COUNTY OF SAN JOAQUIN Office of the County Administrator County Administration Building 44 North San Joaquin Street, Suite 640 Stockton, California 95202-2778 (209) 468-3203, Fax (209) 468-2875 MANUEL LOPEZ County Administrator ROSA LEE Assistant County Administrator February 24, 2011 Board of Supervisors County Administration Building Stockton, CA Dear Board Members: Recommendation Acceptance of 2010-11 Midyear Budget Report It is recommended that the Board of Supervisors receive and file this report on the expenditure and revenue year-end projections made at the midpoint (December 31, 2010) of fiscal year 2010-11. Reason for Recommendation On November 23, 2010, your Board accepted the First Quarter Budget Report presented by the County Administrator. The Report also provided a preliminary budget forecast for fiscal year 2011-12 of a projected $34 million to $36 million Net County Cost shortfall. At the same meeting, the Board adopted the 2011-12 Budget Timetable which, similar to the 2010-11 budget schedule, accelerated the departmental budget preparation and planning process a month earlier than previous fiscal years. This allows the departments and the County Administrator s Office additional time to evaluate cost savings and cutback options, and to develop implementation timelines and strategies for the Board s consideration as part of the recommended 2011-12 budget. While the First Quarter Budget Report did not recommend additional midyear budgetary actions, the cost-saving measures previously approved by the Board remain in effect. These include: 1) continuing the administrative hiring control/freeze program that has been in place since February 2008; 2) limiting business-related travel and training by County employees; 3) deferring fixed assets/equipment purchases; and 4) restricting uses of salary savings for unbudgeted/unplanned expenditures. Similar to the first quarter budget review, all County departments were requested to conduct a comprehensive midyear review of their expenditures and revenues as of December 31, 2010 and to furnish the County Administrator s Office detailed year-end projections for each account within their budgets. These projections allow the County Administrator s Office to consider the County s current financial health and also serve as a basis to estimate the end-of-the-year fund balances.
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 2 Expenditures Table 1 compares the Net County Cost of the adopted General Fund budget by function to the year-end projections based on the first six months experience of both program expenditures and revenues: Table 1: 2010 11 Net County Cost (In Millions) Adopted Midyear Budget* Projection Budget General Government $22.6 M $21.9 M ($0.7) M Capital Maintenance 6.1 M 6.1 M 0.0 M Environmental Protection 6.9 M 6.5 M (0.4) M Law & Justice 133.0 M 134.3 M 1.3 M Roads & Facilities 0.3 M 0.3 M 0.0 M Health Services 20.3 M 20.1 M (0.2) M Human Services 25.6 M 20.4 M (5.2) M Education 0.4 M 0.4 M 0.0 M Parks & Recreation 2.7 M 2.7 M 0.0 M Total Net County Cost $217.9 M $212.7 M ($5.2) M *Includes 2009 10 encumbrances carried forward & midyear adjustments. Over/ (Under) Net County Cost is computed by subtracting the estimated program revenues or estimated/actual revenue projection from the appropriation or expenditures for each budget. As depicted in Table 1, the Net County Cost is projected to be below budget by approximately $5.2 million, which is $3.2 million better than the first quarter projection. Based on information and projections provided by the departments, the following issues have been identified and will be closely monitored. Proposition 172 In November 1992, California voters approved Proposition 172 which provides one-half percent sales tax for public safety programs. The revenue is collected by the State and is allocated to counties based on their relative share of the Statewide taxable sales and is intended to partially backfill the County s property tax revenue loss due to State budget actions. In 1993, the Board of Supervisors approved Board Order B-93-1235 designating Proposition 172 revenues exclusively for use in funding County public safety departments, including the District Attorney, Public Defender, Sheriff-Coroner-Public Administrator, and Probation. Based on the first six months experience, Proposition 172 sales tax revenue is estimated at $36.0 million by fiscal year-end 2010-11. This is approximately $2.5 million higher than budgeted but slightly below last year s receipts and at about the same level as the first quarter projection. The overall Statewide sales tax receipts were up by 1.3 percent as compared to the
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 3 same period last fiscal year. However, the County s allocation factor was adjusted downward based on the County s proportionate share of the Statewide sales tax receipts in fiscal year 2009-10. Because this revenue is allocated to the law and justice departments as their departmental revenue, the increased revenue is reflected in the Law and Justice functional area. Chart 1 depicts Proposition 172 sales tax receipts for fiscal years 2005-06 through 2009-10, and the budget estimate as well as the year-end projection for fiscal year 2010-11. As illustrated in Chart 1, Proposition 172 sales tax revenues declined steadily over the four years reflecting the depressed economy. In fiscal year 2006-07, this revenue source provided over $52.1 million in support of the County s law and justice departments. This included $48.4 million in sales tax receipts and $3.7 million in prior year carryover funds. Proposition 172 sales tax receipts were $36.4 million in fiscal year 2009-10 and are projected to decrease to $36.0 million by fiscal year end 2010-11. This represents a reduction of $16.1 million or 31 percent from just four years ago, in fiscal year 2006-07. $60 Chart 1: Proposition 172 Public Safety Sales Tax Fiscal Years 2005 06 to 2010 11 (In Millions) $50 $3.7 $40 $30 $4.5 $42.3 $48.4 $46.1 $40.4 $36.4 $33.5 $36.0 $20 $10 $0 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 Adopted Budget 2010 11 Midyear Projection Current Year Receipts Prior Year Carryover Court Assigned Counsel In the First Quarter Budget Report, the Board was informed that a funding augmentation might be needed for Court Assigned Counsel (CAC) to accommodate workload increases resulting from staff reductions to the Public Defender s Office. Some cases that would have previously been handled by the Public Defender s Office are now assigned to private attorneys, with the
