HomeMy WebLinkAboutMINUTES - 03162004 - D.2 4
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TO: BOARD OF SUPERVISORS
. Contra
FROM: John Sweeten j
County Administrator Costa
DATE: March 11, 2004 County
SUBJECT: FY 2004-05 BUDGET OUTLOOK REPORT '
SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION
RECOMMENDATIONS
1. ACKNOWLEDGE that the County faces a local budget shortfall of approximately $53 million,
representing roughly 16% of general purpose revenues (including available fund balance), in
FY 2004-05.
2. ACKNOWLEDGE that, in addition to this estimated local shortfall, the County faces loss of
$29 million in property tax revenues, representing roughly 9% of available general purpose
revenues, plus other significant programmatic impacts, if the Governor's Proposed Budget for
FY 2004-05 is enacted.
3. ACKNOWLEDGE that these shortfalls represent a combined potential shortfall of$82 million,
representing 25% of County general purpose revenues in FY 2004-05.
4. ACKNOWLEDGE that the programmatic consequences of an $82 million shortfall will be
much larger because the County will not be able to draw down or provide the required match
for substantial additional State and federal program funding.
5. ACKNOWLEDGE that County departments have been directed by the County Administrator
to prepare two sets of budget reduction plans, representing net County cost reductions of
10% and 20%, to assist the Administrator in preparation of a Recommended Budget for
Board consideration in June.
6. ACKNOWLEDGE that this approach will require the Administrator to successfully identify
added non-departmental budget savings representing roughly 5% of net County cost, and
DIRECT the Administrator to diligently pursue the identification of such savings.
CONTINUED ON ATTACHMENT: ✓YES SIGNATUR
------ k
_RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMEN A ON OF BO RD COMMITTEE
APPROVE OTHER
SIGNATURE(S):
BOARD ON MARCH 16, 2004 APPROVE AS RECOMMENDED X OTHER Y ---------ACT ION OF
VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE
AND CORRECT COPY OF AN ACTION TAKEN
UNANIMOUS(ABSENT NONE ) AND ENTERED ON THE MINUTES OF THE
BOARD OF SUPERVISORS ON THE DATE
AYES: NOES: SHOWN.
ABSENT: ABSTAIN:
ATTESTED 16. 2004
CONTACT:
SUPERVISORS AND COUNTY ADMINISTRATOR JOHN SWEETEN,CLERK OF THE BOARD OF
CC:
BY ,DEPUTY
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7. ACKNOWLEDGE that, as stated on prior occasions, the current budget problems at the local
and State level are likely to continue through approximately FY 2007-08.
8. ACKNOWLEDGE that County departments have been encouraged to examine closely their
departmental priorities, assumptions and organizational structures.
9. ACKNOWLEDGE that services to the public will be impacted by reductions of the magnitude
projected for FY 2004-05, particularly in view of the budget balancing reductions the County
has made in the two prior fiscal years.
10.ACKNOWLEDGE that reductions of this magnitude will unavoidably result in staffing
reductions, particularly in light of the County's efforts in recent years to eliminate vacant
positions.
11.DIRECT the Administrator, through the County's Labor Relations Office, to begin as soon as
practicable, discussions with employee representatives regarding the anticipated scope and
scale of program and staffing reductions so that employees may be well informed.
12.ACKNOWLEDGE the importance of working with our State representatives, CSAC and the
Urban Counties Caucus; as well as our colleagues in the cities and districts; in ensuring that
the State budget is not balanced on the back of local government.
13.ACKNOWLEDGE the importance of the local initiative being circulated by CSAC and the
League of California Cities that would place on the ballot a constitutional amendment making
more difficult the transfer of local revenues to the State and the imposition by the State of
unfunded mandates on local government.
14.DIRECT the County Administrator to schedule a budget workshop for the afternoon of
Tuesday, April 20, 2003, at which more details regarding the projected budget may be
presented; along with presentations by affected County departments, employee
representatives, community-based agencies, and others who may wish to provide input.
15.DETERMINE that public hearings for the Recommended Budget for FY 2004-05 will take
place at 9:00 a.m., Monday, June 14 through Friday, June 18, 2004.
16.DETERMINE that the Board will consider adoption of the Recommended Budget for FY 2004-
05, including any changes directed by the Board during public hearings, at 1:30 p.m.,
Tuesday, June 29, 2004.
BACKGROUND
The County is faced with a budget shortfall in FY 2004-05 of approximately $82 million. This
estimate is based on a projected local budget shortfall of$53 million, and a potential loss of
$29 million in property tax funds as a result of the State's fiscal crisis. Because these figures
represent net County costs and revenues, the actual programmatic impact will be larger to the
degree that local funds are used to match federal and State program revenues.
State Budget
This report will not dwell on the potential impact of the State budget, inasmuch as the Board
has received two prior reports on this issue. The Governor's proposed budget would shift
$1.336 billion in property tax revenues from local government to schools. Counties would
absorb a disproportionate share of this loss—76%. The impact on Contra Costa County would
be roughly $29 million. This loss of property tax revenue would be permanent, adding to
ongoing losses that amount to $123 million in the current year and more than $1 billion since
FY 1992-93 for Contra Costa,Counly alone. Other programmatic reductions in the Governor's
proposed budget would result in undetermined losses or costs to County programs that might
approach tens of millions of dollars.
