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Oakland County Executive’s

Recommended
FY 2019 – FY 2021 Triennial Budget
July 19, 2018
Presentation to the Board of Commissioners
L. Brooks Patterson
Oakland County Executive
A Budget Based
on Recognized
Best Practices
Award Winning Documents Recognized by the
Government Finance Officers Association

Award for Outstanding Achievement in Distinguished Budget Certificate of Achievement for Excellence
Popular Annual Financial Reporting Presentation Award in Financial Reporting
Since 1997 Since 1984 Since 1991
AAA Rated for 21 Years
Special thanks to . . .
Oakland County’s
Elected Officials
L. Brooks Andy Michael Lisa Brown Jessica Jim Nash
Patterson Meisner Bouchard Clerk Cooper Water
County Executive Treasurer Sheriff Register of Deeds Prosecutor Resources
Commissioner

Shalina Kumar Kathleen Ryan Joseph Fabrizio


Circuit Court Probate Court District Court
Board of Commissioners

LEADERS WORKING TOGETHER


Robert Daddow
Deputy County Executive
What Does it Take to be AAA?
Primary factors include

 Level of debt • Addressed by Oakland County’s


 Liquidity policies, budgeting practices,
and long-term financial planning
 Financial management
• Economic forecasts are used to
estimate property tax revenue
 Economy • County programs for economic
growth and resilience
• Base rating of “A” assigned to all
 Institutional framework
Michigan counties
Demonstrated Strong Management

“The county annually adopts a three-year operating


budget within a five-year financial forecast. “
Balanced Triennial Budget
Balanced recommended
budget for the next three years,
FY 2019 through FY 2021
5-Year Operations Forecast
Long-term planning provides
fiscal stability for operational
sustainability and resiliency
Demonstrated Strong Management

“The county’s formal general fund balance policy requires


maintenance of no less than 20% of expenditures in reserves.
As current reserve levels greatly exceed this policy, the county
is in position to draw on reserves over the next several years
to finance initiatives including reducing the county’s
operating tax rate, one-time capital expenditures, and
investments in human resources.”
Capital Improvement Plan
10-year plan for capital
projects funded with
current resources
Future Major Renovations
Beyond the 10-year CIP, issuance of
bonds will be recommended for:
• Building security improvements
• Building safety enhancements
• ADA improvements
• Public Safety Communications
System (Radio)
General Salary Increase
2% recommended for FY 2019
1% for FY 2020 and FY 2021
Compensation Study
1% contingency recommended
in FY 2019 for potential
classification adjustments
Retirement Plans Fully Funded

Oakland County’s pension


and retiree health care plans
continue to be fully funded
Demonstrated Strong Management

“We note that the county has a demonstrated history of achieving positive
budgetary variances through strong cost controls which have been a key
factor in the county’s positive operating results. Due to statutory
limitations on both tax base and tax levy growth in Michigan, annual
growth in property taxes and total county revenue has been very modest.
While these limitations will continue to hold back revenue growth going
forward, we expect the county’s close monitoring of expenditures,
conservative budgeting and currently low fixed cost burden will support
ongoing financial stability, despite planned usage of available reserves for
one-time purposes.”
Laurie Van Pelt
Director, Management & Budget
RECOMMENDED
BUDGET
HIGHLIGHTS
FY 2019 FY 2020 FY 2021
General Fund/General Purpose (GF/GP) $465,547,120 $466,384,797 $475,390,212
Special Revenue & Proprietary (SR) $427,762,553 $427,192,818 $426,096,498
Total All Funds Recommended Budget $893,309,673 $893,577,615 $901,486,710

Percent Change from Prior Year:


GF/GP 2.3% 0.2% 1.9%
SR 0.9% -0.1% -0.3%
All Funds 1.6% 0.0% 0.9%

FY 2019 – FY 2021 Recommended Budget


The County Executive Recommended Triennial
Budget is balanced for the next three fiscal years
Additional Increase Needed to Reach 2007 Levels

