009-10 Actual 2010-11 Actual 2011-12 Budgeted made in fiscal policy promoted the County’s reserve of 9.4% in FY 2010/11. As is depicted in the chart below, reserved fund balance fell by $7.4 million (due mainly to pension pre-pays), unreserved fund balance grew by $14.8 million, and the total fund balance grew by $7.4 million (.1%) in FY 2010/11. Of special note is that restricted budgets grew from $13.8 million to $19.0 million. General Fund Balances FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 (Unaudited) RESERVED FOR: Encumbrances 24,427 16,181 14,396 12,898 14,334 Inventories & Cash 1,644 1,825 2,012 3,518 2,740 Deposits with Others 01,316 Prepaid Items and Deposits 3,397 4,720 6,106 15,542 5,260 Lease Purchases 3,535 1,372 2,950 1,508 0 Investments 2,455 TOTAL RESERVED 33,003 24,098 25,464 33,466 26,104 UNRESERVED: Designated Vehicle Replacement 9,038 8,495 1,783 2,187 2,286 Litigation and Audit Reserve 5,000 5,000 5,000 5,000 5,000 Dougherty Valley 520 290 0 0 0 Capital Reserve 12,822 12,707 12,212 11,587 12,117 Reserve Designations/Rebugets 4,973 14,156 10,132 13,757 19,030 Total Designated 32,353 40,648 29,127 32,531 38,432 Undesignated 83,760 80,868 76,133 67,092 75,985 TOTAL UNRESERVED 116,113 121,516 105,260 99,623 114,417 TOTAL FUND BALANCE 149,116 145,614 130,724 133,089 140,522 General Fund - Total Revenue 1,277,830 1,269,360 1,221,241 1,158,866 1,211,651 As is our annual practice we have used the same format, in the chart below, to graphically depict the change in Unreserved General Fund Balance, as a percentage of total revenue, including a projection for FY 2011/12 based upon minimal encroachment of Fund Balance. Unreserved Fund Balance As of June 30 3 Relative Debt Burden There are many measures of an entities fiscal health other than reserve levels. Pursuant to the County’s Debt Management Policy, the Debt Affordability Advisory Committee annually calculates certain debt factors and debt burden ratios, compares them to benchmarks and reports the results. The analysis takes place each year after publication of counties Comprehensive Annual Financial Reports (CAFR). The latest debt report, coving data for fiscal year 2009/10, can be found on the County’s website at: http://ca-contracostacounty.civicplus.com/ index.aspx?NID=758. Measuring the County’s debt performance through the use of debt ratios provides a convenient way to compare the County’s credit performance to other borrowers. Two of the most common debt ratios applied to counties are the Percentages of Total and Unreserved General Fund Balance. These ratios are important measures of the financial flexibility of the County, i.e. the ability of the County to absorb the impact of unforeseen events and emergencies such as sudden drops in assessed valuation due to real estate market cycles, earthquakes, etc. As has been stated before, the County’s current performance does not meet the benchmark on these two measures. It should be noted that the gaps, while significant, are not as wide when the County is compared to its California cohorts as compared against large counties nationwide. Rating agencies evaluate the County relative to a broader universe of counties and, thus, the comparisons to counties nationwide are critically important. Even with the County’s relatively weak performance, the County has continued to maintain the same double-A credit ratings that stronger-performing counties maintain. This achievement is due to the County’s adherence to its financial management policies, to the underlying strength of the County’s wealth and assessed valuation demographics, and to the County’s demonstrated track record in managing difficult economic cycles. In addition, the County’s conservative fixed-rate debt portfolio shielded the County from the serious and expensive disruptions in the variable rate market that begin in the Fall of 2007 when the global financial crisis was emerging. The County will continue to work towards improving its comparative credit performance so that the gap between the County and its cohort counties will be further reduced. Important elements under the County’s control that would reduce the gap include: increasing the unreserved General Fund balance percentage from the Fiscal Year 2010/11 level of 9.4% more toward the California cohort median (17.2%); continuing to issue debt prudently and structuring debt issues conservatively to achieve low borrowing costs and maximum Federal and State reimbursements; of note here is the County’s successful issuance in November 2010 of $13.13 million on taxable Build America Bonds for which the County will receive a 35% federal subsidy of interest cost and issuance of $20.7 million of taxable Recovery Zone Bonds for which the County will receive a 45% federal subsidy on interest cost; maximizing the County’s opportunity to earn allowable arbitrage interest earnings on all indentured funds (such as reserve funds), a practice implemented with the assistance of a registered investment advisor; monitoring the market for refunding opportunities to reduce debt service costs for capital projects and pension costs; and assessing alternative funding sources in order to reduce reliance on issuance of lease revenue bonds. The charts presented below provide a closer look at the County versus its California cohorts on the fund balance benchmarks. The County’s Unreserved Fund Balance as a Percentage of Revenues was the second lowest among the counties. Sacramento County actually recorded a negative balance. It should be noted that the California cohort median declined sharply from the prior fiscal year (13.5% in Fiscal Year 2009/10 versus 17.2% in Fiscal Year 2008/09); however, through prudent management and significant sacrifice from the majority of employees – Contra Costa’s percentage did not change in fiscal year 2009/10. 4 Unreserved Fund Balance as % of Revenues (as of June 30, 2010) -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% Alameda Contra Costa Los Angeles Orange Riverside Sacramento San Bernardino Santa Clara San Diego CA Cohort Median is 13.54% Moody's Median for Metropolitan CA Counties is 14.0% The County’s Total Fund Balance as a Percentage of Revenues was the second lowest among the counties. It should be noted that the California cohort median also declined sharply from the prior fiscal year (14.0% in Fiscal Year 2009/10 versus 20.4% in Fiscal Year 2008/09). Total Fund Balance as % of General Fund Revenues (as of June 30, 2010) 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Alameda Contra Costa Los Angeles Orange Riverside Sacramento San Bernardino Santa Clara San Diego CA Cohort Median is 14.0% Moody's Median for Metropolitan CA Counties is 18.3% 5 Our County had the highest annual debt service burden among the counties as measured by Annual General Fund Debt Service as a Percent of General Fund Revenues. This is worse than the prior fiscal year when the County had the second highest annual debt service burden and may reflect the large decline in County revenues relative to the cohort counties. It should be noted that the data in the chart does not reflect Federal and/or State reimbursement offsets to debt service, so many of the counties (including Contra Costa) may be closer to the non-Pension Obligation Bond county (Orange) than the chart suggests. Annual General Fund Debt Service Burden as Percent of GF Revenues (as of June 30, 2010) 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% Alameda Contra Costa Los Angeles Orange Riverside Sacramento San Bernardino Santa Clara San Diego CA Cohort Median is 4.68% Conclusion In conclusion, the County Administrator’s Office is pleased with the County’s FY 2010/11 ending fiscal condition. Especially in light of the abnormally high reserve spending during the fiscal year. Unfortunately, the budget’s successful balance was mainly due to one-time revenues, ATA savings, and abnormally high retirements. None of these measures produces an on-going structural solution. The County’s goal continues to be building reserves and the commitment to issuing debt only when absolutely necessary and is optimistic for the longer term given our Board and employees’ commitment to fiscal stability. The continued practice of implementing budget rebalancing plans mid-year and the recent success with labor negotiation structural changes, suggests that in FY 2011/12 the County will continue to reduce reliance on reserves and one-time resources and put itself in a position to restore recently reduced service levels. These trends notwithstanding, continued negotiation with our labor groups is key to finally solving the structural deficit. 6