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August 17, 2007 To: Board of Supervisors From: Rick Benson, County Administrative Officer Subject: Recommended Budget for Fiscal Year 2007-08 INTRODUCTION Attached is the County Administrative Office’s budget recommendations for FY 2007-08. The recommended County Budget, excluding debt service funds, internal service funds, enterprise funds and special districts of $81,038,561 is $911,064 or 1.15% higher than last year’s budget when adjusted for a change in the treatment of the Airport Fund. The recommended budget is structurally balanced, targeting available resources to fulfill the general goals of the County. The revenues needed by departments to protect public health and safety, provide quality health and human services, protect the environment, plan for growth, renew infrastructure, enhance quality of life, and carry out other mandated and discretionary programs will increase modestly in FY 2007-08. This increase is possible due to modest growth in commercial and residential real estate values, relative stability in the transient occupancy tax (TOT) and a somewhat larger than expected carryover balance from the previous fiscal year. Sales tax revenues, which often reflect the overall financial health of a community, also show a slight increase over last year but remain a concern in light of the Ferguson rockslide. The carryover balance results from the continued fiscal restraint exercised by individual departments, whose management of limited resources in fulfilling their responsibilities remains commendable. The actions your board took last year, as recommended by Mr. Coffield, and a stronger than anticipated revenue performance during FY 2006-07 also contribute to the carryover balance. Continued revenue stability will enable the County to make progress toward achieving its goal of fulfilling the needs of the community in FY 2007-08. The recommended budget only adds 0.5 staff position. An increase in State and Federal transportation funds will enable the County to make some progress on its large backlog of deferred road maintenance and improvement projects. Discretionary revenues are projected to grow by $929,361 above amounts received last fiscal year. However, the use of new discretionary revenues to expand services and finance capital projects must be weighed against the need to build fiscal reserves against future 1 ---PAGE BREAK--- 2 contingencies. In addition, the County employees’ retirement fund continues to require increases in the County’s annual contributions to this fund. Within these constraints the recommended budget allocates $625,000 for the purchase of new and replacement equipment, however most of this is grant funded in the Fire Department. All departments concur with the recommended budget totals, which will enable several departments to make progress toward long-deferred unmet needs. However, the list of services and capital projects needed is far greater than the modest growth in County revenues can accommodate. BUDGET CONCERNS Of primary concern are the ongoing effects of the Ferguson rockslide. Although the direct costs associated with the slide to the County are not substantial, the long-term effects on revenues remain an unknown. It appears that the slide has had an impact on the growth of sales tax revenues. If the local business community continues to bear this negative pressure, significant impacts could be felt throughout the County. Although actions are being taken to address the County's unfunded liability through the issuance of pension obligation bonds, the need to address the $11.8 million figure will continue to be part of the County's obligation for many years to come. The County continues to struggle with its ability to attract qualified employees in several critical areas. As these specific needs are addressed, it is likely that labor costs will increase for impacted departments. Upcoming negotiations with each of the County’s employee unions for new memorandums of understanding (MOUs) could yield unknown across-the-board cost increases. These MOUs may require the County to disburse funds to affected General Fund departments during the fiscal year as precise costs of employee compensation become known for each department, or some departments could be required to absorb new costs. As of this writing, the fate of the Williamson Act remains up in the air. In addition to the approximately $200,000 in lost revenue, if this funding source is eliminated the County will be faced with important policy decisions regarding protection of agricultural land. The County is dealing with some cost factors beyond our control. Energy costs continue to rise affecting all departments. The costs associated with defending indigents within the court system continue to increase beyond our estimates, as do the costs associated with prosecuting, monitoring and confining criminals within our County. As discussed elsewhere, there are significant needs within the Fire Department which need to be addressed in a systematic manner. There are no quick fixes, but initial steps must be taken. BUDGET HIGHLIGHTS The $81 million regular County budget does not include special budgets totaling $11,878,829 for enterprise