Your Board has supported as a "working concept" the alternative local government proposal
recommended by the Legislative Analyst that would allocate a local government reduction, if
needed, on a more fair and equitable basis among counties, cities, districts and redevelopment
agencies. The cost to the County of Contra Costa under this proposal is estimated by CSAC
to be roughly $8 million. It remains to be seen if this proposal will receive serious
consideration by the Legislature and, if so, what its final details would include. We will be able
to report in greater detail about the State budget following release of the Governor's May
Revise.
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Local Budget Problem
The County is faced with a local budget problem that results from a lack of alignment between
anticipated expenses and revenues. Put differently, the rate of increase in anticipated costs is
greater than the rate of increase in anticipated revenues. This variance is attributable to both
one-time and ongoing factors, and may be summarized as follows (numbers in millions):
FY 2004-05 Local Budget Shortfall
-$37 Local Revenue Growth
$28 Fund Balance Decline
62 Net Cost Increase
$53 Estimated Budget Shortfall
Local Revenue Growth. A review of current and prior year revenue trends suggests the
County will experience an increase of approximately $19 million in general purpose revenues.
This includes property tax, vehicle license fee revenue, sales tax, interest on deposited funds
and other revenues that are subject to the Board's discretion. It is also assumed the County
will receive prospectively its full share of vehicle license fees or backfill that were "borrowed"
by the State during the current fiscal year. That assumption entails $18.2 million in added
general purpose revenues. Overall, the amount of local revenue growth is anticipated to be
$37 million.
Fund Balance Decline. Year-end fund balance results when actual expenses are less than
those budgeted, and/or when actual revenues are greater than those budgeted. The more
conservative an organization's approach to budgeting, the larger fund balances tend to be.
Contra Costa County, because of its conservative approach to budgeting, has historically
enjoyed healthy year-end fund balances. These balances have always been used as
"general purpose revenue" to help fund the following year's budget.
Because of fiscal challenges during the past two fiscal years, the County has been forced to
become more aggressive in its budgeting approach. Both expenses and revenues have been
budgeted more closely. As a result, year-end fund balances have begun to decline. At the
same time, as the County has begun to systematically reduce the number of funded vacant
positions, salary savings that would otherwise produce fund balance at the end of the year
have begun to evaporate.
Indeed, in the current year the County will not experience the same level of"unanticipated"
revenue as in prior years, reducing fund balance by $11 million. Expenditures in departments
and in non-departmental cost centers will more closely approximate budgeted amounts,
reducing fund balances by another$17 million. The net result is a year-to-year decline in
fund balance of$28 million that otherwise would have been available to help in funding next
year's budget.
Net Cost Increases. The County will experience net County cost increases in FY 2004-05 of
approximately $62 million. The major elements making up this increase are the following
(numbers in millions):
Net Cost increases FY 2004-05
$30.0 Wage & Benefits Increase
$14.8 Retirement Rate Increase
$10.6 Loss of One-Time POB Credit
$5.5 Workers Compensation Cost Increase
1.5 Paulson Litigation Settlement Cost
$62.4 Total Net Cost Increase
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Wage and benefit increases result from cost-of-living adjustments that become effective
October 1, 2004: 3% for non-safety employees, and 5% for safety employees. The
retirement rate increase identified above results primarily from the Retirement Board's
decision to reduce its assumed investment return rate from 8.35% to 8.0%. That change
added approximately $8.2 million to the County's net costs. An additional net retirement cost
of$1.5 million results from reconciliation of final costs for the Retirement Board's Paulson
litigation settlement.
Of significance is the one-time year-to-year loss of a credit toward the County's retirement
rate that was received in FY 2003-04, but that will not be available in FY 2004-05. The Board
will recall that by virtue of its issuance of pension obligation bonds (POBs) last year, it
received from the Retirement Board a one-time credit for payments it had already made to the
retirement system. The loss of that credit in the budget year amounts to a year-to-year"cost
increase." This credit loss will not impact out-year budgets.
The remaining significant element affecting the budget year's net cost increase is growth in
the County's workers compensation costs. As a self-insured employer, the County is required
by statute to maintain a reserve (the Workers Compensation Trust Fund) sufficient to pay the
cost of current and anticipated future liabilities. Until recently, the County had maintained a
healthy reserve. Increased payouts in the last several years, however—as a result of higher
indemnity costs and higher medical costs— have reduced that reserve to an unacceptable
level.' Those cost increases will escalate as a result of the impact of AB 749, which became
effective January 1, 2003. Departments have been directed, as a result, to include within
their budgets a 50% increase in their contributions to the County's Workers Compensation
Trust Fund —a $10 million increase over the current annual $20 million contribution. The net
cost of this increase after anticipated offsetting State and federal revenues is $5.5 million.
Your Board will receive a detailed report on the status of the County's workers compensation
program at your meeting of April 6, 2004.
