Agenda

Return

D. 2

To:	Board of Supervisors
From:	David Twa, County Administrator
Date:	February 14, 2012

Contra

Costa

County

Subject:

2011/12 FY MID-YEAR BUDGET STATUS REPORT

APPROVE	OTHER
RECOMMENDATION OF CNTY ADMINISTRATOR	RECOMMENDATION OF BOARD COMMITTEE

Action of Board On: 02/14/2012

APPROVED AS RECOMMENDED

OTHER

Clerks Notes:

VOTE OF SUPERVISORS

AYE:

John Gioia, District I Supervisor
Mary N. Piepho, District III Supervisor
Karen Mitchoff, District IV Supervisor
Federal D. Glover, District V Supervisor

ABSENT:

Gayle B. Uilkema, District II Supervisor

Contact:	Lisa Driscoll, County Finance Director 925-335-1023
cc:	Robert Campbell, County Auditor-Controller

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 14, 2012
David Twa,

BY:	, Deputy

RECOMMENDATION(S):

ACCEPT report regarding the mid-year status of the 2011/12 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 24, 2012.

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.

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 2011/12 Adjusted Budget only in those areas noted below. However, as noted later in this report, there are several 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 2011/2012 Budget as of December 31, 2011. 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, 2011, with 50% of the fiscal year having passed, actual expenditures for all County funds totaled 41.5% of planned spending, while actual revenues totaled 39.1% of amounts anticipated for the year. Expenditure figures compare favorably to the same period last year (42.9%), while revenue figures do not (42.8%). Comparison data for the same period in prior years are 45.3% and 44.5% in fiscal year 2009/10, 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 46.1% of planned spending, and actual revenues totaled 32.5% of amounts anticipated for the year. As with all funds, these figures compare favorably to 47.0% and 36.3% respectively for the same period last year. Comparison data for the same period in prior years are 47.7% and 36.9% in fiscal year 2009/10, 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. 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.

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. Recent 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.
Prop 172 Combined public safety sales tax revenues for September through November were up compared to the same months in 2010. Discussions with the State Board of Equalization (“SBOE”) staff reveal that on a year-to-date basis, percentage comparisons with year-ago public safety payments have been skewed by retroactive accounting adjustments. These adjustments were necessitated by past under-allocations of tax.

Expenditures

Normally salary costs are understated at mid-year. Unanticipated vacant positions lessen salary costs, and retirements were at all-time highs for calendar year 2011. Some reduction in permanent salary costs is anticipated in the second half of the fiscal year due to additional retirements, which tend to occur in March, however, the majority of these savings will be spent in retiree pay-outs. The most significant savings are from negotiated changes to pension cost sharing.
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, 2011. 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, 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 $313 million spread over approximately 50 accounts. It consists primarily of $262.8 million in taxes for current property. Of the taxes for current property, $155.0 million is current secured, $2.8 million is supplemental, $7.6 million is unitary, $90.3 million is Property Tax in Lieu of Vehicle License Fees (from non-realignment vehicle license fees) and $7.1 million is current unsecured. Other significant budgeted revenue is real property transfer tax ($5.0 million), sales tax ($11.7 million), and interest income ($900 thousand). Based on six months of experience, General Purpose Revenues are 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. The following departments merit special attention:

Clerk-Recorder. The Clerk-Recorder department is estimating an overage of $350,000, which is primarily from a shortfall in estimated revenue. The department budgeted reimbursement revenue from the State of California for past election claims that are not anticipated to be received in the current year. The total revenue shortfall is projected to be approximately $1.1 million, but will be partially mitigated by salary savings of $730,000 from the extended vacancy for 16 full-time equivalent positions. The Clerk-Recorder department will continue to monitor budget performance for the remainder of the year.

Department of Child Support Services. The Department of Child Support Services (DCSS) is projected to end the 2011/12 fiscal year with a surplus of approximately $1,285,000. DCSS is funded 100% by the State of California; therefore, there is no savings to the County. This unspent revenue includes adjustments for the hiring of sixteen new staff members and $250,000 for State approved office renovations. The Department plans to use any unspent revenue at the end of the fiscal year to pre-pay a portion of their OPEB liability.

Department of Employment and Services. The Employment and Human Services Department (EHSD) expects to meet its financial target at the end of the year. However, significant challenges remain. Applications for social services programs have jumped to their highest levels due to the sustained economic downturn at the same time that funding and trigger cuts have become the norm.

Fifty percent of the Department’s General Fund budget will be utilized to support the General Assistance program this fiscal year. Increases in General Assistance caseloads since FY 2009/10 account for approximately $9.3 million in General Fund costs. This is an increase from $4.3 million in the 2008/09 fiscal year, representing a 116% increase.

Many of the programs administered by the Department were realigned under the State’s 2011/12 Budget Act. The realigned programs include Adoption Services; Foster Care; Child Welfare Services; Adult Protective Services; and the Child Abuse Prevention, Intervention and Treatment (CAPIT) program. Fiscal year 2011/12 funding to these programs is now dependent on sales tax revenues collected by the State. Based on December 2011 year-to-date sales tax revenue estimates, the Department may experience slightly higher realignment revenues compared to their 2011/12 budget.

