COUNTY OF SAN MATEO

Inter-Departmental Correspondence

County Manager’s Office

 

DATE:

December 11, 2008

BOARD MEETING DATE:

December 16, 2008

SPECIAL NOTICE:

None

VOTE REQUIRED:

Majority

 

TO:

Honorable Board of Supervisors

FROM:

John L. Maltbie, County Manager

SUBJECT:

Budget Study Session on Structural Budget Deficit

 

RECOMMENDATION:

1. Accept the report on the County's Structural Budget Deficit

2. Review key revenue and expenditure assumptions and policy issues

3. Provide direction on a multi-year approach for eliminating the structural deficit by FY 2013

4. Provide direction on deficit reduction strategies to set Net County Cost targets for departments

 

VISION ALIGNMENT:

Commitment: Responsive, effective and collaborative government.

Goal 20: Government decisions are based on careful consideration of future impact, rather than temporary relief or immediate gain.

 

This session contributes to this goal by providing a public forum for the Board to review the County’s structural budget deficit and five-year projections, and provide direction to staff on a multi-year plan to eliminate the deficit with ongoing solutions by FY 2013.

 

BACKGROUND:

In December 2007, staff conducted a study session for the Board to discuss and plan for the elimination of the General Fund structural deficit by FY 2013. The deficit at the time was projected to grow from $25 million in FY 2008 to $86.2 million in FY 2013 given current trends in discretionary revenue growth and spending. The FY 2009 budget was balanced with Reserves and $8 million in ongoing solutions from departments. When the Board adopted the budget in September, the structural deficit was $28.6 million.

 
 

DISCUSSION:

Based on updated revenue estimates for FY 2009, the structural deficit has grown from $28.6 million to $41.1 million. The $12 million increase is mainly due to continued declines in property-related revenues, interest earnings, and Public Safety sales tax. It is anticipated that additional reductions from the State will be made during the year given its $15+ billion deficit. The Governor has announced that the State deficit could grow to $41.8 billion by July 2010 if the Legislature fails to take action.

 

Given current year revenue shortfalls and continued economic recession, as well as the need for the County to prepare for severe cuts in State funding, projections for the structural deficit have been updated to further reduce revenue estimates and significantly reduce assumptions for future growth in costs.

 

The structural deficit is now projected to grow from $41.1 million in FY 2009 to $43.5 million in FY 2014. Major revenue and expenditure assumptions for FY 2010-2014 projections include:

    • Average annual growth in discretionary revenue of $9.8 million or 2.9%

    • Average annual growth in Net County Cost of $10.3 million or 2.7%

    • 0% salary increases after current labor MOUs expire; step increases and applicable benefits included

    • 30% increase in retirement rates in FY 2011, then 2.5% annual increase

    • 30% increase in retiree health contribution in FY 2011, then 2.5% annual increase

    • 10% annual increase in Health benefits

    • Reduction in Medical Center contribution from $72 million to $50 million

    • No building and operations costs for jail/re-entry facilities

    • 0% increases for community-based organizations (CBOs) beginning FY 2010

 

Reserves will continue to be used as part of a multi-year plan to eliminate the deficit. Departments will be asked to develop ongoing solutions of $10.9 million each year until FY 2013, for a total of $43.5 million. The $43.5 million represents 4% of the total General Fund budget.

 

Direction from your Board will be used to set preliminary Net County Cost targets for departments in early January. A mid-year County budget update will be provided to the Board on January 27, 2009, and targets adjusted in February based on updated County and State information. The Recommended Budget will be submitted to the Board on May 22 and public hearings held the week of June 22.

 

A draft slide presentation for today’s study session was sent to Department/Division Directors and Fiscal Officers for review and comment, and was presented to the Board Finance and Operations Committee at its December 11 meeting.

 

FISCAL IMPACT:

None. Direction provided by the Board at the study session will be used to prepare budget targets for the upcoming FY 2009-10/2010-11 budget cycle.