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Home My WebLink AboutMINUTES - 10261993 - 2.1 TO: BOARD OF SUPERVISORS Contra -, FROM: Phil Batchelor, County Administrator Costa o; jS xA ` : County October 21, 1993 ��s; -- DATE: d couK� SUBJECT: DISPOSITION OF LEGISLATION RELATED TO THE COUNTY'S BUDGET AND RELATED RECOMMENDATIONS TO BALANCE THE COUNTY'S 1993-94 BUDGET SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATIONS: 1 . APPROVE the following actions which are justified as a result of actions taken by the Governor in signing legislation required in order to assist in reducing the deficit for the 1993-94 fiscal year: A. RECOGNIZE additional revenue of $700,000 from the .implementation of a traffic citation amnesty program, as is authorized by SB 149 and. DIRECT the County Administrator to develop an implementation program with the Municipal Courts. B. RECOGNIZE additional revenue of $2001000 from the implementation of increased County Recorder fees, as is authorized by AB 130. C. RECOGNIZE reduced revenue of $45,000. in booking fee revenue due to the signing of AB 2286 . 2 . ACKNOWLEDGE that no additional revenue is available from the Property Tax Administration Fee in view of the Governor' s veto of AB 491 . 3. ACKNOWLEDGE that no additional revenue is available from an. Assessment Appeals Filing Fee in view of the Governor' s veto of AB 1422 . 4 . ACKNOWLEDGE that there is no significant revenue or expenditure impact from the Governor's signing of the "Caboose" bill, AB 1519 . CONTINUED ON ATTACHMENT: YES SIGNATURE: RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S): ACTION OF BOARD ON-013te er 26, _3ri3 APPROVED AS RECOMMENDED OTHER VOTE OF SUPERVISORS � I HEREBY CERTIFY THAT THIS IS A TRUE � �UNANIMOUS(ABSENT ) AND CORRECT COPY OF AN ACTION TAKEN AYES: NOES: AND ENTERED ON THE MINUTES OF THE BOARD ABSENT: ABSTAIN: OF SUPERVISORS ON THE DATE SHOWN. ATTESTED OCT 2 6 1993 Contact: PHIL BATCHELOR,CLERK OF THE BOARD OF CC: SUPERVISORS AND COUNTY ADMINISTRATOR County Adminirator All County Department Heads (Via CAO) CAO-List. 1 (Via CAO) BY DEPUTY 5. APPROVE the following actions which are required in order to complete the elimination of the remaining deficit in the County's 1993-94 fiscal year budget: A. RECOGNIZE reduced expenditures in the amount of $300,000 for the 1993-94 fiscal year by not having to pay the employer' s share of FICA (Social Security taxes) on that portion of employees ' salaries which are pretax retirement contributions . B. RECOGNIZE reduced expenditures in the amount of $900,000 for the 1993-94 fiscal year through a proposed borrowing program whereby the County would borrow the accrued financial obligation owed to the Retirement Association and pay it back at a substantially reduced interest rate, thereby reducing the net cost of the employer' s contribution to the Retirement Association. 6 . ACKNOWLEDGE that in the event Proposition 172 is not approved by the voters on November 2, 1993, the County will have a $19 . 1 million deficit which will have to be addressed immediately and an additional $19 . 1 million deficit which will , have to be addressed in the 1994-95 fiscal year budget, , requiring a reduction in discretionary County spending of $38 .2 million from existing spending levels simply to maintain a balanced budget. BACKGROUND: On October 5, 1993, the Board of Supervisors approved a series of recommendations designed to reduce the deficit for the County' s 1993-94 fiscal year budget to $2,049,466 . The County Administrator was also directed to report to the Board on October 26, 1993 on several outstanding pieces of legislation which were still on the Governor's Desk at that time. The County Administrator was also directed to provide to the Board of Supervisors recommendations for eliminating any remaining deficit, based on the final actions taken by the Governor. The Board of Supervisors will recall that we arrived at the remaining deficit of $2,049,466 as follows : SUMMARY OF BEGINNING POINT FOR PHASE II REDUCTIONS Property Tax Transfer to the State = $ 58,926,000 + Phase I Budget Problem = $ 20,500,000 + Trial Court Block Grant Reduction = $ 2,675,000 + Loss of Property Tax Administration Fee $ 570,000 + Potential Loss of the Entire SDAF = $ 31,200, 000 SUB-TOTAL OF BUDGET PROBLEMS = $113,871,000 Offsets to the Deficit: Eliminated in Phase I = $ 20,500,000 + Exemption of Fire from the SDAF Loss = $ 25,000,000 + One-half cent sales tax for one-year = $ 40,929,000 - Transfer of Sales Tax to the Cities = ($ 2,746,000) + One-time T.P. & D. Fund Transfer = $ 1, 180,000 SUB-TOTAL OF OFFSETS = $ 84,86.3,000 BEGINNING PHASE II DEFICIT LEVEL $ 29,008, 000 2 At the conclusion of Phase II Budget Hearings on July 30, 1993, the County Budget still contained a deficit of $3,475,466 . This is calculated as follows : BEGINNING PHASE II DEFICIT LEVEL $ 29,008,000 - Phase II Program Reductions - $ 21,347,215 - Additional Revenue Recognized - $ 2,550,000 - Reduction in SDAF Loss = $ 764,511 - Contribution