Agenda

Return

D. 1

To:	Board of Supervisors
From:	David Twa, County Administrator
Date:	February 15, 2011

Contra

Costa

County

Subject:

2010/11 FY MID-YEAR BUDGET STATUS REPORT

APPROVE	OTHER
RECOMMENDATION OF CNTY ADMINISTRATOR	RECOMMENDATION OF BOARD COMMITTEE

Action of Board On: 02/15/2011

APPROVED AS RECOMMENDED

OTHER

Clerks Notes:

VOTE OF SUPERVISORS

AYE:

John Gioia, District I Supervisor
Gayle B. Uilkema, District II Supervisor
Karen Mitchoff, District IV Supervisor
Federal D. Glover, District V Supervisor

Contact:	Lisa Driscoll, County Finance Director 925-335-1023
cc:	Lisa Driscoll, County Finance Director Robert Campbell, County Auditor-Controller All County Departments (via COB)

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: February 15, 2011
David Twa,

BY:	, Deputy

RECOMMENDATION(S):

ACCEPT report regarding the mid-year status of the 2010/11 County Budget.

FISCAL IMPACT:

This report is informational and will be used for planning purposes and budget development. Additional recommendations will be presented to the Board during Budget Hearings on April 12, 2011.

BACKGROUND:

The Administrator’s Office annually reports the status of the Budget as of December 31 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. Mid-year 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 following report is a status of the current year – a FY 2011/12 update on potential State Budget impacts will be presented in early March.

BACKGROUND: (CONT'D)

The mid-year budget status report is important in that 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.

Our review of departmental budgets at this mid-year juncture suggests that departmental expenditures and revenues are performing substantially in accord with expectations and are projected to exceed the FY 2010/11 Adjusted Budget only in those areas noted below. However, as noted later in this report, there are several large variables which are affecting this projection. The Board is not being asked to take any corrective action at this time. Recommendations will be made as part of the Budget Hearings on April 12. 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 and further substantially impact in a negative way our outlook for the ensuing fiscal year.

This report provides an overview of the status of the County’s FY 2010/2011 Budget as of December 31, 2010. Included in this report are tables that summarize the County’s General Fund mid-year fiscal condition (Attachments A, B, and C).

As of December 31, 2010, with 50% of the fiscal year having passed, actual expenditures for all County funds totaled 42.9% of planned spending, while actual revenues totaled 42.8% of amounts anticipated for the year. These figures compare favorably to 45.3% and 44.5% respectively for the same period last year. Comparison data for the same period in prior years are 45.6% and 43.6% in fiscal year 2008/09, 44.5% and 47.9% in fiscal year 2007/08, 43.8% and 45.5% in fiscal year 2006/07, and 42.6% and 44.2% in fiscal year 2005/06.

For the General Fund alone, actual expenditures totaled 47.0% of planned spending, and actual revenues totaled 36.3% of amounts anticipated for the year. As with all funds, these figures compare favorably to 47.7% and 36.9% respectively for the same period last year. Comparison data for the same period in prior years are 50.1% and 37.7% in fiscal year 2008/09, 47.5% and 39.0% in fiscal year 2007/08, 47.0% and 39.7% in fiscal year 2006/07, and 46.4% and 38.6% in fiscal year 2006/07. Mid-year actual figures over time reflect continued tightening budgets. The specific dollar amounts were as follows:

As noted above, County expenditures and revenues at mid-year were within acceptable parameters given the Board approved budget. The difference between budgeted expenditures and revenues are due to prior year encumbrances, restricted reserves, and other carry forwards. The variances in anticipated expenses and revenue receipts are noted at the mid-year; the majority of this variance was anticipated due to the Board’s decision to fund certain programs temporarily using reserves.

