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HomeMy WebLinkAboutMINUTES - 02122002 - SD2 x . _ :. . TO: Board of Supervisors � Contra FROM: John Sweeten Costa County Administrator WE4L County DATE: February 12, 2002 SUBJECT: SECOND QUARTER BUDGET STATUS REPORT , / SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATIONS: 1. ACCEPT this report from the County Administrator regarding the mid-year status of the County Budget. 2. ACKNOWLEDGE the relatively benign impact of recent adjustments to the State's FY 01- 02 Budget to current year County programs. 3. RECOGNIZE, however,that the County's FY 2002-03 Budget is at risk if the State is unable to successfully manage an anticipated $12.5 billion shortfall in the coming fiscal year. BACKGROUND: The Administrator's Office reviews the status of the County Budget on a quarterly basis to determine whether departmental expenses and revenues to date are consistent with the spending plan adopted, and amended from time to time, by the Board of Supervisors. Quarterly reviews provide an opportunity to identify variances from anticipated expenditures and revenue receipts, and permit budget staff to confer with departments regarding the potential need for budgetary adjustments. The mid-year Budget status report is particularly important in that(a) it is based on a sufficient amount of experience during the budget year to permit a reasonably accurate assessment of how closely actual expenses and revenues are likely to track with the approved budget, and(b)it permits a relatively accurate prediction of year-end fund balance available for budget planning for the ensuing fiscal year. Our review of departmental budgets at this mid-year juncture suggests that departmental expenditures and revenues are performing substantially in accord with the approved budget. No actions of the Board are required at this time. This assessment could change based on intervening factors—e.g., revenue curtailments or program shifts by the State—that could affect current year costs and revenues, or that could substantially impact in a negative way our outlook for the ensuing fiscal year. CONTINUED ON ATTACHMENT: YES SIGNATURE: RECOMMENDATION OF COUNTY ADMINISTRATOR RECO. NDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S): }} ACTION OF BOARD ON J ks7` ,,Q I APPROVED AS RECOMMENDED OTHER VOTE OF SUPERVISORS 1 HEREBY CERTIFY THAT THIS IS A TRUE AND CORRECT COPY OF AN ACTION TAKEN AND ENTERED ON MINUTES OF ,. THE BOARD OF SUPERVISORS ON THE DATE SHOWN. UNANIMOUS(ABSENT � ) AYES: NOES. ABSENT: ABSTAIN: Contact: Tony Ener,5-1094 j Cc: CAO ATTESTED '' ,'[✓�✓t Gt- I �1 `tet'. HS JOHN SWEETEN,CLW OF THV BOARD OFSUPERVISORS EHS Auditor BY: DEPUTY Discussion This report provides an overview of the status of the County's FY 2001-02 Budget as of December 31, 2001. Included in this report are tables that summarize the County's mid-year fiscal condition by type of fund, by categories of expenses and revenues in the General Fund, and by General Fund department (Attachment 1). The County's implementation of its Board-approved FY 2001-02 spending plan is proceeding as anticipated. As of December 31, 2001, with 50°/0 of the fiscal year having passed, actual expenditures for all County funds totaled 41.8%of planned spending;while actual revenues totaled 43.6%of amounts anticipated for the year. For the General Fund alone, actual expenditures totaled 42.6010 of planned spending, and actual revenues totaled 39.6% of amounts anticipated for the year. The specific dollar amounts were as follows: ALL FUNDS econd Quarter Summary Budget Actual Percent Expenditures $ 1,888,509,789 $ 706,132,403 41.8% Revenues $ 1,483,403,879 $ 847,108,273 43.6% ........................................................................................................................................................................................................................................ GENERAL FUND 1econd Quarter Summary Budget Actual Percent Expenditures $ 1,117,621,088 $ 475,853,467 42.6% Revenues $ 988,284,933 $ 391,211,389 39.6% .................................................................................................................................................................................................................................. GENERAL FUND Second Quarter Expenditure Summary Budget Actual Percent Wages& Benefits $ 500,982,987 $ 229,640,386 45.8% Services-Supplies $ 413,598,443 $ 185,945,441 40.1% Other Charges $ 224,525,840 $ 110,395,205 49.2% Fixed Assets $ 112,915,837 $ 23,108,476 20.5% Inter-departmental Charges $ (144,830,783) $ (53,236,019) 36.8% Provisions for Contingencies $ 10,249,144 0.0% Total Expenses $ 1,117,621,088 $ 475,853,487 42.6% .......................................................................................................................................................................................................................................... GENERAL FUND Second Quarter Revenue;summary Budget Actual Percent Takes $ 128,893,499 $ 115,321,038 90.9% Licenses, Permits, Franchises $ 7,710,297 $ 2,779,318 38.0% Fines, Forfeitures, Penalties $ 13,431,212 $ 2,869,164 21.4% Use of Money& Property $ 12,311,883 $ 3,683,491 28.9% Federal/State Assistance $ 552,422,587 $ 170,823,244 30.9% Charges for Current Services $ 185,558,909 $ 70,383,497 37.9% Cather Revenue $ 89,958,568 $ 25,491,818 28.3% Total Revenues $ 988,284,933 $ 391,211,369 