funds such as the Airport and Waste Management; or internal service funds such as Workers’ Compensation and Group Health. Special budgets have increased by $1,071,173 from FY 2006-07. The budgets for special districts controlled by your board have increased by $84,473 ---PAGE BREAK--- Program-specific revenues are also projected to increase above FY 2006-07 levels. By law, these revenues must be spent for specific, mandated programs or come to the County as direct reimbursements for the cost of providing services. The Board of Supervisors has no discretion in their use. Most State and Federal subventions must be used to operate health and human services programs. Discretionary revenues controlled by the Board of Supervisors will increase this year by about 5% above last year’s actual collections. While discretionary revenues will grow, the County must use much of this money to meet local match requirements for mandated State and Federal programs. Budget totals are summarized below: Total Regular County Budget Last Year $80,127,497 This Year $81,038,561 Increase $911,064 (1.14% increase) Enterprise Funds and Internal Service Funds Last Year $10,807,656 This Year $11,878,829 Increase $1,071,173 (9.9% increase) Special Districts Last Year $1,026,122 This Year $1,110,595 Increase $84,473 (8.2% increase) POSITION REQUESTS There are several new position requests from departments, but only the addition of 0.5 Bailiff is recommended at this time. The full-time Bailiff position is offset by reimbursement from the Superior Court and replaces a previously allocated but unfunded Permanent Part-Time Bailiff position For the past several years the Sheriff has been using Extra-Help employees to fulfill the Bailiff responsibilities. Several of the new position requests are offset either partially or fully by State and Federal dollars, but due to time constraints in completing payroll projections and balancing the Recommended Budget they are not included at this time. These positions may be recommended and submitted for Board review during Final Budget Hearings. The Assessor is requesting to replace an existing position with a similar position, but at a higher level. Staff is currently addressing this issue and the compaction issue in this department. A recommendation will be presented to the Board during Final Budget Hearings. The remaining new positions, as well as the request to address the issue of adding a new level within the Deputy District Attorney series, will require further analysis and will be presented for the Board’s review in late 2007. In addition there are several reclassification requests. Due to time constraints a recommendation is unable to be submitted at this time. The Child Support reclassifications have already been audited and developed by Merit System Services staff and a recommendation will be submitted during Final Budget Hearings for these positions. The remaining requests will be presented for Board review in late 2007. 3 ---PAGE BREAK--- PROVISIONS FOR RESERVES AND CONTINGENCIES The County’s financial soundness depends greatly on its ability to maintain sufficient reserves so that it can weather year-to-year swings in revenues and handle unexpected revenue disruptions. Therefore, the County Administrative Office recommends keeping the $2 million set aside in the previous fiscal year reserved to maintain a one-year ‘cushion’ for the proposed pension obligation bond payments and as a reserve to address the upcoming other post employment benefit liability also known as OPEB. The recommended budget also includes an additional increase in the reserves for workers compensation claims. Currently, this reserve is underfunded. Although a larger reserve is still needed, the proposed $100,000 increase will help to assure that adequate funding is available to address future claims. It is also recommended that a contingency fund of $416,729 be set aside for unanticipated expenses during the upcoming year. This is consistent with past practices. Strong cash balances are not only prudent, they assure financial markets that the County can survive negative State budget impacts and/or downturns in economically sensitive revenues. It is likely that the County will need to finance some future capital expenditures. Therefore, it is absolutely vital to preserve investor confidence in the County’s long-term financial flexibility and creditworthiness, which translates into excellent credit ratings and ensures the County’s access to financial markets at the most favorable interest rates when needed. PROGRAM IMPACTS The recommended budget enables the County to make progress toward a number of goals and objectives. Major program impacts are summarized below: Mental Health – The Mental Health Department will receive increased revenues during FY 2007-08, primarily from Proposition 63, a dedicated State income surtax enacted by voters in 2004 to assist county mental health services. The department will receive over $490,000 in Prop. 63 funding in FY 2007-08 to implement a State-approved plan that includes expanding alcohol and drug services; providing services to assist young adults with mental health challenges; and bringing mental health programs to adults dealing with isolation and