50.00%
7.60%
40.00%
41.37% 13.00%
30.00%

20.00%
16.40%
10.00%

0.00%

-10.00% -23.93%
-20.00% -34.26%

-30.00%
% CHANGE IN SEV (STATE EQUALIZED VALUE) % CHANGE IN TV (TAXABLE VALUE)

-40.00%
2007-2012 2013-2018

GROWTH IN TAXABLE VALUE IS


INTENTIONALLY LIMITED BY STATE LAW
Property tax revenue is approximately 55% of total GF/GP
ongoing revenue (excluding use of fund balance)
Projected Change in Taxable Value (TV)

FY 2019 FY 2020 FY 2021


Increase attributed to change in CPI 2.3% 2.5% 2.5%
Increase attributed to economic activity 2.7% 2.0% 2.0%
Projected change in TV for FY 2019 - FY 2021 5.0% 4.5% 4.5%

ESTIMATED CHANGE IN TAXABLE VALUE


Limitations on Property Tax Revenue
 As a result of Headlee and Proposal “A”:
it is estimated that Oakland County will not return
to 2007 Tax Revenue levels until the year of 2022

 Variables include:
 Market Conditions
 Annual IRM / CPI
 Property Transfers
 New Construction
 Statutory property tax exemptions
Oakland County History of
4.6000
General Operating Millage Rate
4.5000 FY 2020
ESTIMATED THAT
4.4000 HEADLEE ROLLBACK
CALCULATION WILL
4.3000 FALL BELOW 4.0400
4.3805
4.2000
4.3505
Mills

4.1000
4.1900
4.0000
4.09
3.9000
Maximum Millage 4.04
3.8000

3.7000

3.6000

2019 -2023 ESTIMATED

COUNTY GENERAL OPERATING MILLAGE RATE


After approval of Proposal A in 1994, properties with ownership transfers
became “uncapped” (beginning in 1996) which accelerated the effect of the
Headlee millage rollback calculation
Millage Reduction Before Rollback
 The County now levies and collects its property taxes in arrears as
a result of the passage of Michigan Public Act 357 of 2004
 The County is required to levy its property taxes in July for its fiscal
year which began on October 1 of the preceding year
 This requirement for counties to collect property taxes in arrears
adds greater uncertainty for budgetary planning, since property
taxes and the millage rollback must be estimated approximately
18 months prior to the levy date for timely adoption of the annual
General Appropriations Act
 It is important to continue to monitor the variables that impact the
Headlee rollback calculation and to continue the County’s prudent
past practice of maintaining a millage rate which remains below the
maximum authorized rate
Variables Affecting Millage Rollback
The major variables that impact the Headlee rollback
calculation include:
 Taxable value uncapping from property transfers (“pop-ups”)

 The greater the number of pop-ups, a greater impact on


rollback
 Change in CPI
 The lower the CPI, a greater impact on rollback
 The higher the CPI, a lesser impact on rollback
 Losses in personal property (recent tax exemption) will
have a greater impact on rollback
Comparison of Maximum Authorized Rate to Millage Rate Levy, 2005-2023

Maximum Authorized Reduction in Change in Differential


Year(s) Millage Rate Max. Auth. Millage Rate Levy Levy Rate Max. - Levy
2005-2014 4.22482 4.19000 0.03482
2015 4.21766 (0.00716) 4.09000 (0.10000) 0.12766
2016 4.18768 (0.02998) 4.04000 (0.05000) 0.14768
2017 4.14682 (0.04086) 4.04000 - 0.10682
2018 4.11250 (0.03432) 4.04000 - 0.07250
2019* 4.06971 (0.04279) 4.04000 - 0.02971
2020* 4.04536 (0.02435) 4.00000 (0.04000) 0.04536
2021* 4.01882 (0.02654) 4.00000 - 0.01882
2022* 3.99023 (0.02859) 3.95000 (0.05000) 0.04023
2023* 3.95973 (0.03050) 3.90000 (0.05000) 0.05973