39.6% .......................................................................................................................................................................................................................................... Page 2 of 5 As noted above, County expenditures and revenues at mid-year were within acceptable parameters. Having said that, it is the case that significant variances in anticipated expenses and revenue receipts are noted at mid-year. These variances are normal and recurring, as noted below. Revenues ❑ Revenue from State and federal sources are typically late in being realized because much of it is based on expenditure claims paid in arrears. Therefore, departments that rely on federal and State revenue will experience a two-to three-month lag in revenues. ❑ Charges for services are also typically late in being realized because billing cycles following delivery of services take from one to three. Departments that charge for services include the Health Services Department, Community Development and the General Services Department. Expendhtures ❑ Salary costs are generally understated at mid-year because salary appropriations in the budget include cost-cif-living adjustments, and most such COLAs are not effective until the middle of the second quarter. Unanticipated vacant positions also lessen salary costs. Ll Employee benefit costs are generally understated at mid-year because the budget includes appropriations for health insurance cost increases that do not become effective until the beginning of the third fiscal quarter. Actual expenses will not be incurred until the second half of the year. ❑ Services and supplies costs are generally understated throughout most of the fiscal year because of the time required to process payments to vendors and contractors. The payment cycle averages about one month. Health Department Budget Reflects Cast Savings The Health Services Department in recent years has experienced rising cost pressures and reduced revenues. This has caused the department to initiate various measures aimed at reducing costs and maximizing revenues. The results in the current year are encouraging when compared to prior years. Actual revenues and expenditures in the department are on target. Actual net County costs are currently slightly lower than the budget plan for the mid-point of the fiscal year, but are expected to increase by year-end due to the fact that major departmental programs(e.g., Detention Health) are almost entirely funded with County general revenues. As of mid-year, the Health Services Department has achieved significant cost savings and revenue enhancements: ❑ Administrative infrastructure in the Mental Health Division was augmented by $6.7 million in EPSDT revenues to support an increase in Medi-Cal/EPSDT-funded contracts($5.6 million) and to add 26 FTE positions($1.1 million), facilitating the timely delivery of mental health services to Contra Costa children in need of them. ❑ The department has enjoyed a $209,000 savings(0.2%)in workers compensation costs during the first half of the year compared to the prior year as a result of improved risk management efforts. ❑ Utilization of outside contractors has been reduced by$1.1 million due to faster hiring of staff as a result of a close collaboration between the Health Services and Human Resources Departments. ❑ In spite of a pharmaceutical cost explosion,the Hospital pharmacy has been able thus far to remain within budget. ❑ Purchased services in the Hospital are at a very low 29%of budget, representing a cost savings of$4.8 million. Nonetheless, some cost increases remain beyond the control of the department. For example: ❑ The Contra Costa Health Plan purchases pharmaceuticals as a participant in a buying consortium on the open market. Nationwide, expenditures for pharmaceuticals are rising by Page 3 of 5 12% each year. Expenditures for inpatient and outpatient pharmaceuticals for CCHP members are 13.6%higher as compared to actual costs last year. U Notwithstanding successful efforts to speed up hiring, a very tight labor market in the healthcare industry has resulted in 210 vacant positions in the department. This vacancy rate has increased the need for overtime and temporary help to cover mandated services. The combined cost for these items is $870,000 to date and may exceed $1.7 million by the end of the year. Employment and Human Services Department Experiences Revenue Volatility The Employment and Human Services Department(EHSD) anticipates remaining within budgeted appropriations for the year, notwithstanding significant fluctuations in anticipated revenues. ❑ In the second quarter,EHSD received $3,030,323 in new revenue from State and federal sources and foundation grants, partially offsetting significant reductions in other State allocations during the first quarter of the year. • The department also projects a$2.4 million decrease in Social Service Realignment revenues from the State resulting from a downturn in sales tax collections($25.9 million in Realignment revenues were budgeted for the current year, but the department now anticipates only$23.5 million). U The department has been notified of reductions in its CalWORKs allocation, and has had to remit to the State$1.4 million of its TANF Incentive Fund balance as a result of changes in the way the federal government chooses to manage its allocation of this revenue source to states. These reductions will affect planned expenditures in the current year. The CAO will continue to work with