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 4 costs paid from the CAC budget administered by the Lawyer Referral Service (LRS). First quarter estimates showed that the budget overage could be about $680,000 based on the first three months experience. However, due to the limited amount of workload and cost data available at the time, staff recommended deferring any budget adjustments until later in the fiscal year. After six months experience with the workload shift, the rate of monthly overflow cases assigned to LRS attorneys has declined from 550 in the first quarter to 477 at midyear. expenditures for the CAC budget at midpoint of the fiscal year total $2.1 million. That is roughly 44 percent of the $4.7 million overall appropriation for 2010-11. This figure does not include pending payments that are still being processed, and it is still possible that CAC funds could be exhausted before the end of the fiscal year. But because the overage is now projected at approximately $140,000, down from the previous estimate of $680,000, no action is recommended at this time. Sheriff-Coroner-Public Administrator Based on the current budget, the Sheriff s budget is projected to exceed its allocated Net County Cost by $3.6 million, an increase of approximately $600,000 over the first quarter projection. As indicated in the first quarter budget report, a significant portion of the projected overage is due to leave payouts and negotiated retirement incentives that were not included in the adopted budget. As noted in the first quarter report, some federal COPS Hiring Recovery Program grant funds programmed in 2010-11 will not be received until next fiscal year. Other contributors to the projected overage include the recent retirement contribution rate increases and an increase in estimated Patrol vehicle usage. On a positive note, estimated overtime costs for the Custody Division are showing an improvement of nearly $100,000 from the first quarter report. Staff will continue to monitor the budget and work with the department to mitigate costs where possible. However, midyear budget adjustments may be needed prior to the close of the fiscal year to cover the unbudgeted separation costs. Animal Control Subsequent to the Board s discussion on Animal Control at the November 23, 2010 meeting, and in light of continuing service demands on the Sheriff s Patrol Division, the Sheriff submitted a proposal to consolidate Animal Control functions within the Sheriff s Office. The Sheriff proposes that the Patrol Division staff assume supervision of Animal Control operations, allowing for elimination of the current manager position and using the cost savings to restore a field officer position. The new organization would consist of six field officers and one clerical support position, supervised by existing staff within the Sheriff s Office. In addition, all dispatch services would be provided through the Sheriff s Communication Center, with other support needs provided by various Sheriff s Office units. After staff review of the Sheriff s proposal, the County Administrator met with the Sheriff and Assistant Agricultural Commissioner. Funds in the Rabies Treatment Fund were used to sustain Animal Control staff positions in 2010-11, but that fund has been exhausted. Coupled with the budget reductions projected for 2011-12, current levels of service cannot be maintained. The Sheriff s Office developed significant programmatic cost savings through position changes and
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 5 utilization of existing Sheriff staff; nevertheless, the preliminary shortfall for Animal Control in 2011-12 is approximately $160,000. Considering the projected budget impacts facing the County as a whole, augmentation from the General Fund is not recommended as it would result in shifting a like amount of funding from another department. At this funding level, it is not feasible for the Sheriff s Office to successfully implement the Animal Control operations as proposed. Consequently, it will not be recommended that Animal Control operations be transferred to the Sheriff s Office. The County Administrator s Office will continue its effort to possibly consolidate the County s Animal Control operations with those of some cities in the County. However, because of the expected budget reductions, that option might not be viable. A report regarding that opportunity is expected to be presented to your Board later this month or in April. San Joaquin General Hospital The 2010-11 budget for San Joaquin General Hospital (SJGH) assumed an inpatient average daily census of 102.3 and included a reduced General Fund support of $5.9 million to cover its projected operating loss. The one-time reduction in the General Fund support reflects the infusion and uses of $6.0 million from the Hospital Fee Program to support SJGH s operations for fiscal year 2010-11. The staffing budget for 2010-11 is 1,177 full-time equivalents (FTE) and actual FTEs were 1,175. Salary and benefits costs were within budgeted levels. Total Hospital disbursements were over budget by $3.7 million. In the first half of the fiscal year, the average daily census was over budget by 3.9 patients. The payer mix, other than the California Department of Corrections and Rehabilitation (CDCR) patients, has been about the same as prior years. CDCR patient charges have increased from 1.9 percent to 5.8 percent of gross charges with the opening of the Medical Guarded Unit in August 2010. The Hospital s cash deficit was $21.3 million at the beginning of the fiscal year which increased to $29.8 million by December 31, 2010. The midyear cash deficit is $16.1 million better than budget. At midpoint of the fiscal year, cash collections were over budget by $19.8 million. The increase was primarily due to: 1) an additional $4.6 million in patient revenues reflecting an increase in the Medi-Cal daily inpatient per diem; 2) the receipt of $7.3 million in one-time Hospital Fee Program funds; and 3) an additional $7.7 million from the Medi-Cal Waiver program. In January 2011, the Medi-Cal Waiver program allocated an additional $1.3 million to SJGH for 2010-11. All Waiver payments are expected to be received by the end of June 2011. In addition, funding related to an increase in the Federal Medical Assistance Percentage (FMAP) provided for under the American Recovery and Reinvestment Act was extended to June 30, 2011. SJGH will consequently receive $7.6 million of FMAP funding, which includes approximately $3.7 million resulting from the six-month extension. Barring unforeseen changes in the Medi-Cal Waiver and the State budget, SJGH anticipates to operate within its adjusted Net County Cost allocation of $5.9 million in 2010-11. In addition, as a result of the one-time additional funding from the Medi-Cal Waiver, Hospital Fee Program and FMAP, SJGH is projecting a cash deficit of $6.0 million by fiscal year end 2010-11. This represents an improvement of approximately $8.0 million from the budgeted estimate.