*projected estimates for 2019 and beyond

PROJECTED FUTURE MILLAGE ROLLBACKS


General Fund Balance,
Five Year Outlook
 Annual operations

 One-time funding for special projects


Attention to Fund Balance
 A healthy fund balance is an essential ingredient for
long-term budget flexibility, sustainability, and adequate
cash flow
 Past increases in General Fund equity reflect the
County’s deliberate, planned approach to balance future
years’ budgets for continued sustainability
 Over the next several years, fund balance will be drawn
down gradually as planned
Use of General Fund Equity for Operations

Budgeted Use of Fund Balance


$45.0

$40.0

$35.0

$30.0
(in millions)

$25.0

$20.0
$34.0
$15.0 $27.1 $25.7
$22.7
$10.0 $16.1

$5.0

$-
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023

PROJECTED USE OF GENERAL FUND EQUITY

The recommended budget includes use of fund balance to support


ongoing operations with amounts that decline over the next 5 years
Estimated Net Use of GF Equity With Turnover Savings*

Annual Net GF/GP Operations*


$45.0

$40.0

$35.0

$30.0
(in millions)

$25.0

$20.0

$15.0 $26.0

$10.0 $19.1 $17.7


$14.7
$5.0 $8.1

$-
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023

*includes estimated $8 million of annual employee turnover savings

PROJECTED USE OF GENERAL FUND EQUITY

All positions are budgeted for full employment; vacant and


under-filled positions result in favorable operating surplus
Use of General Fund Equity for Special Projects

Discretionary Road Improvements Technology Enhancements


$45.0
Annual Net GF/GP Operations*
$40.0 $2.0

$35.0
$11.7
$30.0
(in millions)

$2.0
$25.0
$3.8 $2.0
$20.0
$2.0
$15.0 $26.0
$19.1 $2.0
$10.0 $17.7
$14.7
$5.0 $8.1

$-
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023

*includes estimated $8 million of annual employee turnover savings

PROJECTED USE OF GENERAL FUND EQUITY

The long-term forecast fund balance projection assumes


continued use for technology and discretionary road projects
Comparison of Budgeted to Actual Use of Fund Balance for GF/GP Operations

$60,000

$50,000

$40,000

$30,000
(in thousands)

$20,000

$10,000

$0

-$10,000

-$20,000

-$30,000

-$40,000
FYE 2009 FYE 2010 FYE 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017
Adopted Budget Use of Fund Balance $0 $(150) $(200) $(17,508) $(37,622) $(33,755) $(34,115) $(29,363) $(32,533)
Historical Actual Use of Fund Balance $21,940 $42,739 $52,156 $22,267 $19,344 $11,212 $6,091 $(5,066) $9,309
Favorable/(Unfavorable) Variance $21,940 $42,889 $52,356 $39,775 $56,966 $44,967 $40,206 $24,297 $41,842

HISTORICAL CHANGE
IN GENERAL FUND BALANCE
This chart compares prior years’ adopted budgeted use of fund
balance to actual amounts
Estimated General Fund Balance
(in thousands)
$300,000
$260,204 $255,241 $264,780 Fund Balance Amount
$253,985 (Actual and Projected)
$250,000 $242,773
63.8% 62.9%
$223,429 64.0% 60.0%
63.1%
$209,423
$201,162 57.6%
$200,000
45.5%
53.8% $169,708

$149,006 $144,770
$150,000 36.5%
$123,786
39.3% 31.0% $107,132
$106,267 $96,992
26.0%
$100,000
$84,327 25.1% 22.3%
20.1%
19.6%
$50,000
Percentage calculation = fund Target = $96.3 million
balance/expenditures (20%)
$0
FYE 2008 FYE 2009 FYE 2010 FYE 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE FYE FYE FYE FYE FYE
2018* 2019* 2020* 2021* 2022* 2023*
*Estimated for FYE 2018 - FYE 2023
Note: The above chart represents the estimated level of General Fund balance based on current programs and current budget recommendations; estimates are
subject to change as quarterly forecasts are updated and for new budget adjustments going forward beyond what has already been included with the Long-term
Fiscal Plan projections for FY 2018 - FY 2023.