the department to ensure that net County costs at year end do not exceed the amounts budgeted. State Budget Reductions in the Current Year On January 30, 2002,the Senate and Assembly approved $2.163 billion in spending cuts for the current fiscal year, and $589 million for the 2002-03 budget year. Most of the savings come from suspending program expansions, delaying implementation of new programs, deferring purchases, reverting unspent funds and holding funds for contracts/grants not yet awarded. Reductions by major program area include: Million K-12 Education $857 General Government 607 Resources 187 Transportation 138 Social Services 116 Local Government 109 Health Services 89 Higher Education 56 Criminal Justice 6 Total $.2.163 billion With the Legislature's rejection of the Governor's proposal to reduce public library foundation grants by 15% ($7.9 million), it appears that these reductions will have no significant impact on current County programs in this fiscal year(although, in some cases, such as the Downtown Rebound program,the County had hoped to be a successful grant applicant). Counties Face Risks Due to State's Budget Shortfall for FY 2002-03 While it is not customary to address the State's"out year"budget in the context of the County's mid-year budget status report, at some point it may be prudent to consider modifications to the Page 4 of 5 L current year's budget to address critical shortfalls that may become apparent in the coming fiscal year. Time will tell whether such a consideration is warranted. The Governor has promised not to balance the State's FY 2042-03 Budget"on the backs of local government." His January Proposed Budget seeks to bridge a$12.5 billion budget gap by using a combination of strategies, including $5.2 billion in expenditure reductions; $.586 million in fund shifts; $1.066 billion in increased federal funding; and $5.6 billion in loans, accelerations and transfers. The Governor's budget assumes that the economy will recover in mid-2002; that the energy bonds will be sold by the end of the fiscal year; and that tobacco securitization can be achieved within a six-month time frame. According to the Legislative Analyst's Office,the Governor's budget relies largely on one-time solutions and many of its assumptions are overly optimistic. Also,the LAO believes that the Governor's budget results in long-term out-year costs which further exacerbate the State's imbalance for future years, thus continuing the risk of future shortfalls. The Governor's January Budget is the"first installment" in the annual budgetary debate between the Governor and the Legislature. The May Revise is usually a more reliable document from which to assess the possible impact of the State Budget on County programs. A major issue for counties will be the vehicle license fee offset program, totaling $3.7 billion. VLF, a major source of discretionary revenue, is worth$60 million to Contra Costa County each year. Loss of the entire offset would cost the County$40 million annually. Federal,Actions,Affect County Budget Two of the County's largest cost centers, Ca1WORKs and Medi-Cal, are greatly influenced by federal appropriations. In the coming year, Congress will be considering TANF reauthorization. In addition, many states and local jurisdictions are working to persuade Congress to re-examine the Disproportionate Share Hospital(DSH)program, a vital source of funding for public hospitals that is being phased out. In the meantime, three recent federal actions are worthy of mention: U Several weeks ago,the federal Health and Human Services Agency published its Final Rule removing the 150%Medicaid Upper Payment Limit(UPL)for in- and outpatient hospital services provided by non-state owned hospitals. This is a significant blow to public and other hospitals in California that provide care under Medi-Cal. For Contra Costa County, this will mean a revenue loss of$3 to $5 million annually when fully implemented. In distributing their ruling, the Centers for Medicare and Medicaid Services(CMS) stated that the 100%UPL is"more than sufficient to ensure adequate access to services for Medicaid beneficiaries at public hospitals. The timing of the loss is uncertain since CMS has stated that there will be a five-to eight-year transition period to lower the UPL and that"these cuts will be offset by Disproportionate Share Hospitals (DSH) for the first two years of the implementation." Because DSH is a declining source of revenue for the County, it is unclear how DSH payments can offset the loss of the UPL payments. U The State was recently notified by the federal Health and Human Services Agency that California violated the Federal Cash Management Act in its distribution of TANF incentive funds over the past four years. Counties are being required to pay back the interest earned on the funds, including$1.4 million from Contra Costa County. LJ The federal Health and Human Services Agency has announced the availability of$1.1 billion for states and local governments to better respond to bioterrorism and other public health/terrorism emergencies. Funding is divided into three areas: 1)Centers for Disease Control for bioterrorism, infectious disease and public health emergency procedures; ) Hospitals for regional plans and preparedness; and 3)Metropolitan Medical Response Systems(generally in cities). States must first submit spending plans due before April 151 to be eligible for funding. 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