Budget Approach
As noted above, departments have been directed to prepare budget reduction plans for two
different scenarios: a 10% reduction and a 20% reduction in net County cost. Reduction
plans are due to the County Administrator by April 2. Discussions between departments and
the Administrator's budget staff will begin at that time regarding programmatic impacts.
It is worth noting that these reductions, in and of themselves, may not be sufficient to close
the anticipated budget gap. It will also be necessary for the Administrator to explore other
areas of costs savings or revenue enhancement in non-departmental cost centers to identify
an additional roughly 5% in net County cost savings.
Needless to say, the challenge before us is daunting. In developing a spending plan for the
coming year, the Board will need to hear from all those who have a stake in the viability of the
County's service delivery capacity: the members of the public we are all here to serve,
particularly those in need; the individuals and organizations that provide the services, both in
the community and within our County workforce; and the very capable managers who lead
and guide our organization. With guidance from the Board, and the creative cooperation of
the County's excellent department heads, we will produce a balanced budget that meets the
most pressing needs of our community.
Four years ago,the County's Workers Compensation Trust Fund enjoyed an actuarial confidence level of 90%.
That funding adequacy has now dipped to approximately 35%. The increase in contributions noted above is
expected to raise the confidence level of the fund to 50%.
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ADDENDUM TO ITEM D.2
March 16, 2004
On this day the Board of Supervisors considered report on the outlook for the
2004/2005 County Budget from the County Administrator.
The Board invited comments from the public, and the following individuals spoke:
David Carrillo, 205-39th Street, Richmond(Familias Unidas);
Rollie Katz,P.O. Box 2229 Martinez, (PEU Local No.1).
After further discussions, the Board ACCEPTED the following recommendations;
1. ACKNOWLEDGED that the County faces a local budget shortfall of
approximately$53 million,representing roughly 16%of general purpose
revenues (including available fund balance), in FY 2004-05;
2. ACKNOWLEDGED that, in addition to this estimated local shortfall, the
County faces loss of$29 million in property tax revenues,representing
roughly 9% of available general purpose revenues,plus other significant
programmatic impacts, if the Governor's Proposed Budget for FY 2004-05
is enacted;
3. ACKNOWLEDGED that these shortfalls represent a combined potential
shortfall of$82 million, representing 25%of the County general purpose
revenues in FY 2004-05;
4. ACKNOWLEDGED that the programmatic consequences of an$82
million shortfall will be much larger because the County will not be able
to draw down or provide the required match for substantial additional
State and federal program funding;
5. ACKNOWLEDGED that County Departments have been directed by the
County Administrator to prepare two sets of budget reduction plans,
representing net County cost reductions of 10% and 20%, to assist the
Administrator in preparation of a Recommended Budget for board
consideration in June;
6. ACKNOWLEDGED that this approach will require the Administrator to
successfully identify added non-departmental budget savings representing
roughly 5% of net County cost, and DIRECTED the Administrator to
diligently pursue the identification of such savings;
7. ACKNOWLEDGED that, as stated on prior occasions, the current budget
problems at the local and State levels are likely to continue through
approximately FY 2007-08;
8. ACKNOWLEDGED that County departments have been encouraged to
examine closer their departmental priorities, assumptions and
organizational structures;
9. ACKNOWLEDGED that services to the public will be impacted by
reductions of the magnitude projected for FY 2004-05,particularly in
view of the budget balancing reductions the County has made in the two
prior fiscal years;
10. ACKNOWLEDGED that reductions of this magnitude will unavoidably
result in staffing reductions,particularly in light of the County's efforts in
recent years to eliminate vacant positions;
11. DIRECTED the Administrator, through the County's Labor Relations
Office, to begin as soon as practicable, discussions with employee
representatives regarding the anticipated scope and scale of program and
staffing reductions so that employees may be well informed;
12. ACKNOWLEDGED the importance of working with our State
representatives, CSAC and the Urban Counties Caucus; as well as our
colleagues in the cities and districts; in ensuring that the State budget is
not balanced on the back of local government;
13. ACKNOWLEDGED that the importance of the local initiative being
circulated by CSAC and the League of California Cities that would take
place on the ballot a constitutional amendment making more difficult the
transfer of local revenues to the State and the imposition by the State of
unfunded mandates on local government;
14. DIRECTED the County Administrator to schedule a budget workshop for
the afternoon of Tuesday, April 20, 2004, at which more details regarding
the projected budget maybe presented; along with presentations by
affected County departments, employee representatives, community-based
agencies, and others who may wish to provide input;
15. DETERMINED that public hearings for the Recommended Budget for FY
2004-05 will take place at 9:00 a.m., Monday, June 14 through Friday,
June 18, 2004;
16. DETERMINED that the Board will consider adoption of the
Recommended Budget for FY 2004-05, including any changes directed by
the Board during public hearings, at 1:30 p.m., Tuesday, June 29, 2004.
After continued discussions, the Board further DIRECTED the County
Administrator to :
• IDENTIFY potential downstream costs; and
• CONTINUE to communicate with other local government agencies,
cities, school districts, and special districts and keep them apprised of
our current Budget activities.
Supervisor Gioia moved the motion,which was seconded by Supervisor DeSaulnier.
Motion passed.
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