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 6 Mental Health Services Through a gubernatorial veto, the 2010-11 State budget eliminated the AB 3632 State mandated program, which serves students with severe emotional problems, thus reducing the Mental Health Services (MHS) budget by $791,000. The elimination of the mandate has been challenged pending clarification from the Courts. MHS has continued to provide AB 3632 services through a temporary arrangement with the San Joaquin County Office of Education (COE). The arrangement calls for the continuing services until clarification is provided by the Courts or until funding is exhausted, whichever occurs earlier. MHS has taken advantage of the high percentage of children with Medi-Cal benefits (73%) to extend the period during which services can be provided. The COE has agreed to fund a portion of the services by reimbursing MHS with all available federal Individuals with Disabilities Education Act (IDEA) funds. The additional Medi-Cal reimbursement and IDEA funding will allow MHS to continue to provide AB 3632 services in 2010-11 at the budgeted level. Human Services Programs Based on the first six months experience, Human Services Agency (HSA) program expenditures collectively are projected to be below the budgeted appropriation by approximately $18.3 million resulting in a Net County Cost savings of approximately $3.0 million (excluding the projected increase in State Realignment revenue discussed below). Budget savings are anticipated in Adoptions Assistance, In-Home Supportive Services programs, and the Administration budget. The projected savings is partially offset by higher than anticipated costs in the Foster Care program. 1. Adoptions Assistance The Adoptions Assistance program was established by the State to encourage the adoption of special needs children by providing financial incentives/ subsidies for families to adopt these children. The adopted County Budget assumed an increase in caseloads which did not materialize resulting in a budget savings of approximately $561,000. 2. In-Home Supportive Services (IHSS) The IHSS program provides specified supportive services to enable eligible persons to remain in their own homes as an alternative to out-of-home care. Over $1.9 million will be saved in the IHSS program as a result of eliminating the use of contract providers and implementing a 3.6 percent service reduction imposed by the State. 3. Administration The Administration budget is projected to be below budget by $14.5 million. The reduction is primarily attributable to: a) a $4.5 million projected salary savings as a result of staff turnover and vacancies; b) a $3.3 million reduction in payments for child care services provided for CalWORKs recipients based on current experiences; and c) a $4.7 million budget savings due to the expiration of the federal subsidized employment program for CalWORKs recipients on September 30, 2010 (the budget assumed the program would be extended through June 30, 2011 which did not occur).
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 7 4. Foster Care The Foster Care program provides out-of-home care on behalf of eligible children who are removed from the custody of their parents/guardians as a result of a court order or voluntary placement agreements. The Foster Care budget is projecting an expenditure overrun of approximately $1.1 million primarily reflecting the District Court Relief Order that requires counties to increase monthly payments for children in foster homes by an average of 68 percent. 5. Community Services Block Grant (CSBG) CSBG funding is a key federal source provided to the Community Action Program for providing services and activities that assist the needs of low-income individuals, including homeless, migrant, and elderly persons. In San Joaquin County, the CSBG funding provides a significant financial support to the eight Community Centers. The 2010-11 County budget included $931,000 in CSBG funding, the same level as prior fiscal year. CSBG funding for the current year has been provided through the federal continuing resolution process. If Congress fails to pass the continuing resolution by March 4, 2011, it is unclear whether the CSBG funding would be available for the remainder of the fiscal year. In addition, for the current year, 44 percent of the CSBG funds is proposed to be cut. The revenue loss to San Joaquin County is estimated at $402,000 and would significantly impact the County s ability to operate the eight Community Centers. Realignment Social Services Revenues State Realignment revenues for social services programs are projected to be $27.6 million by fiscal year-end 2010-11, which is $2.0 million higher than budgeted and $300,000 better than the first quarter projection. Realignment revenues consist of sales tax and vehicle license fees and are allocated to counties based on caseload and program costs rather than where the revenues are generated. Similar to Proposition 172 revenues discussed earlier in this report, the increase in Realignment revenues primarily reflects a 1.3 percent growth in Statewide receipts from sales tax. Chart 2 depicts Realignment Social Services sales tax receipts for fiscal years 2005-06 through 2009-10, and the budget estimate as well as the midyear projection for fiscal year 2010-11. As shown in Chart 2, Realignment sales tax revenues for social services programs peaked at $35.6 million in fiscal year 2006-07; it dropped to $26.3 million in fiscal year 2009-10 and is projected to go up slightly to $26.5 million by fiscal year end 2010-11. This represents a decrease of $9.1 million or 26% over the last four years since fiscal year 2006-07.
