Loading...
HomeMy WebLinkAboutMINUTES - 09252012 - SD.5RECOMMENDATION(S): ACCEPT attached report of General Fund preliminary close-out figures for fiscal year 2011/12. 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. APPROVE OTHER RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE Action of Board On: 09/25/2012 APPROVED AS RECOMMENDED OTHER Clerks Notes: VOTE OF SUPERVISORS AYE:John Gioia, District I Supervisor Candace Andersen, 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 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 25, 2012 David Twa, County Administrator and Clerk of the Board of Supervisors By: June McHuen, Deputy cc: SD. 5 To:Board of Supervisors From:David Twa, County Administrator Date:September 25, 2012 Contra Costa County Subject:General Fund Preliminary Year-End Close-Out Report FY 2011-12 ATTACHMENTS General Fund Preliminary Year-End Close-Out Report FY 2011-12 Page 1 General Fund Preliminary Year‐End Close‐Out Report FY 2011/12 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 2010/11 and moved into Fiscal Year 2011/12, we had faced several years of significant financial challenge. The national recession, reduced growth in local property taxes and the state’s ongoing budget deficits had diminished our available resources. It had become apparent that the state's growing operating deficits threaten our community. Regardless of the specific reductions included in any final state budget, it was clear that counties would be forced to reduce the level of services we are able to provide to our residents. 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. The Budget continued to provide for essential community services to our residents and attempted to minimize adverse impacts to the community. The budget proposed some one-time resources to augment public safety. By the end of the current fiscal year, the plan was to have completed labor negotiations with our labor unions. With their help we planned to propose a long-term rebalancing plan to reduce our expenditures and restructure our service delivery to provide the most effective services within available resources. Contra Costa has managed the economic downturn over the last several years by working with our employees in making prudent fiscal choices, living within our means, and continuing our practice of planning ahead. This financial discipline has allowed us to fulfill our legal mandates and provide community services that reflect our Mission “to provide public services which improve the quality of life of our residents and the economic viability of our businesses.” Fiscal Year 2011/12 presented multiple challenges for the County – the most noteworthy was the lack of contracts with our labor groups and the expiration of the furlough programs. Nevertheless, the County Administrator’s Office again worked closely with Department Heads to develop a recommended budget that adhered to adopted fiscal policies and achieved 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; however, the budget adopted was finally balanced. A budget of $1.207 billion was adopted, which included a $47.6 million reduction to net Baseline County cost. The budget required the elimination of $34.7 million in programmatic expenditures including the reduction of 107 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, $65 million in FY 2009/10, and $34.4 million in FY 2010/11. The Fiscal Year 2011/12 Budget, which was approved by the Board of Supervisors on May 3, 2011 assumed:  flat assessed valuation/property taxes;  increased pension costs;  elimination of 107 full-time equivalent positions; Page 2  elimination of negotiated employee compensation concessions in the form of six furlough days for most represented employees and all unrepresented management personnel; and  some reliance on one-time revenues. At mid-year, the Board of Supervisors formally reviewed the FY 2011/12 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 not technically balanced; however, it was within acceptable parameters given the Board approved budget. By year end, General Fund revenues – both on-going and one-time – had exceeded expenditures. There were several major contributors to the balanced budget:  completion of negotiation with the majority of unions, which included pension subvention savings;  reduced employee benefit costs due to changes in pension subventions;  higher than normal retirements; and  actual decline of 0.49% in assessed valuation/property taxes ($700 million decrease in the local tax base rather than the $4.9 billion decrease from the year before). The end of fiscal year 2011/12 marked the sixth 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 a stagnant economy (interest rates and property taxes). Despite these challenges the budget remained essentially balanced, due to constant monitoring and adjustment. The chart below shows the change in the operational General Fund revenue and expenditure lines over the last ten years. The figures for FY 2011/12, presented in millions, reflect unaudited data. The projected trajectory of our expenditures and revenues assumed in the FY 2012/13 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 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 Actual 2012-13 Budgeted Total Expenditures Gross Revenue Page 3 Fund Balance The Board of Supervisors’ adopted General Fund Reserve policy established specific goals regarding the County’s total and Unreserved General Fund balance in 2005 (5% Unreserved as a percentage of General Fund Revenue and 10% Total). Governmental Accounting Standards Board (GASB) Statement 54 required a slight change to County Policy – unreserved was changed to unassigned. The