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HomeMy WebLinkAboutMINUTES - 06261984 - T.2 THE BOARD OF SUPERVISORS OF CONTRA COSTA COUNTY, CALIFORNIA Adopted this Order on June 26, 1984 by the following vote: AYES: Supervisors Powers, Fanden, Schroder, McPeak, Torlakson NOES: None ABSENT: None ABSTAIN: None SUBJECT: Proposed County Budget for 1984-1985 Fiscal Year Charles E. Dixon, Interim County Administrator, presented to the Board of Supervisors the proposed County budget for the 1984- 1985 Fiscal Year . He advised that after analysis and projection of revenue sources and review of budget requests, a proposed budget of $318, 622, 279 is recommended and reflects an increase of $40,871,993 or 14. 7 percent over the Final budget 1983-1984 Fiscal Year. He explained that in order to .properly compare this budget total with the previous year it is necessary that an adjustment be made for the additional budget requirement for Alcohol, Drug Abuse and Mental Health programs which was transferred from the Health Services Department Enterprise Fund I. With the recognition of this budget transfer, the total adjusted budget is $297, 038, 104, which is an increase of $19, 287, 998 or 6.9 percent. Mr . Dixon pointed out that the budget amount noted above does not include County operations financed by Enterprise Funds, which, if included, would provide for a total budget of $345, 430,939 for all County operations. Mr. Dixon recommended that the Board: 1. Approve the document submitted as the Proposed Budget for Fiscal Year 1984-1985 subject to the following conditions: A) Approval of the Proposed Budget shall not be construed as the intention of the Board of Supervisors to approve any part of the budget prior to Final Budget hearings. Further, this approval is granted with the full recognition that the Board reserves the right to change or delete any items included in this Proposed Budget and to add any items as may be determined by the Board during Fiscal Budget hearings; B) The general freeze on the filling of vacant per- manent positions is to be continued pending further analysis of the fiscal condition of the County and subsequent Board action; C) In the absence of separate Board actions, approval of the Proposed Bud9et does not authorize additional personnel, capital projects, fixed assets, or increases in operating expenses prior to the adop- tion of the Final Budget. 2. Refer the Proposed Budget to the Finance Committee (Supervisors Schroder and McPeak) for analysis, review and recommendations. 3. Direct the Clerk of the Board to publish the notice of availability of the Proposed Budget, the notice of the Final Budget hearings , and the notice of the use of Federal Revenue Sharing hearings. 4 4. Fix August 14, 1984 at 2: 30 P.M. as the time to hear the Finance Committee report on its review of the Proposed Budget and to commence public hearings on the Final Budget and proposed use of Federal Revenue Sharing monies; the hearings are to be continued as determined by the Board for a period not beyond August 23, 1984. 5. Adopt the Final Budget on August 23, 1984. 6. Fix tax rates as computed by the County Auditor-Controller on secured property on or before August 31, 1984. IT IS BY THE BOARD ORDERED that the aforesaid recommendations are APPROVED. hereby certify that this is a true end correct copy of an action taken and entered on the minutas of the Board of Supervlaore on 11he date zhcwn. ATTESTED: tho Board BY DoPWY cc: Finance Committee County Administrator Auditor—Controller 00 .319 TO: BOARD OF SUPERVISORS /�VC ct?� Contra FROM: Finance Committee Costa DATE: June 26 , 1984 (,Aunt/ SUBJECT: Establishing Board Policies for the Fiscal Year 1984-85 Budget SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION RECOMMENDATIONS 1. The Board reaffirms its responsibility for establishing and maintaining adequate general and special reserves through the County budget process. 2. It shall be the policy of this Board to protect the special reserves so established and to limit any expenditures from the special reserves to the dedicated expenditures identified with them. 3 . It shall be the policy of this Board not to utilize the funds in the Reserve for Contingencies to support normal operating programs or program expansion during the budget year. Rather the Board will make every effort possible to increase the Reserve for Contingencies from the $10,050,000 level to $15 million no later than July 1, 1985. 4. It shall be the policy of this Board that if funds are required for program adjustments either during the budget hearings or during the budget year that such funding will only be made available by reduction in other budgets and will not include transfers from reserves. 5. It shall be the policy of this Board that any additional unrestric- ted revenues received from State or Federal subventions or other sources will be treated as follows: One-half of the new revenues should be placed in a capital outlay reserve to reduce the County' s dependency upon long-term financing and to avoid future interest charges, and one-half should be utilized for operating program support, . BACKGROUND Following the policy decision by the Board of Supervisors to establish increased reserves, the proposed County budget for fiscal year 1984-85 contains the following reserves : (1) Special Reserves $5 million for vehicle. replacement $5 million for non-insured claims pending against the County (2) General Reserves $10 , 050 ,000 for Reserve for Contingencies CONTINUED ON ATTACHMENT: X YES SIGNATURE: RECOMMENDATION OF XUNTDISTRATOR X RECOMMENDATION OF BOARD COMMITTEE X APPROVE ROBERT I . S NE WRIGHT McPEA SIGNATU _014RES) 11- ACTION OF BOARD ON Jurie.._26, 1984 APPROVED AS RECOMMENDED