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 8 $40 Chart 2: Realignment Social Services Sales Tax Fiscal Years 2005 06 to 2010 11 (In Millions) $35 $30 $35.6 $32.9 $25 $20 $28.9 $28.1 $26.3 $24.5 $26.5 $15 $10 $5 $0 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 Adopted Budget 2010 11 Midyear Projection Revenues The Net County Cost of the budget is funded by General Purpose Revenue (GPR). The County Administrator s Office has reviewed each of the GPR accounts and made estimates for the balance of the fiscal year. Overall, it is estimated that GPR will exceed the budget estimates by $2.5 million and is approximately $768,000 better than the first quarter projection. Revenues from local sales tax and property taxes are anticipated to exceed budget estimates. Partially offsetting the increase are decreases in penalties on delinquent taxes and the elimination of State subvention for the Williamson Act program. Table 2 compares the 2010-11 GPR budget estimates to the year-end forecast:
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 9 Table 2: 2010 11 General Purpose Revenue (In Millions) Adopted Midyear Over/ (Under) Budget Projection Budget Current Property Tax $165.1 M $166.6 M $1.5 M Penalty on Delinquent Taxes 3.8 M 3.4 M (0.4) M Redevelopment Pass Thru 2.5 M 3.2 M 0.7 M Sales Tax 11.1 M 11.9 M 0.8 M Tobacco Settlement Funds 5.1 M 5.1 M 0.0 M Property Transfer Tax 2.2 M 2.2 M 0.0 M Williamson Act Subvention 0.0 M 0.0 M 0.0 M Interest Income 0.5 M 0.5 M 0.0 M Other 4.6 M 4.5 M (0.1) M Total General Purpose Revenue $194.9 M $197.4 M $2.5 M Contingency Fund Transfer As stated in the First Quarter Budget Report, in an effort to mitigate service reductions and to minimize the number of employee layoffs, the Board approved to use $6.1 million from the Reserve for Contingencies to fund a portion of the 2010-11 budget and reduced the Reserve level to $10.6 million. Subsequent to the June 30, 2010 year-end closing, the Board directed the excess $2.7 million General Fund balance to replenish the Reserve. Also, in November 2010, the Board approved to reduce the 2010-11 General Fund contribution to SJGH by $6.0 million and directed $6.0 million of the unbudgeted Hospital Fee Program payments that SJGH will receive be used to support its 2010-11 operations. Further, the Board re-directed the $6.0 million freed-up General Fund monies to the Reserve, bringing the Reserve level to $19.4 million. This represents approximately 1.6 percent of the County s budget which is well below the Board-established goal of 5 percent of the budget. As of today, no funds have been transferred or committed from the Reserve for Contingencies. Staffing Significant reductions in the County s GPR, departmental revenues, and State/federal funds have forced County departments to make position cuts in order to meet their allocated reductions and/or align their program revenues with program expenses. Over the last three years, the County has experienced organizational downsizing with a net reduction of 13.8 percent or 854 full-time allocated positions. As a result of the hiring control/freeze programs implemented in February 2008, the overwhelming majority of the positions deleted were vacant. Despite the County s proactive effort, employee layoffs could not be avoided entirely. From November 2008 through January 2011, the County has issued 323 layoff notices with the greatest number issued as part of the 2010-11 County budget process in June 2010. Of the 323
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 10 layoff notices issued, 50 were rescinded either through Board action or as a result of negotiated employee concessions or attrition. Of the remaining 273 employees impacted by layoffs, 123 have been placed in other County positions and remain employed with the County in lower level positions, 44 employees have been re-employed, 9 employees have declined re-employment, 6 employees have retired, and 91 employees are currently in a laid off status. The status for the 273 impacted employees is shown on Chart 3. Retired, 6 Employees Chart 3: Status of Laid Off Employees November 2008 to January 2011 Still in Laid Off Status, 91 Employees DeclinedReemployment 9 Employees Re employed, 44 Employees Placed in Lower Level Positions, 123 Employees In February 2009, the Board re-affirmed its Layoff Mitigation Policy which provides the procedures and guidelines on workforce reduction, transfers, and re-employment of employees impacted by layoffs. In conformance with the Policy, the County Human Resources staff works with laid off employees to place them in other County positions if they meet the qualifications. Human Resources staff continues to work with the employee for up to three years. However, the continuing downsizing of the County organization and the tightening of the job market have resulted in a limited supply of placement options for laid off employees in recent years. As the County moves forward, it is anticipated that future placement options will be even more severely curtailed. Vacant Positions As of February 14, 2011, there are 5,399 full-time allocated positions (this includes 67 physician positions that were converted from contract to civil service in October 2010), of which 368 positions or 6.8 percent are vacant. Approximately 83 percent of the vacancies are in the following County departments whose operations are primarily funded by federal/state sources, or service charges. In addition, many County departments are continuing to hold positions vacant in anticipation of further reductions necessitated by funding constraints.