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. Normally departments that rely on State and federal revenue experience a two to three-month lag in revenues. State actions continue to significantly increase these delays.
As was the case during the last several fiscal years, cash-flow and interest income have been impacted due to the State’s delay in payments. The direct impact on revenue for fiscal year 2010/11 thus far has been the posting of negative interest to the General Fund due to lack of cash. This was exacerbated by the County not selling tax revenue anticipation notes (TRANs) again this year due to unfavorable market conditions.

Expenditures

Normally salary costs are understated at mid-year. Unanticipated vacant positions lessen salary costs, though vacancy savings continue to lag behind prior years. Some reduction in permanent salary costs is anticipated in the second half of the fiscal year due to retirements, which tend to occur in March, however, the majority of this savings will be spent in retiree pay-outs. The most significant savings are from negotiated furlough days.
Employee benefit costs are understated at mid-year because the budget includes appropriations for health insurance cost increases that did not become effective until the end of the second quarter, December 31, 2010. Actual expenses for employee health insurance will increase the second half of the year.
Service and supplies costs are generally understated throughout most of the fiscal year because of the time required to process payments to vendors and contractors. This payment cycle averages one month in arrears. Additionally, in very tight fiscal years – as this one is – departments tend to wait later in the year to make purchases to ensure that resources are not needed elsewhere.

General Purpose Revenue

General Purpose budgeted revenues total $310 million (down from $349 million two years ago) spread over approximately 50 accounts. It consists primarily of $255.1 million in taxes for current property. Of the taxes for current property, $153.0 million is current secured, $1 million is supplemental, $5.8 million is unitary, $88.9 million is Property Tax in Lieu of Vehicle License Fees (from non-realignment vehicle license fees) and $6.5 million is current unsecured. Other significant budgeted revenue is real property transfer tax ($5.0 million), sales tax ($11.2 million), and interest income ($1 million). Based on six months of experience, General Purpose Revenues are not expected to meet budgeted levels. This projection is contingent upon several factors. All of these factors are affected by the economy and housing market.


In summary, the over-all County General Fund budget is balanced due to the appropriation and use of reserves. However, the following departments are currently projected to exceed their General Fund allocations:

Employment and Human Services Department

The Employment and Human Services Department is anticipated to end the current fiscal year within its budget allocations. However, the General Assistance program is anticipated to be overspent by approximately $3.2 million. This over expenditure is the result of increased caseloads and payments required under the Lugo, et.al vs. Contra Costa County settlement agreement. The Department is able to cover this increased expense in the current year due to a significant number of unanticipated vacancies. However, the Department is anticipating a $3.7 million deficit in this program during the 2011-12 fiscal year for which there are no identified funding sources. Due to increased costs in this entitlement program which are not funded, the Department will eliminate or reduce services to other essential programs.

EHSD provides funding for board and care costs of children in out-of-home placements under AB3632. Due to the Governor’s line item veto of funding for AB3632 services in the State budget, the Department is working with school districts to cover the cost of board and care in the current year. However, the County may be responsible for these costs depending on the outcome of pending litigation. Reimbursement for portions of these costs is claimed through the SB90 process. The elimination of SB90 funding in the 2010/11 State budget will delay the receipt of $3.2 million for fiscal years 2006/07 through 2009/10.

Health Services ($750,000)

The Mental Health Division of the Health Services Department is anticipated to end the current fiscal year with a General Fund budget shortfall of approximately $750,000. This shortfall is due to the elimination of funding in the 2010/11 State budget for the AB3632 program. The AB3632 program provides mental health services to school age children. On October 8, 2010 Governor Arnold Schwarzenegger vetoed the funding for these services and lifted the mandate on California counties to provide those services. However, it is questionable whether the Governor had the authority to relieve counties from providing the mandated services. Contra Costa County, along with 39 other counties, has filed for relief from the mandate since it is unfunded as a result of the Governor’s veto. This legal action is under consideration and review by the Sacramento Superior Court. In addition, it is possible that the State Legislature could provide a remedy to counties through separate legislation. Depending upon the outcome of these legal or legislative remedies, the total amount of the shortfall could be less.