County has continued to exceed the minimum Unassigned General Fund goal of 5% of each year’s projected revenue. The County has not however, achieved its informal goals of 10% and 20%, 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. Three years of actual data is now available in the new GASB 54 format and presented in the chart below. As is depicted below, restricted and committed fund balance fell by $5.9 and $13.5 million (due mainly to pension pre-pays), Nonspendable fund balance grew by $7.1 million, Assigned by $15.9 million, and Unassigned by $4.4 million. The total fund balance grew by $7.9 million in FY 2011/12, which increased the Total Fund Balance as a percentage of Total Revenue from 12.0% to 13.2% (1.2% increase). Through prudent management and significant sacrifice from the majority of employees – Contra Costa’s General Fund ended the year in balance even with a $51.2 million reduction in revenues. General Fund Balance 2009-10 Actual 2010-11 Actual 2011-12 Unaudited Change from Prior Year Nonspendable 18,460,000 9,387,000 16,442,000 7,055,000 Restricted 3,900,000 10,696,000 4,752,000 (5,944,000) Committed 12,750,000 14,277,000 792,000 (13,485,000) Assigned 30,287,000 31,941,000 47,845,000 15,904,000 Unassigned 67,972,000 76,371,000 80,755,000 4,384,000 Total 133,369,000 142,672,000 150,586,000 7,914,000 Total Revenue 1,158,866,000 1,187,717,000 1,136,525,000 (51,192,000) Total Fund Balance to Total Revenue 11.5%12.0%13.2%1.2% In order to provide continuity and also conform to changes required by GASB-54, the chart below graphically depicts the change in Unreserved General Fund Balance through FY 2010/11 and then begins to depict the Unassigned General Fund Balance. The information is presented as a percentage of total revenue, including a projection for FY 2012/13 based upon zero encroachment of Fund Balance. Page 4 Unreserved/Unassigned Fund Balance As of June 30 9.7% 7.3% 5.5% 8.3% 9.1% 9.6% 8.6%8.6%8.7% 6.4% 7.1%7.1% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 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 Unaudited 2012-13 Recom'd Unreserved Unassigned 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). Debt reports can be found on the County’s website (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 began 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 more Page 5 toward the California cohort median; continuing to issue debt prudently and structuring debt issues conservatively to achieve low borrowing costs and maximum Federal and State reimbursements; 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. Note that these charts are prepared annually after all counties have published their Comprehensive Annual Financial Reports (CAFR), therefore, data is presented as of June 30, 2011. The County’s Unreserved Fund Balance as a Percentage of Revenues was fourth among the counties. It should be noted, however, that the counties used a variety of ways to characterize their fund balance under new GASB rules. Orange County for example, placed nearly all of their reserves into the “Nonspendable” category. Sacramento County recorded a negative balance for the second year in a row. Unreserved Fund Balance as % of Revenues (as of June 30, 2011) -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Alameda Contra Costa Los Angeles Orange Riverside Sacramento San Bernardino Santa Clara San Diego CA Cohort Median is 8.83% Moody's Median for Metropolitan CA Counties is 14.0% The County’s Total Fund Balance as a Percentage of Revenues was the third lowest among the counties (it was second lowest the previous year). Alameda and San Diego counties outperformed the other counties by a significant margin. Even with the significant increases of Alameda and San Diego, the California cohort median was relatively flat compared to the prior fiscal year. Of note is that June 2011 marks the first of time in four years that the median did not drop (13.54% in Fiscal Year 2010/11, 14.0% in Fiscal Year 2009/10, and 20.4% in Fiscal Year 2008/09). Page 6 Total Fund Balance as % of General Fund Revenues (as of June 30, 2011) 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 13.97% Moody's Median for Metropolitan CA Counties is 18.3% 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 the same as the prior fiscal year and may reflect the large decline in County revenues relative to the cohort counties due to weak assessed valuation performance. 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, 2011) 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 5.68% Page 7 Conclusion In conclusion, the County Administrator’s Office is pleased with the County’s FY 2011/12 ending fiscal condition. This is especially true in light of the abnormally high reserve spending, retirements, one-time revenue use, and temporary labor concessions used during recent prior fiscal years. The County’s goal for FY 2011/12 was to structurally balance the budget by realigning sharing of pension costs with employees, continuing to build reserves, and continuing the commitment to issuing debt only when absolutely necessary. The County met those goals in FY 2011/12 and is optimistic for the longer term given our Board and employees’ commitment to continued 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 2012/13 the County will continue to reduce reliance on one-time resources and put itself in a position to restore recently reduced service levels and begin to address the significant infrastructure needs throughout the County. These trends notwithstanding, continued negotiation with our labor groups is key to retaining a structurally sound fiscal condition, which will provide for needed growth.