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 11 1. San Joaquin General Hospital 111 2. Health Care Services 76 3. Human Services Agency 73 4. Public Works 33 5. Employment and Economic Development Department 13 Revenue Forecast 2011-12 Preliminary County Budget Outlook As stated in the First Quarter Budget Report, it appears that the State and local economies have stabilized gradually and the revenue decline is more modest. Property taxes, which are the major sources of the County s General Purpose Revenue, provide about 80 percent of the local discretionary fund. Based on the Assessor s review of the property tax roll through December 2010, the assessed value for calendar year 2010 is projected to decrease by an additional 3 percent. Both local and Statewide sales tax receipts appear to be stabilizing and are projected, by fiscal year-end, to exceed the 2010-11 budget estimates by $5.1 million and slightly higher than the 2009-10 actual receipts. For fiscal year 2011-12, sales tax receipts, including General Purpose, Proposition 172 for public safety departments and Realignment funding for social services programs, are projected to increase by a total of $7.1 million from the current year s budget estimates. Neither the current nor next year s budgets include either the normal Williamson Act State subvention or the supplemental subvention authorized by SB 863. Previous revenue under the Williamson Act program provided as much as $2.1 million in General Purpose Revenue to support funding for many General Fund activities including operating programs, administrative processes, and matching funds for law and justice programs. Table 3 is a summary of the major revenue changes projected for the County General Fund for fiscal year 2011-12: Table 3: Major Revenue Changes for 2011 12 County General Fund Delete one time transfers/use of year end fund balances Decline in property tax Growth in sales tax General Purpose Proposition 172 for public safety departments Realignment for social services programs Total 2011 12 Major Revenue Changes Projected Increase/ (Decrease) ($23.5) M (3.2) M 1.0 M 3.6 M 2.5 M ($19.6) M
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 12 Chart 4 depicts the County s GPR, including sales tax for Proposition 172 and Realignment Social Services programs and the available year-end General Fund balance, for fiscal years 2005-06 through 2009-10, the budget estimate as well as the year-end projection for fiscal year 2010-11, and the preliminary forecast for fiscal year 2011-12. Chart 4: General Purpose Revenue Fiscal Years 2005 06 to 2011 12 (In Millions) $450 $400 $350 $300 $250 $311.3 $400.7 $366.2 $303.9 $295.9 $271.3 $278.4 $251.8 $200 $150 $100 $50 $0 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 Adopted Budget 2010 11 Midyear Projection 2011 12 Prelim Estimates Property Tax Sales Tax Others Prop 172 & Realignment Gen Fund Balance/Transfers Projected Cost Increases Labor costs are projected to increase by approximately $30.1 million in fiscal year 2011-12. This includes: 1) the full-year cost for salary and benefits adjustments implemented in 2010-11 for positions represented by Service Employees International Union (SEIU), Middle Management, and Peace Officer Miscellaneous units; 2) the 2011-12 salary and benefits adjustments for the remaining bargaining units who agreed to defer their 2010-11 adjustments; 3) increased retirement contribution rates; and 4) increased premiums for employee health, dental, and unemployment insurance. Over the last few years, as the County s GPR decreases, programs and services funded by local sources continue to shrink and the County s reliance on federal/state funding to support the overall County budget increases. Based on the 2010-11 budget, it is estimated that approximately 56 percent of the increased labor cost is allocated to non-general Fund or federal/state-funded programs. The remaining 44 percent, or $13.2 million, represents a Net County Cost increase for fiscal year 2011-12. However, most programs and operations funded by federal, State, and/or
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 13 service charges will also have limited ability to fully cover the increased labor costs primarily due to flat federal/state funding over the last few years and pre-set reimbursement rates. In addition to the increased labor costs, two elections are scheduled for fiscal year 2011-12. These include the February 2012 Presidential Primary and the June 2012 Statewide Primary elections. The Net County Cost for these two elections could be as much as $2.4 million. Finally, approximately $3.2 million in one-time federal stimulus funds that resulted in a reduced County s share of the public assistance program cost will not be available beyond June 30, 2011 absent congressional actions, which is highly unlikely. Table 4 is a summary of the known major cost increases identified for fiscal year 2011-12: Table 4: Known Major Cost Increases for 2011 12 (In Millions) Negotiated salary & benefits adjustments Retirement contribution Employee health & dental premiums Unemployment insurance premium Elections Public assistance programs FMAP sunset Total 2011 12 Known Cost Increases Projected Increase $4.2 M 13.0 M 11.8 M 1.1 M 2.4 M 3.2 M $35.7 M Budget Reductions Based on the current revenue and expenditure forecast for fiscal year 2011-12, it is projected that the General Fund will have a budget shortfall of approximately $36 million to $38 million. This is approximately $2 million more than the first quarter projection and is primarily attributable to the 2012 election costs. The projected shortfall assumes the General Fund support for SJGH will resume at the original budgeted level of $11.9 million for fiscal year 2011-12. On February 2, 2011, the County Administrator s Office issued the 2011-12 Budget Package including all instructions, guidelines, and forms. For fiscal year 2011-12, most General Fundsupported departments have been instructed to cut their Net County Cost by 15 percent. Public safety departments, including the Sheriff, District Attorney, Public Defender, and Probation, and have been asked to cut their Net County Cost by 10 percent and 24-hour institutions with mandated staff requirements are to reduce their Net County Cost by 5 percent. While the reduction levels are less than 2010-11, this represents the third consecutive year of cutbacks. All departments are having to reduce their levels of service and the additional cutbacks will further erode County programs/services and may decimate some programs totally. The County Administrator will continue to work with the departments and stakeholders to explore cost-saving and revenue-generating alternatives, including review of the County Capital Improvement Program to identify previously approved capital projects that could be defunded;
