Scribd Logo
Upload

Welcome to Scribd!

  • Fiscal Year 2020-2021 Budget Development Report

    Uploaded by

    Veronica Faith
    539 views13 pages
    Fiscal Year 2020-2021 Budget Development Report

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    Fiscal Year 2020-2021 Budget Development Report

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    539 views13 pages

    Fiscal Year 2020-2021 Budget Development Report

    Uploaded by

    Veronica Faith
    Fiscal Year 2020-2021 Budget Development Report

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 13
    Kern County Administrative Office 11115 Truxtun Avenue, Fith Floor * Bakersfield, CA 93301-4639, Telephone 661-868-3198 + FAX 661-868-3190 + TTY Relay 800-735-2929 RYAN J ALSOP County Administrative Officer February 25, 2020 Board of Supervisors Kern County Administrative Center 1115 Truxtun Avenue Bakersfield, CA 93301 FISCAL YEAR 2020-21 BUDGET DEVELOPMENT REPORT AND PROPOSED NET GENERAL FUND CONTRIBUTION GUIDELINE Fiscal Impact: None ‘The County Administrative Office (CAO) is commencing the annual budget planning process for Fiscal Year (FY) 2020-21 by preparing a preliminary financial forecast and proposed net General Fund contribution guideline for departments to follow, as budgets are prepared. This report includes forecasts of major budgetary components the CAO uses for budget development. SUMMARY ‘The CAO is proposing a net General Fund contribution guideline for budget development that promotes status quo funding levels and use of one-time funds for one-time expenditures to the greatest extent possible. The current guideline was developed with deliberate consideration forthe fact that discretionary revenue growth is not enough to keep pace with the soaring costs of labor and social service programs and the demand for greater investment in Jaw enforcement services, homelessness and economic development. With that context, FY 2020-21 marks a turning point, four years in the making, for the County’s financial stability and overall health. The FY 2019-20 budget represents the end of a four-year deficit mitigation strategy enacted to ‘manage property tax declines that began in FY 2016-17. Over that period, General Fund departments have endured reductions totaling $34.4 million and approximately $54 million in one-time resources were used to bridge the budget gap. As we begin the FY 2020-21 budget process, your Board’s prioritization and commitment to careful planning, combined with modest growth in local revenues will be critical in balancing the demand for services with the County’s financial reality This year the CAO proposes a Net General Fund Contribution (NGFC) guideline for budget development that serves as a starting point to develop a budget aimed at ensuring long-term fiscal sustainability and maintaining your Board’s commitment of discretionary resources to critical public safety recruitment and retention issues. The General Fund contribution guideline requires that departments to submit their budget requests at approximately the same level of Net General Fund contribution as the current fiscal year, adjusted for one-time allocations provided last fiscal year. Additionally, $6.5 million of pension cost increases for Sheriff and Probation safety personnel will be offset by the use of reserves to honor existing commitments to minimize the overall impact on services to the public while the County continues to contend with ongoing pension cost inereases. The increasing and changing state mandates for social service programs continue to challenge the County’s budget. $1.6 million in additional NGFC combined with 2011 Realignment revenue growth is necessary to cover the anticipated cost increases for Continuum of Care Reform, Foster Care, Adoptions, and General Assistance, Board of Supervisors FY 2020-21 Budget Development Report and NGEC Guideline February 25, 2020 Page 2 ‘The Fire Fund continues to be fiscally challenged. There are several initiatives in progress for the department that are intended to help towards being more cost efficient and improve cost recovery. These efforts, however, will not be sufficient to cover ongoing pension inereases for safety personnel. ‘The permanent transfer of $18 million of General Fund property tax revenue and the recovery of property tax revenue in the Fire Fund since the decline associated with the reduction of oil and gas properties in FY 2016-17 are not sufficient to cover the labor, pension cost increases, as well as capital needs. The Fire Department's FY 2020-21 budget will require at least a $9.7 million contribution in General Fund reserves for pension escalation. It is imperative that the County continues to work diligently and strategically in our efforts