GENERAL FUND BALANCE – HISTORICAL AND


LONG-TERM FORECAST AMOUNTS
This chart reflects the successful planned build-up and subsequent planned spend-down of
General Fund equity. Actual future use will be dependent on maintaining the minimum
targeted amount of 20% of total annual operating expenditures.
Jordie Kramer
Director, Human Resources
HUMAN RESOURCES
Oakland County: A Great Place to Work
 County Workforce
 Recruitment & Retention
 Retirement
 Benefits & Wellness
OAKGOV.COM
A great place to live, WORK, and play!
OAKGOV.COM
A great place to live, WORK, and play!
County Workforce

COUNTY WORKFORCE YEARS OF SERVICE


3,513 Full-time eligible 1,263 Less than 4 years

1,400 Part-time non-eligible 1,408 5-19 years

27 College interns 661 20-29 years

400 Summer employees 156 30-39 years

25 40+ years
Recruitment & Retention

Employee recruitment & retention concerns

 Continued low unemployment rate

 Greater competition in the job market

 Shortage of skilled and qualified workers

 Labor Force participation is trending downward


Recruitment & Retention
Recruitment Efforts
 County Bounty

 Michigan Veterans Affairs Agency

 Building relationships with


colleges, universities, technical
schools and high schools

 Disabled Worker Program


Disabled Worker Program
Pilot Program (2015)
 Partnership with Michigan Rehabilitation Services (MRS) and other agencies
 13 placements with eight county departments
 Animal Shelter and Pet Adoption
 Children’s Village
 Health Division
 Human Resources
 Information Technology
 Mailroom
 Parks and Recreation
 Sheriff’s Office

 Working toward additional placements within county departments


Employee Development

 Employee Training & Development can enhance


performance & foster an environment of excellence in
public service
 Succession planning needs
 Training needs assessment is being conducted
 Develop comprehensive leadership training programs
 Increased marketing efforts – increased participation
Employee Development
Tuition Reimbursement
 $1,400 per semester/session with the fiscal year

maximum of $4,200

Career Development = Career Growth


 Career Opportunities

 Coming Fall 2018 - internal career fair


 Self-development seminars
Talent Management Advisory Team (TMAT)
 TMAT concluded September 2017

 Recommendations provided to Human Resources Leadership


 Recruitment
 Orientation, On-boarding & Integration
 Retention & Development

 Two initiatives stemming from TMAT recommendations


 Internal career fair
 Telegraph
Employee Compensation
 Salary Administration Plan
 Point Factor Job Evaluation Method
 825 classifications on the Salary Administration Plan

 Consistent need to evaluate /re-evaluate classifications


 Technology in the workplace & evolving job tasks

 Recruitment difficulties of certain classifications

 General Salary Increases – last 5 years


 FY 2019 2% recommended
Compensation Study
 Human Resources selected Management Advisory Group (MAG)
 Review of current point factor plan
 Non-represented classifications

 Employees completed Job Analysis Questionnaires


 Review of total compensation – salary and benefit package

 MAG conducted benchmark salary survey


 MAG will make recommendation for a new plan

 Anticipating recommendation late Fall 2018


Incremental Changes in Retirement & Benefits
Retirement
 Retirement Plan Record Keeper - Prudential
 Retirement Readiness
 On-site consultations
 Lunch and Learns

 Independent Investment Advisor – Graystone Consulting


 One-on-one meetings for employees & retirees
 Deferred Compensation 457 Plan Enhancement
 Voluntary Deferred Compensation savings plan
 Pre-tax savings plan available to full-time eligible employees

 Employer match increased to $500 in 2017


OakFit Wellness Program
Gerald Poisson
Chief Deputy County Executive
Future concerns that
could have an impact on
Oakland County
Indigent Defense
 The Michigan Indigent Defense Commission (MIDC) was
established with the passage of 2013 P.A. 93 as amended by
2016 P.A. 439 and, most recently, by 2018 P.A. 214 effective
December 23, 2018
 New mandates imposed by the MIDC create the most
immediate and largest budgetary uncertainty going forward
 Oakland County is the funding unit for the 6th Circuit Court
and the 52nd District Courts
 The first four standards developed by the MIDC were
approved by the Michigan Department of Licensing and
Regulatory Affairs (LARA) on May 22, 2017
Indigent Defense (cont.)
 For the first four standards, the County submitted
compliance plans three times (includes amended plans
based on feedback from MIDC staff)