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 14 reorganization of County departments for possible consolidation and/or outsourcing of services, and review of employee benefits, including retirement contributions and health care cost apportionment. In addition, at the January 26 th Department Head Meeting, departments were instructed to re-evaluate their operations and seek opportunities for internal reorganization. Any cost-saving and revenue-generating proposals will be brought back for the Board s consideration. Community-Based Organizations The 2010-11 adopted County Budget provides approximately $683,000 to a number of community-based organizations in support of various programs ranging from economic development to counseling services to culture/recreation activities. In light of the significant budget shortfall for fiscal year 2011-12, the County Administrator notified many of these organizations that the County contributions for the upcoming fiscal year will be eliminated. Nevertheless, it is expected that some organizations will submit and present their funding requests for the Board s consideration during the Final Budget Hearing in June 2011. 2011-12 State Budget On January 10, 2011, the Governor released his budget proposals which seek to address the State s projected $25.4 billion deficit. The projected deficit includes the current year s shortfall of $8.2 billion and next year s structural imbalance of $17.2 billion. The budget package proposes programmatic reductions, a major state-local realignment to be implemented over the next few years, an extension of temporary tax increases which is subject to voters approval, and the elimination of redevelopment agencies and enterprise zone incentives. Specifically, the Governor proposes to: 1. Reduce State General Fund s expenditures by $12.5 billion through a combination of spending cuts, borrowing and/or funding shifts. Some of the major elements include: a. Spending cuts: i. $1.7 billion to Medi-Cal ii. $1.5 billion to CalWORKs iii. $1.0 billion to higher education iv. $750 million to the Department of Developmental Services v. $500 million to In-Home Supportive Services program vi. $580 million to State operations and labor costs b. Borrowing/funding shifts: i. $1.7 billion from redevelopment funds ii. $1.1 billion from weight fees for transportation-related debt costs iii. $1.0 billion from Proposition 10 (First 5 programs) iv. $900 million from Proposition 63 (Mental Health Service Act) 2. Extend four temporary tax increases totaling $11.2 billion for fiscal years 2010-11 and 2011-12. California voters will likely be asked to consider extending the following
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 15 taxes for five years at a special election (it is noted that the Governor s budget does not include funds to reimburse counties for the special election cost): a. 0.5 percent Vehicle License Fee (VLF) to fund the 2011 Realignment proposal b. 1.0 percent State sales tax to fund the 2011 Realignment proposal c. 0.25 percent personal income tax surcharge d. Reduction in personal income tax dependent exemption credit As indicated earlier, the centerpiece of the Governor s January budget is the State-local realignment proposal which would be rolled out in two phases. Phase I would initially shift a total of $5.9 billion of State program responsibilities to local government starting 2011-12. For the first five years, Phase I would be funded with revenues from the VLF and the sales tax extensions. Phase II, to be rolled out in 2014, focuses on the implementation of national health care reform. Following are some highlights of Phase I Realignment: 1. Local Public Safety Funds The Governor proposes to fund the local public safety programs, which include Citizens Options for Public Safety, Juvenile Justice Crime Prevention Act, Booking Fee Subvention, and Probation programs, directly from the State General Fund (backfilled dollar-for-dollar with the tax extensions). These programs are now funded by the VLF Local Safety and Protection Account. The Governor also proposes to restore funding of these programs to the 2008-09 level. 2. Court Security Funding and responsibility of court security would be transferred to counties, allowing courts and counties to negotiate service levels and agreements locally. The provision of court security would remain with county sheriffs. 3. Low-Level Offenders/Adult Parole/Juvenile Justice Programs Housing and supervision of non-violent, non-serious, non-sex offenders would be transferred to local jails and/or probation. These responsibilities would need to be coordinated with current efforts to implement SB 678, which incentivizes probation efforts to reduce recidivism among felony probationers through use of evidence-based practices. In addition, county probation departments would assume supervision of all adult parolees upon their releases from state prison. By June 30, 2014, counties would also house, treat, and supervise all juvenile offenders and would bear the entire responsibility for the juvenile justice continuum. 4. Mental Health/Substance Abuse Services Counties would assume full responsibility for administration and funding of the Early Periodic Screening Diagnosis and Treatment Program, mental health managed care, and mental health services for special education students (AB 3632). The first year s (2011-12) realigned program costs would be funded with Proposition 63 funds; starting 2012-13, the costs would be funded with the proposed tax extension. The 2011 Realignment Plan also includes shifting substance use disorder treatment funds and services to counties. 5. Foster Care/Child Welfare Services/Adult Protective Services The Governor proposes to transfer the primary program responsibility for Adult Protective Services and Child Welfare Services, including foster care and adoption, to counties. Counties would assume 100 percent of the costs of these programs.