In addition, reimbursement for a portion of the cost of AB3632 services to non-Medi-Cal children is claimed through the SB90 Mandated Services process. The elimination of funding in the 2010/11 State budget will delay the receipt of $9.5 million in claims for fiscal years 2007/08 through 2009/10.

Probation Department ($1.1 million)

The Probation Department continues to be impacted by projected shortfalls in estimated revenue in the amount of $1.2 million. This is primarily composed of $850K in Vehicle License Fee revenue ($450K in Juvenile Probation and $400K in Juvenile Justice Crime Prevention Act), $225K in sales tax realignment revenue and a reduction of $150K in an Office of Traffic Safety Felony DUI grant. This revenue shortfall is largely mitigated by projected cost savings of $1.1 million in salaries and benefits due to prudent personnel management by the County Probation Officer and favorable concessions made by our labor partners. The remaining departmental shortfall is increased by approximately $1.0 million; $400K from placing Wards out of county, $200K from increased juvenile medical costs, $200K from elimination of the Service Integration Team and $200K from county foster care aid (not eligible for State or Federal reimbursement). The Probation Department will attempt to achieve current year cost savings through early implementation of fiscal year 2011/12 service reductions.

Public Defender ($700,000)

The Public Defender continues to experience operational difficulties from reduced attorney staff and retirement of senior attorneys resulting in the department referring certain caseloads to the Contra Costa County Bar Association. Though the caseload of the Bar Association has increased, the current composition of those cases has not resulted in a need to augment the County’s current service contract. To date, the Public Defender has experienced $180K in one-time, Tier III retirement conversion costs, which has partially contributed to the projected shortfall. The Contra Costa County Defender’s Association and the county have reached a tentative agreement that is estimated to result in cost savings of $332,000 for fiscal year 2010/11. The Public Defender will continue to work with the County Administrator’s Office to explore operational efficiencies during the 2011/12 budget development process.


Special Districts

Contra Costa County Fire Protection District

The Contra Costa County Fire Protection District’s general operating fund is projected to have a net fund cost this fiscal year, primarily due to a loss in property tax revenue, the “Chevron” payment, and an increase in services and supplies, which they will offset through the utilization of $8.1 million from fund balance. The District began the year with $17.6 million in reserves and will end the year with $9.5 million. The District is diligently working to minimize expenditures in this fiscal year, including the elimination of a crew. Local 1230 members and fire management raises have been deferred and other programs continue to be evaluated. In addition, the workers compensation increase has also been deferred. To increase revenue, the District is considering proposing a parcel tax or benefit assessment.


Conclusion

As noted, the overall General Fund budget is balanced given limited/planned use of reserves. A hiring freeze will be implemented to fix seniority lists in anticipation of lay-offs scheduled for May 31. Again, the County Administrator has recommended that fiscal year 2011/12 reductions be made immediately after adoption of the local budget and no later than June 1. These actions will help improve fund balance this fiscal year.

In the next few months, the County will again face massive fiscal challenges both locally and from the State. The development of the State budget is being closely followed by fiscal staff throughout the County. More detailed information will be presented to the Board in early March.

County department heads have been provided 2011/12 budget direction that includes significant County cost reductions necessary to address declines in local County revenue and replace one-time adjustments from the current year including furloughs. Due to timing of the County and State budgets, the fiscal year 2011/12 budget will likely be presented in two phases again. Phase one will address the local problem and phase two will address State budget impacts.

The County Administrator will return to the Board of Supervisors on April 12 with the Recommended Budget for FY 2011/12 (phase one) and the Planning Budget for FY 2012/13. Phase two will be scheduled once State Budget details/impacts are known. It is anticipated that the Board will adopt a Final Budget on May 3.

CONSEQUENCE OF NEGATIVE ACTION:

None.

CHILDREN'S IMPACT STATEMENT:

None.

CLERK'S ADDENDUM

Speakers: Ralph Hoffman, resident of Contra Costa County.