COUNTY OF SAN MATEO

Inter-Departmental Correspondence

County Manager’s Office

DATE:

December 9, 2009

BOARD MEETING DATE:

December 15, 2009

SPECIAL NOTICE/HEARING:

None

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

David S. Boesch, County Manager

SUBJECT:

Budget Study Session – Deficit Elimination Plan

RECOMMENDATION:

Adopt a Resolution approving a balanced approach, accelerated timeline, minimum reserve levels, and community forums as part of efforts to eliminate the General Fund structural budget imbalance by Fiscal Year 2013.

BACKGROUND:

The County began using Reserves in FY 2007 to balance the General Fund, as operating costs began to outpace growth in revenues. During budget hearings in June 2007, the Board requested a study session on what was then a $25 million structural deficit, projected to grow to $86 million by FY 2013 if no actions were taken. The Board adopted a five-year plan, setting the goal to eliminate the deficit by FY 2013. Since 2007, the County has used over $100 million in reserves to balance the budget, implemented a hiring freeze and reduced 179 positions and $23.5 million in operating costs. Local and state revenues continued to decline. In April 2009, the projected deficit grew to $100 million mainly due reduced revenues and significantly higher retirement costs as a result of investment losses in the Retirement Fund. Departments were directed to prepare scenario plans using 10%, 20% and 30% reductions in General Fund support (Net County Cost).

On August 25, your Board adopted a set of Budget Balancing Principles that reflect the County’s vision and values for the community and County organization. These principles created the collaborative environment and framework necessary to explore all alternatives to eliminate the $100 million General Fund structural imbalance by FY 2013.

On September 15, your Board adopted specific Budget Balancing Strategies to be used as part of the County’s multi-year budget balancing process. Given the magnitude of the County’s local budget imbalance, protracted revenues, and the continued uncertainty around State funding, it is imperative that the County, organized labor and community partners work together to seek ways to explore all options.

DISCUSSION:

Accelerated Timeline for Budget Reductions: Since the Board adopted the FY 2009-10 budget in September, a review of General Fund revenue receipts indicates that sales tax, particularly from the half-cent Public Safety Sales Tax (Proposition 172), will fall short of budgeted estimates by $12.5 million or 20.6%, due to continued declines in statewide sales. This marks the third year that this revenue source has dropped from the prior year, from $64.2 million in FY2007 to an estimated $48.5 million in FY2010. Preliminary information from the Assessor’s Office indicates that property tax receipts could be lower next year due to downward adjustments in commercial property values and an unprecedented negative Consumer Price Index (deflation) which will reduce base values for virtually all properties in the county. Given this information, staff is recommending an accelerated timeline, with budget reductions beginning in the current fiscal year. Recommended reductions will be brought to your Board on February 9.

Proposed Balanced Approach: Revenue projections over the next five years continue to show minimal growth in major General Fund revenue sources. The County cannot rely solely on revenue growth and new revenues to close the $100 million deficit. Nor can it rely entirely on reserves, which will be depleted within three years and would still leave the County with an ongoing deficit. Program reductions of $100 million would result in the elimination of critical services and closure of facilities, and the need to eliminate over 1,000 positions, almost 20% of the workforce. A balanced approach is recommended, with (1) managed use of reserves, keeping a minimum of 10% for contingencies and uncertainties in the General Fund, (2) $50 million in program reductions and multi-departmental savings, (3) $25 million in labor cost savings, subject to collective bargaining, and (4) $25 million in new revenues beginning in FY2013.

Community and Employee Engagement: Education and engagement will be critical in order to achieve the goals of the proposed balanced approach. Monthly budget meetings with labor organizations continue to take place, along with regular County budget updates to employees via e-mail and Intranet. Employee forums will be held in early 2010. Staff recommends that a community forum be held in each Board district as a part of increased community and employee engagement efforts on balancing the budget.

Adoption of the Resolution contributes to the Shared Vision 2025 outcome of a Collaborative Community, where leaders forge partnerships, inform and engage residents, and demonstrate fiscal stewardship by sustaining core services for future generations and for the most vulnerable members of our community.

FISCAL IMPACT:

The accelerated timeline, balanced approach, minimum reserve levels and community forums will be used to eliminate the $100 million structural budget gap by FY 2013.

ATTACHMENTS

1. Adopted Budget Balancing Principles and Strategies

2. Matrix – Proposed Balanced Approach

3. Detailed Slide Presentation – December 15 Budget Study Session