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 16 In addition to the Realignment proposals, the following proposals would have a direct impact on San Joaquin County: 1. Williamson Act Subvention The January Budget eliminates the $10 million appropriated in the current year s budget (as part of SB 863) and does not provide ongoing funding for the program. The County Administrator and Agricultural Commissioner plan to initiate discussion with the agricultural community and County Farm Bureau to review the potential local ramifications of the Governor s proposal and implementation of SB 863. 2. State Mandate Reimbursements The Budget continues to suspend State Mandate reimbursements to local governments. 3. Veterans Affairs The Budget eliminates the State s General Fund support ($9.9 million statewide) for County Veterans Service Offices and the Operation Welcome Home Program. 4. Enterprise Zones The Governor proposes to eliminate all enterprise zone tax incentives for tax year starting 2011. San Joaquin County is one of eight counties who received the Super Enterprise Zone designation that aims to spur economic development and business retention, by providing employers incentives, in the chronically depressed, high unemployment areas. The annual loss of funding to San Joaquin County businesses would be approximately $800,000. 5. Medi-Cal Rates The Governor proposes a Medi-Cal limit on 10 annual physician visits and 6 patient prescriptions per month, an increase in deductible for Medi-Cal patient emergency room, inpatient, and prescription drugs, and a 10 percent reduction in providers reimbursement rate. The specific impact to SJGH is unknown at this time. The California Hospital Association (private hospitals) has filed a lawsuit against these changes and others. 6. Children and Families Act (Proposition 10) Subject to voter approval, $1 billion of the State and local Proposition 10 reserve funds would be diverted to pay for State Medi- Cal for fiscal year 2011-12. The proposal also calls for 50 percent of future (fiscal year 2012-13 and on) revenues to be redirected to the State general fund for State Medi-Cal. The anticipated loss for First 5 San Joaquin in 2011-12 is approximately $800,000 from State Commission matching funds, but no loss from the local reserves as there are no reported reserves. The annual loss is estimated at $3.5 million beginning in 2012-13. A similar measure was rejected by the voters in May 2009. 7. CalWORKs The Governor proposes four reductions in the CalWORKs Program: a) reducing CalWORKs cash assistance grants by 13 percent; b) reducing cash assistance time limits from 60 to 48 months with certain exceptions for those meeting federal work participation requirements; c) suspension of the County s share of Child Support Collections; and d) reducing the number of families eligible for subsidized child care and eliminating services to 11 and 12 year olds.
Board of Supervisors February 24, 2011 2010-11 Midyear Budget Report Page 17 8. In-Home Supportive Services (IHSS) The Governor proposes an 8.4 percent acrossthe-board cut to all IHSS services, and to eliminate domestic services to minor children under age 18 with a parent who is able to provide care and recipients who are living with others in a shared housing situation. In addition, a new State-issued physician certification form will be required of all new and existing IHSS recipients to be eligible for the program. Similar to 2010-11, these proposed program changes raises significant legal questions that are likely to be challenged in court. The Governor continues to urge the Legislature to adopt his key budget-balancing measures by March 10 th (via trailer bills), so that the tax extension proposals can be placed on the ballot for a June 2011 Special Election. The Legislative Budget Committees have begun holding budget hearings. However, it is unknown when the State Legislature would adopt the necessary budget trailer bills. At the time this report was prepared, the County Administrator s Office was working with other counties through the California State Association of Counties to minimize any negative impacts to San Joaquin County. As one would expect, many specifics are still being developed and many unknowns exist. Fiscal Impact Based on the current forecast, the available General Purpose Revenue, including sales tax for Proposition 172 and Realignment Social Services programs, is projected to decrease by $19.5 million from the current year s budget while the known Net County Cost is projected to increase by $17.7 million, resulting in a budget shortfall of approximately $36 million to $38 million in fiscal year 2011-12. Even with the reductions required of all General Fundsupported departments, there will be a need to support a portion of the proposed 2011-12 budget by defunding capital projects, utilizing reserves, and eliminating more vacant and filled positions. Action To Be Taken Following Approval The County Administrator and department managers will continue to monitor expenditures and revenues monthly to ensure adherence to the adopted budget plan. Staff will continue discussions with all employee organizations regarding possible salary and benefits concessions. Staff will continue to explore organizational changes in response to the overall downsizing of the County s workforce and any proposals will be presented for the Board s consideration. Very truly yours, Manuel Lopez County Administrator ML:RSL c: Department Heads Board Clerk for 3/1/11 Agenda BL03-04
2010-2011 Midyear Budget Report & 2011-2012 Budget Outlook Update March 1, 2011 1
2010-11First Quarter Report Current Year Budgetary Actions Continue Administrative Hiring Freeze Exceptions 24-hour institutions & assigned to health/ safety functions Grant-funded/revenue offset Fill vacancies with existing workforce Limit business-related travel/training Postpone fixed assets/capital expenses Restrict fund transfers for unbudgeted expenses Preserve Reserve & limit its use 2