the inability to work and live independently Planning – With the completion of the general plan, growth continues to generate demand for land divisions, transportation improvements, environmental reviews, and detailed specific plans throughout the County. The department will have sufficient funding to fill all positions in FY 2007-08. The department, in conjunction with Personnel, will aggressively pursue staff recruitment. Roads – A substantial increase in State and Federal revenues available for transportation will enable the Roads Department to begin making progress on the backlog of road repairs, maintenance, and new projects. Funding from Proposition 1B for STIP/RTIP projects in the amount of $3.38 million is included this fiscal year. The Federal Safe, Accountable, Flexible, Efficient, Transportation Equity Act – Legacy for Users (SAFETEA – LU) funding is also 4 ---PAGE BREAK--- included. The SAFETEA-LU funds of $1.42 million requires a county contribution as a twenty- percent match. A $358,000 county contribution to the Roads fund is also recommended. Probation – The recommended budget includes full funding for a Deputy Probation Officer III. Formerly, 50% of the cost for this position was paid through the Family Violence Response Grant. Along with a decrease in the funding for drug testing, the recommended general fund cost for the probation department is increased by $74,000. Sheriff – The recommended budget will enable the department to continue its efforts to maintain the low vacancy rate within the department allowing the Sheriff to keep deputies on the street. Despite increases in several funding sources, the requested general fund contribution for the Sheriff's Department has increased by $198,000. A portion of the increase is attributable to increased costs for specialized services required of the Coroner. Increased costs for inmate medical care and meals account for much of the $75,000 increase in general fund cost to operate the jail. Fire – The recommended budget proposes several changes to the Fire Department budget. In order to begin capturing costs, we will now include command vehicles on the depreciation/replacement vehicle schedule. The budget also includes a more aggressive vehicle maintenance schedule. Economic Development – Although still part of the Administrative Office, Economic Development is now a separate budget unit. Given the importance of economic development to the county's future, segregating this budget unit will allow for better tracking of economic development activities. Community/Cultural Services – This budget is the result of the process started last year whereby major emphasis for promoting tourism will be conducted by a private nonprofit organization with significant funding from the County. As such, the budget for tourism and other county promotional activities are included in this new budget unit. NON-RECOMMENDED REQUESTS Several requests were made by departments which are not included in the recommended budget. If funds are available at final budget hearings several of these requests may be recommended at that time. Capital needs in the Fire Department are critical and should continue to be reviewed. In order to better serve the public, the Clerk of the Board has requested new technology which will allow for audio of board meetings to be streamed on the Internet both live and on-demand. Technical services has identified the need to update and add some additional equipment in anticipation of further reliance on the Internet for services. CONCLUSION The FY 2007-08 Recommended Budget represents a spending plan incorporating moderate growth. It is fiscally prudent and structurally balanced, with current year estimated revenues exceeding current year anticipated expenses. The recommended budget carefully balances expansion needs with the need to build reserves. In doing so, we are convinced that the recommended spending plan is sustainable. The spending plan makes progress toward addressing the needs of Mariposa County residents while recognizing there are several unmet needs. Although the County continues to face formidable infrastructure and service challenges 5 ---PAGE BREAK--- 6 that are only heightened by continued growth, this recommended budget makes progress in meeting those challenges and builds upon the roadmap already in place. The recommended budget takes advantage of modest revenue growth to address some unmet needs. Importantly, it also allows the County to maintain reserves to enable the County to weather future fluctuations in available resources. Fiscal prudence dictates holding those reserves. While Proposition 1A has brought a measure of budgetary certainty to the State-local partnership, the County must ensure that the Legislature and State Administration maintain the State’s fiscal commitment to mandated programs, which claim more than half of the County budget. The September Budget Hearings will provide opportunities for members of the public to comment on the budgetary recommendations presented here. It is our opinion that the recommended budget not only meets the County’s legal obligations and responds to the needs of the County's citizens, but also is both structurally sound and sustainable into the future.