OTHER X Amended Recamendation No. 5 to add: The first $600,000 of any unrestricted revenue in addition to the amount set forth in the budget shall be applied to restoration of mental health programs and the balance allocated in accordaaice with this policy. The Board also directed the County Administrator and County Counsel to examine the question of transferring Hands frau the Special Reserves to Mental Health programs and to report to the Board on VOTE OF SUPERVISORS July 10, 1984. _X UNANIMOUS (ABSENT ) 1 HEREBY CERTIFY THAT THIS IS A TRUE AYES: NOES: AND CORRECT COPY OF AN ACTION TAKEN ABSENT: ABSTAIN: AND ENTERED ON THE MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. CC: County Administrator ATTESTED `rune 26, 1984 Auditor-Controller J.R. OLSSON, COUNTY CLERK Health Services Director AND EX OFFICIO CLERK OF THE BOARD �s M382/7-63 BY � ACL• �Y =�' . DEPUTY Finance Committee Report on Establishing Board Policies for the Fiscal Year 1984-85 Budget June 26, 1984 Page Two Earlier the Finance Committee requested the Auditor-Controller and Treasurer- Tax Collector, as well as the County Administrator, to report to its June 26 meeting on the level of reserves which should be established for Contra Costa County. Consequently, this subject was discussed with the analysts at Moodys and Standard and Poors by the three County representatives during their financial meetings held earlier this month. The recommendations of the Auditor-Controller and the Treasurer-Tax Collector, reflecting Moodys' guidelines of 5 percent for a general reserve and Standard and Poors' guidelines of an ending balance from 7.5 to 10 . percent of the total budget, are attached. Also attached are two pages excerpted from the County Administrator' s budget message for fiscal year 1984-85 restating the guidelines set forth by the investment rating agencies. The consequences of not establishing adequate reserves from a standpoint of credit rating and borrowing costs are set forth in a separate attachment prepared by Mr. Alfred P. Lomeli, Treasurer-Tax Collector, indicating that unfavorable ratings could force the County to expend an additional $2 million in borrowing costs during the coming year. It should be noted that the reserve (and/or balance) recommended by the agencies is based upon sound financial management and should be maintained even if no short-term borrowing is anticipated. In an attempt to obtain the best possible ratings for credit purposes and to re-establish the County' s financial position, it is the recommendation of this Committee that the policies enumerated above be adopted on this date. I June 25, 1984- TO: 984TO: Finance Committee, Supervisors Schroder and McPeak FROM: Alfred P. Lomeli, Treasurer-Tax Collector Donald L. Bouchet, Auditor-Controller SUBJECT: Response to June 5, 1984 Board Order Regarding Reserve for Contingencies It is our opinion that a prudent and safe reserve for contingencies would be approximately 5% of total budget. At our recent meetings with the rating agencies, Moody's Investor Services and Standard and Poors, Mr. Dixon asked their representatives what they considered an acceptable reserve level. Although neither would make a firm commitment as to what would be required to maintain our top rating in the shortterm borrowing market they did state: (1) (Moody's) that they consider a 5% reserve as a prudent reserve but that other factors, such as a good historical record of no budgetary problems, could make a smaller reserve acceptable. (2) (Standard and Poors) that they look to "an ending fund balance of 7� to 10% of budget as an acceptable level." The ending fund balance would include some restricted balances such as reserves for litigation, audit disallowances and equipment replacement. It is our recommendation that the Board aim towards a 5% reserve for contingencies and that the Board strive to maintain that reserve throughout the year and from year to year. We believe that a $10 million reserve for contingencies in 84-85 (31-2% of budget) growing to $15 million in 85-86 (5% of budget) would be a safe reserve. At this point of time, the rating agencies will be watching for actual performance rather than budgetary plans. If the Board budgets an adequate reserve for contingencies (and we believe 10 million is an acceptable figure) and maintains it through the year, barring severe emergencies or events (such as Jarvis IV) , our top rating will stand a better chance of continuing. It should be pointed out that several factors besides level of reserves are considered by the rating agencies. DLB:ell r � Board of Supervisors 2. June 26 , 1984 To avoid the recurrence of an unforeseen financial crisis such as impacted the County this year, we are recommending a maximum effort to re-establish adequate reserves. The Reserve for Contingencies should be at least five percent of the budget and should be maintained at that level on a year-to-year basis . Such a reserve is necessary not only to provide for unforeseen financial contingencies , but also to restore and maintain competi- tive credit ratings for the County. This year our long-term credit rating was downgraded prior to the sale of certificates of partici- pation used to refinance two County buildings. Every effort should be made to restore that rating in the advent of possible future capital borrowing. Even more important is the need to restore and maintain a good short-term credit rating . For example, to drop from a MIG-1 (our former short-term rating) to a MIG-2 could easily cost the County over a million dollars a year in additional interest expense on our short-term borrowing program. The reserves that we are recommending for 1984-1985 and 1985-1986 are designed to meet the stringent requirements of the financial rating institutions with which we must comply if we are to regain a first class credit rating. Ideally the reserves should be used only to meet the strictest of emergency demands during the budget year and not for program augmentations or routine expenditure increases. Thus the reserve will not need to be replenished annually, but will, as is intended, carry forward as a year-end balance from year to year. Given the constraints on County funding requirements for 1984-1985, we are unable to recommend a reserve of five percent. Instead we are recommending a 3. 