from Fund Balances = $ 870,808 Total of All Adjustments = $ 25,532,534 ENDING PHASE II DEFICIT LEVEL = $ 3,475,466 ADJUSTMENTS TO PHASE II DEFICIT LEVEL MADE ON OCTOBER 5, 1993 : Additions to Phase II Deficit Level: + Additional Loss to Trial Court Block Grant = $ 797,500 + Loss from Property Tax Administrative Fee = $ 200,000 + Loss of court filing fees transferred to the State - $ 2,789,500 + Required to eliminate budget maintenance gap in the County Clerk and Municipal Court budgets - $ 560,000 Total Additions to Phase II Deficit - $ 4 ,347 ,000 Phase III Deficit Prior to Adjustments = $ 7,822,466 Offsets to Phase III Deficit: Increase in Various Fees = $ 95,000 - New ORC Revenue from Municipal Courts = $ 45,000 Title IV-E Revenue - Probation Dept. _ $ 100,000 Additional Realignment Revenue - Base Restoration = $ 200,000 - Transfer from Budget Unit 325 = $ 2,700,000 Additional Salary Savings - Muni Court = $ 100,000 Adjustments in designations, reserves, appropriations, and fund balance = $ 2,533,000 Remaining Deficit - October 5, 1993 = $ 2 ,049,466 RECOMMENDED ADJUSTMENTS TO BE MADE OCTOBER 26, 1993: Recognize revenue from approval of SB 149 (Traffic Amnesty Bill) _ $ 700,000 - Recognize revenue from approval of AB 130 (County Recorder fee increase) _ $ 200,000 + Recognize loss of revenue from signing of AB 2286 (Booking fee recalculation) _ $ 451000 Total net adjustments as a result of the Governor's actions = $ 855,000 REMAINING DEFICIT BASED ON THE GOVERNOR'S ACTIONS = $ 1, 194,466 3 To eliminate this remaining deficit, we are recommending two actions be taken which should reduce the County' s expenditures for employee benefits in two specific areas, without affecting the level of benefits for employees . First, as the Board is aware, the County has implemented a 414 (H)2 Program which made it possible for employees to pay their contributions to the Retirement Association from pretax income, thereby reducing their net taxable income and increasing their take-home pay. It now appears that the same rule applies to the County in its role as an employer as well as to the employee in regard to paying FICA (Social Security taxes) on these pretax retirement contributions. Since the employee' s taxable income is reduced by the amount of the retirement contribution, the County should not have to pay the employer's share of FICA (Social Security taxes) on that pretax contribution by the employee to the Retirement Association, nor should the employee have to pay those FICA contributions. The FICA taxes on this contribution, which amounts to 7 . 6% of payroll for both the employer and employee, should equal approximately $300,000 for the current fiscal year. We will also explore the feasibility of pursuing the necessary claims in an effort to recover these contributions for the two prior calendar years as well . Second, the County has an accrued financial obligation to the . County Employees Retirement System of approximately $365 million which is being amortized over 18 years by annual payments in addition to the regular employer contributions which are required. Past changes in benefits, coverages and other factors have created the accrued financial obligation. The actuary for the Retirement Association computes the cost of providing the future benefits to enrollees, offset by interest earnings and other factors to arrive at the accrued financial obligation. County payments for the accrued financial obligation include interest at the 8.25% earnings assumption rate for the Retirement Association. The current low interest rates for borrowed funds creates an opportunity for the County to pay off the entire amount of the accrued financial obligation by borrowing at a lower rate than is being charged by the Retirement Association. The pension obligation bonds used to pay off the debt are required to be taxable securities but even then would provide an interest rate advantage equal to approximately $900,000 for the current fiscal year. Sonoma County has already approved a similar program and has proceeded with the sale of the securities. Several other counties are exploring the same concept. County staff and consultants have been preparing an analysis for review and recommendation to the Board of Supervisors. Detailed information is being prepared by an actuary with which to base the development of the proposal . The legal, tax and financial considerations are being carefully considered. The issue has been explored favorably with the Retirement Board. Steps are being taken to proceed with the proposal as soon as possible so that the potential savings can be applied to the remaining budget deficit. The recommendations above would eliminate the remaining deficit by doing - the following: REMAINING DEFICIT BASED ON THE GOVERNOR'S ACTIONS $ 1, 194 ,466 - Savings from not paying FICA on tax free retirement contributions $ 300,000 - Savings from reduced interest expense on the accrued financial obligation $ 900,000 REMAINING 1993-94 DEFICIT $ 0 4