2010-11 Net County Cost (in Millions) Over/ Adopted Midyear (Under) Budget* Projection Budget General Government $22.6 M $21.9 M ($0.7) M Capital Maintenance 6.1 M 6.1 M 0.0 M Environmental Protection 6.9 M 6.5 M (0.4) M Law & Justice 133.0 M 134.3 M 1.3 M Roads & Facilities 0.3 M 0.3 M 0.0 M Health Services 20.3 M 20.1 M (0.2) M Human Services 25.6 M 20.4 M (5.2) M Education 0.4 M 0.4 M 0.0 M Parks & Recreation 2.7 M 2.7 M 0.0 M Total Net County Cost $217.9 M $212.7 M ($5.2) M *Includes 2009-10 encumbrances carried forward & midyear adjustments. 3
2010-11 General Purpose Revenue (in Millions) Over/ Adopted Midyear (Under) Budget Projection Budget Property Taxes $165.1 M $166.6 M $1.5 M Penalty on Delinq 3.8 M 3.4 M (0.4) M Redevelopment Pass-Thru 2.5 M 3.2 M 0.7 M Sales Taxes 11.1 M 11.9 M 0.8 M Tobacco Settlement Funds 5.1 M 5.1 M 0.0 M Property Transfer Tax 2.2 M 2.2 M 0.0 M Williamson Act Subvention 0.0 M 0.0 M 0.0 M Interest Income 0.5 M 0.5 M 0.0 M Other 4.6 M 4.5 M (0.1) M Total GPR $194.9 M $197.4 M $2.5 M 4
General Purpose Revenue 10-11 receipts at $11.9M Issues Identified Sales Tax Revenue $810K over budget & $550K better than 09-10 Prop 172 Public Safety ½ cent Statewide Allocation based on local collections 10-11 receipts at $36M $2.5M over budget but $400K less than 09-10 Realignment Social Services Allocation based on State formula 10-11 receipts at $26.5M $2M over budget & $200K better than 09-10 5
Issues Identified Sales Tax Receipts (in Millions) $120 $104.5 $100 $80 $28.9 $35.6 $32.9 $74.1 $74.4 $60 $28.1 $26.3 $24.5 $26.5 $40 $46.8 $52.0 $46.1 $40.4 $36.4 $33.5 $36.0 $20 $0 $17.1 $16.9 $15.5 $14.7 2005 06 2006 07 2007 08 2008 09 $11.4 $11.1 $11.9 2009 10 2010 11 Adopted Budget 2010 11 Midyear Projection General Purpose Revenue Prop 172 Realignment Social Services 6
Court Assigned Counsel Issues Identified Law & Justice 1 st quarter experience 550 overflow cases per month Projected $680K overrun by year-end Midyear experience 477 overflow cases per month expenditures $2.1M; 44% of budget Exceed budget $140K by year-end 7
Issues Identified Law & Justice Sheriff-Coroner-Public Administrator $3.6M over allocated NCC Unbudgeted separation costs Retirement rate increases Higher Patrol vehicle usage Delay in COPS Hiring Recovery grant Custody overtime $100K better than 1 st quarter Overage will be partially offset by Prop 172 Budget adjustments prior to year-end 8
November 2010 Board actions Deleted 1 vacant ACO Issues Identified Animal Control Funded remaining 7 positions & emergency after-hour services thru June 2011 with Rabies Treatment fund balance ($101K) (1 Manager, 5 ACOs, & 1 clerical) Depleted Rabies Treatment Fund to $17K 9
Sheriff s proposal Issues Identified Animal Control Consolidate AC functions under Sheriff s Patrol Division Replace Manager with 1 ACO New organization = 6 ACOs & 1 clerical with supervision by Patrol staff Dispatch & support by various Sheriff s units New structure yields significant programmatic cost savings by utilizing existing Sheriff staff 10
Issues Identified Animal Control Prelim 2011-12 AC budget shortfall $160K Fund balance used to sustain current year s operations General Fund augmentation is not recommended due to NCC budget shortfall AC operations remain with Ag Commissioner CAO continues efforts on regional operations APL report in April 11
Issues Identified San Joaquin General Hospital Midyear operating loss of $5.8M $380K less than budgeted SJGH cash deficit Dec 31 st = ($29.8M); $16.1M better than budget Increased Medi-Cal inpatient per diem, one-time Hospital Fee Program & additional Medi-Cal Waiver payments June 30 th projection = ($6M); $8M better than budget 12
Issues Identified Human Services Agency Overall program expenses $18.3M below budget NCC savings $3M Adoptions Assistance IHSS programs Administration Foster Care Community Services Block Grant 13
2010-11 Reserve for Contingency (as of February 28, 2011) 2010-11 Reserve Level $10,600,000 Excess year-end GF balance 2,759,081 Replace GF contribution to SJGH with unbudgeted Hospital Fee 6,014,766 Reserve Balance $19,373,847 14
Staffing Changes 15
Organizational Downsizing Board proactive actions to minimize service impacts & employee layoffs Feb 2008 reinstated Administrative Hiring Control Program Nov 2008 implemented Hiring Freeze 13.8% smaller workforce compared to FY07-08 Net reduction of 854 positions Majority were vacant positions Unable to avoid layoff entirely 16
Status of Laid Off Employees Nov 2008 to Jan 2011 17
Preliminary Outlook Tightening of overall job market => limited placement options SJC Dec 2010 unemployment rate 18% 1% higher than last year Vacancy rate 6.8% vs. 10% norm Majority (74%) in health & human services programs vulnerable to federal/state cuts 18
2011-2012 Budget Outlook Update 19
2011-12 Preliminary Budget Outlook Major Revenue Changes General Fund One-time transfers/use of fund balances 3% decline in property tax Modest growth in sales tax General Purpose Prop 172 public safety Realignment social services Misc net adjustments Total Major Revenue Changes Increase/ (Decrease) $(23.5) M (3.2) M 1.0 M 3.6 M 2.5 M 0.1 M $(19.5) M 20
2011-12 Preliminary Budget Outlook General Purpose Revenue (in Millions) $450 $400.7 $400 $350 $300 $311.3 $366.2 $303.9 $295.9 $271.3 $278.4 $251.8 $250 $200 $150 $100 $50 $0 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 Adopted Budget 2010 11 Midyear Projection 2011 12 Prelim Estimates Property Tax Sales Tax Others Prop 172 & Realignment Fund Balance/Transfers 21
2011-12 Preliminary Budget Outlook Major Known Cost Increases Negotiated salary & benefits adjustments Retirement contribution Employee health & dental premiums Unemployment insurance $4.2 M 13.0 M 11.8 M 1.1 M 2012 elections 2.4 M Public assistance program FMAP 3.2 M Total 2011-12 Known Cost Increases $35.7 M 22