EHSD is anticipating a $1.7 million increase in the County share of Foster Care Assistance costs due to increases in Foster Family Home rates ordered by the State Supreme Court effective May 31, 2011. In order to mitigate the impact of this increased County share to the Department’s budget, all expenditures are closely monitored including contracted services, repairs and maintenance, staff travel and purchases of supplies and equipment.

The State’s 2011/12 Budget Act included trigger cuts, effective January 1, 2012, which reduce In-Home Supportive Services (IHSS) authorized hours by 20% and childcare funding by 4%. Due to a legal challenge in the reduction of IHSS hours, a Federal court issued a temporary restraining order against the State. At this time it is uncertain if the reduction in hours will materialize in the current fiscal year due to the lawsuit. It does not appear that the reduction to childcare funding will impact EHSD’s budget. The California Department of Education identified contract “under-earnings” from some providers. The Department applied this revenue to backfill the budget cuts and avoid cutting childcare programs.

General Services Department. The General Services Department is estimating an overage of $124,000, which is composed of costs for unbudgeted, emergency repairs. These five emergency repairs are as follows: $8,700 for fire clearing at Juvenile Hall, $44,500 for sidewalk repairs at the West County Detention Facility, $25,400 for a gas leak at Orin Allen Youth Rehabilitation Facility, $10,000 for a water leak at a county solar power site, $15,300 for work at various Public Works zones and $20,000 for sewer repair at Orin Allen Youth Rehabilitation Facility.

Health Services Department. Despite the Departments on-going efforts to implement Health Care Reform and the new EPIC Electronic Medical Records system, construction of the new West County Clinic, and other pressures on revenue and expenses, all areas of the Department are anticipated to end the fiscal year within their 2011/12 General Fund budget.

Justice Departments and AB 109 Realignment. In early October 2011, the Board adopted a public safety realignment plan and budget based on the best information available at the time, but also with the understanding that the first year of realignment would be a learning process to inform better planning in future years. With four months of experience with public safety realignment, the Community Corrections Partnership (CCP) reports significantly higher numbers of AB 109 population (comprising parole violators, new AB 109 commitments, and post-release community probationers) than predicted by the State for our county, but lower overall population than anticipated in early County projections. The Sheriff reports the number of parole violators currently in "county prison" at about double and the number of monthly new AB 109 commitments at about triple what the State had predicted. The average length of custody for a parole violator has been on average 71 days vs. 30 days predicted by the State and 90 days predicted by County staff. Probation reports that the number of post-release community supervision (PRCS) parolees is nearly double the number predicted by the State for our county. Health Services reports that the request for shelter beds/housing is currently nearly twice the eight beds reserved for use at any one time by realignment clients. In addition, demand for alcohol and other drug, and outpatient mental health services is increasing among clients during the post-release phase.

Probation has been required to ramp up faster than planned while the Sheriff has been able to manage the current population with only one additional jail unit being opened instead of two, so far. The CCP reports that a relatively low number of PRCS parolees have requested or utilized County shelter, transitional housing, or substance abuse treatment services. Realignment revenue from the State has been received at a slow pace and had been cause for concern until the State recently clarified that it would make 12 payments to counties this fiscal year instead of 10. In summary, if the current pace continues, we are cautiously optimistic that the current year State allocation will be adequate to cover first year costs of realignment as currently programmed. Future capacity to expand realignment to encompass re-entry programs will depend on our success in securing a more advantageous funding formula for our County and in protecting the funding stream into perpetuity.

Though not related specifically to the midyear budget projections, we note that the longest term for a new AB 109 commitment to County prison is 4.5 years (which would translate to about 26 months in County Jail). Other counties have reported even longer commitments. County detention facilities were not designed for long-term commitments. This is one of the problems with realignment that merits reconsideration.


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 significant increases in pension costs, and a loss in property tax revenue, which they will offset through the utilization of $7.4 million from fund balance. The District began the year with $20.4 million in reserves and will end the year with $13.1 million. The District is diligently working to minimize expenditures in this fiscal year. Local 1230 members made considerable labor concessions, which decreased salaries. They negotiated a 10% wage reduction for current employees and the equivalent of a 20% decrease for new employees. To increase revenue, the District is proposing a parcel tax on the November 6 ballot.

Conclusion

As noted, the overall General Fund budget is balanced. While a hiring freeze remains in effect in anticipation of May budget actions, no lay-offs are expected. In the next few months, the County will again face 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 2012/13 budget direction that includes significant County cost reductions achieved through labor negotiations to address declines in local County revenue and replace one-time adjustments and pension increases from the current year. Due to timing of the County and State budgets, the fiscal year 2012/13 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 24 with the Recommended Budget for FY 2012/13 (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 15.

CONSEQUENCE OF NEGATIVE ACTION:

None.

CHILDREN'S IMPACT STATEMENT:

None.