2 percent reserve for 1984-1985 which should be increased to a five percent reserve in 1985-1986 . Aside from this General Reserve we will carry forward a special reserve of approximately $5 million for vehicle replacement which is continually replenished through a depreciation allowance, and in addition we are establishing a $5 million reserve to take care of uninsured claims pending against the County which total approxi- mately $12 million. Although this latter amount is substantially more than the reserve, we do not anticipate that the County will be liable to the full extent of the claims. In preparing the budget revenue projections, we have assumed the same level of support from the State and Federal governments as allowed for fiscal year 1983-1984 . Although the proposed budget is estimated to be in balance, there are two areas of major concern which are presently unresolved. Board of Supervisors 3 . June 26 , 1984 Due to the delay in the budget submission by the Department of Social Services we plan to comment on that Department 's At Issue items during the Finance Committee hearings on the final budget. We anticipate that some COLA increases in social services granted by the State and Federal governments can be used to offset most of any additional local requirements for the County 's share of funding. The second major area of concern is in the budgeted amount for the Health Services Department. The individual budgets for Public Health, Hospital Enterprise Funds I and II, and the Alcohol, Drug Abuse and Mental Health Budgets are overstated by $3,627,562. In preparing the budget summaries this required reduction was applied to the total budget figures of the Health Services Depart- ment awaiting the outcome of the June 19 Beilenson hearings to determine the allocated reductions in each of the above divisions . In the Beilenson hearings this department recommended that the shortfall of $3. 6 million be addressed by reducing program expendi- tures in the amount of $2 .7 million and that we look to Mental Health COLAs to make up the remaining $900 , 000 shortfall . Because of the complexities created by the State in the funding of Health Services under AB 8 and because of the possible elimination of interest costs for allowable matching expenditures, the County could face additional expenditure needs of from $2 to $5 million if maximum revenues are to be received under the State ' s AB 8 allocation formula. Since no AB 8 funds, or matching funds , may be used to support Alcohol, Drug Abuse and Mental Health programs, it is necessary to reduce• a portion of that County contribution to the Alcohol, Drug Abuse and Mental Health budget which is in excess of the required County match. We are proposing that any additional COLAs or grants from the . State in the area of public health or hospital care be used to reduce the anticipated AB 8 shortfall. As a final method of coping with the AB 8 problem, we recom- mend that any additional unrestricted revenues received from State or Federal subventions be treated as follows: One-half of the new revenues should be placed in a capital outlay reserve to reduce the County' s dependency upon long-term financing and to avoid future interest charges, and one-half should be utilized for operating program support in areas where additional matching funds are required, such as AB 8, to maximize County services . Office of COUNTY TAX COLLECTOR-TREASURER Contra Costa County Rooms 100- 101 Finance Building Martinez, California Date: June 20, 1984 To: Finance Committee From: Alfred P. Lomeli , Treasurer-Tax Collector Subject: Effect of National Financial Ratings on Cost of Issuance for Short Term Borrowing Programs As tax exempt issuers of short term financing instruments , the least expensive way to issue is through issuance of one to seven day maturity commercial paper. This demands the highest credit ratings from the rating agencies and a strong marketing effort. As problems develop, the rating agencies begin demanding safeguards (such as a line or letter of credit) to maintain reasonably high ratings. These safe- guards always increase county issuing expense. If , in fact, ratings and credibility do suffer, the inevitable result is higher costs and less flexibility with regard to instruments of issue. It is easy to see from the accompanying chart that annual- ized interest costs can jump $2 ,000 ,000 with no more difficulities than Contra Costa has experienced in the last six months. The accompanying figures are actual data based on June 15 , 1984 rates. APL:dmp attachment 5-30 ANNUALIZED INCREMENTAL ANNUAL ISSUANCE TYPE OF INTEREST INTEREST EXPENSE ADDITIONAL ISSUING PERIOD INSTRUMENT RATE ON $65 ,000,000 EXPENSE ON $65 ,000 ,000 1- 7 days Commercial 5% $3 ,250 ,000 ---- Paper 7 days Variable 5. 9% $3 ,835 ,000 $ 585 ,000 Rate Note 1 Year Tax 8 . 20% $5, 330 ,000 $1 ,495 ,000 Anticipation Note $2 ,080 ,000 CURRENT ANNUALIZED INTEREST EXPENSE WITH VARYING CIRCUMSTANCES t MIG I Commercial $3 ,250 ,000 Paper MIG I $3 835 ,000 Variable Note , MIG II Tax Anticipation Notes $5 ,330 ,000 1 . 0 2 . 0 3 . 0 4 . 0 5. 0 hXPENSES IN MILLIONS OF DOLLARS T