 November 17, 2017 – initial compliance plan submitted


 February 20, 2018 – amended compliance plan submitted
 May 21, 2018 – last amended compliance plan submitted
Indigent Defense (cont.)
 The MIDC has rejected all three of the County’s plans. However, the
MIDC can only approve or reject a plan in its entirety, it cannot reject
a portion of a plan and accept the remainder. This will change on
December 23, 2018 when the most recent amendments to the MIDC
will become effective. The amendments will allow the MIDC to
approve or reject parts of a plan.
 Therefore, while all three plans have been rejected by the MIDC, the
County and the MIDC have reached an understanding that the
County’s final plan will be implemented except for those parts of the
plan seeking “funding for prosecutors (including salaries, benefits,
equipment, and technology expenses), funding for magistrates and
the support services related to these positions.”
Indigent Defense (cont.)
 Rejected:

 $137,624 for 1,872 magistrate hours

 $3,048,809 for 23 additional positions and data


system needed in the Prosecutor’s office

 Standard #4 creates a new critical stage for a contested


hearing and requires defense counsel to be assigned for
first appearance during the arraignment process
Indigent Defense (cont.)
 While the State has indicated that it will reimburse the
County for defense attorneys with the new critical stage
for a contested hearing, the State refuses to pay for the
new costs required on the other side of the contested
hearing for representatives of crime victims
 The County is now required to enter into a statutorily
mandated mediation process with the MIDC
Indigent Defense (cont.)
 If the outstanding issues (prosecutors and magistrate
hours) cannot be resolved in mediation, the MIDC will
decide upon a plan for the County and the County must
implement it. That plan will be the County’s final plan
(submitted on May 21, 2018) minus the request for
prosecutors and for magistrate hours. The County can
file a lawsuit in Circuit Court over the issues concerning
prosecutor costs and magistrate hours.
Indigent Defense (cont.)
 2018 P.A. 214 includes two amendments to the MIDC Act that
increases the local cost share requirement
 the local share amount will increase every year by the rate
of inflation or 3%, whichever is less
 the local units of government must give the State 20% of
collections from “partially” indigent defendants (collections
were included in the original local share calculation as
100% retained by the local units)

 The redefinition of “local share” is a violation of unfunded


mandate limitations in the Headlee Amendment, Article 9, §29
of the Michigan Constitution
Indigent Defense (cont.)
 Beyond the first four standards, the costs will become even
more substantial for anticipated subsequent standards
that are already being considered and likely to be approved
 Four additional standards under current review
 Independence from judiciary (moving the management and selection
process for defense attorneys from the courts to a newly created
department)
 Indigent defense workloads (may require retaining more defense attorneys)
 Attorney qualifications and review
 Attorney incentives and disincentives (compensation). This will be a costly
Standard to implement since the MIDC has proposed increased
compensation for indigent defense counsel.
Other State Issues
 For over 100 years under Michigan law, 17 year-old criminal
offenders may be sentenced as adults; recent efforts to
increase the age limit to 18
 Statewide infrastructure for transportation, water and sewer,
and communications needs additional new governmental
funding of $4 billion annually
 The statewide road funding plan approved in 2015 is
intended to provide $1.2 billion in State appropriation
annually by FY 2022
 The targeted level of funding assumes a continued healthy
economy with no future recessions
 Roads are deteriorating at an accelerated rate and $1.2 billion is
not enough
In Closing
 The recommended budget is balanced through FY 2021

 The longer term five-year forecast includes continued but


diminishing use of General Fund Balance through FY 2023

 Fund balance will continue to be closely monitored prior to


recommending use of fund balance to fund future capital
projects

 Other issues as discussed will continue to be monitored and


evaluated for potential future impact on the County’s budget
Questions?
POSTSCRIPT: A detailed overview of the
Recommended Budget will be presented
by Fiscal Services at the August 2nd
Finance Committee meeting