to achieve full cost recovery to help absorb increases in cost while simultaneously exploring potential sources of new revenue for our Fire Department. GOVERNOR'S FY 2020-21 STATE BUDGET PROPOSAL ‘The Governor’s budget proposal for FY 2020-21 continues to pay down unfunded retirement liabilities, set aside funds in reserves and fund a large number of one-time commitments. Governor Newsom also included several proposals that will impact the FY 2020-21 County budget as follows: * The proposed budget eases the additional burden placed on Counties for In-Home Supportive Services (uss); + Includes significant investments for siting emergency shelters, navigation centers, and supporting housing for individuals experiencing homelessness, and * Provides funding and other resources for disaster response, recovery and prevention ‘The County will continue to evaluate the proposals included in the Governor's budget to assess and include the impeets in the County budget. PRELIMINARY PROJECTIONS FOR FY 2020-21 ‘There are four primary determinants of the forecast for the coming budget year and the development of a financial plan for that year. These elements include: 1) State and federal fiscal actions that will increase or decrease County costs or revenues; 2) the amount of increase/decrease in the County’s assessed valuation and property taxes; 3) the status of the current year’s budget and year-end fund balances carried forward to the next fiscal period; and 4) known, quantifiable changes in local program costs and revenues. ‘These elements must be evaluated and carefully ‘monitored before the County can establish a plan for developing next year’s budget. Each of these major elements is discussed in more detail on the following pages. Impact from Retirement and Health Benefit Costs Once again, the estimated retirement cost is expected to increase for FY 2020-21. Kem County Employees’ Retirement Association (KCERA) contribution rates will increase approximately’ 0.63% for general members and 4.61% for safety members. After including the anticipated cost for Pension Obligation Bonds of $75.4 million, the County’s total retirement cost is approximately $296 million. Overall retirement rates for budget development purposes are increasing for general members by 1.58% and 4.84% for safety members. Assuming current salary levels, these rates would increase the budget retirement costs for departments with general members by approximately $5.2 million. The retirement cost for departments with safety members, Sheriff, Probation and Fire, is increasing by approximately $9.6 million In anticipation of the additional retirement cost associated with the changes in actuarial assumptions by KCERA and increasing debt service for the Pension Obligation Bonds, your Board established a Designation for Retirement to offet departments’ increased retirement costs until the 1995 Pension Obligation Bond is paid off in FY 2021- Board of Supervisors FY 2020-21 Budget Development Report and NGFC Guideline February 25, 2020 Page 3 22. The balance of the designation is currently at $33 million. It is anticipated the designation will be depleted by FY 2021-22. Beginning in FY 2018-19, the Human Resources Division transitioned the County's self-funded insurance plan into four separate Kem Legacy Health Plan products to best meet the needs of our employees and their families. Benefit offerings were streamlined and revamped to create a complete and comprehensive Kern Legacy product line, Comparable and controllable network rates and working with our partner providers to provide the best care at competitive prices, afforded the County the ability to reduce the biweekly health benefit rate for FY 2019-20 by nearly 10% and again in FY 2020-21 by an additional 5% contributing to nearly $15 million in savings across County departments. The savings have been instrumental in helping departments meet the four-year deficit mitigation strategy and will help departments mitigate other cost increases in the coming year. Forecasts of Major sudgetary Components Discretionary revenue is estimated to increase a total of $4.3 million. The estimate includes increases from property and sales tax revenue of $5.9 million that is offset by other revenue adjustments totaling $1.6 million, primarily reductions in countywide cost allocation charges. The CAO has developed forecasts, provided in ‘Attachment A, that are based on certain assumptions and key economic factors. General Fund discretionary revenue, including property tax and sales tax revenue (Page 1) Public Safety Sales Tax (Prop 172) revenue (Page 4) Changes in pension costs (Page 5) Reserves and designations (Page 6) Projections will be reassessed and updated for the recommended budget as more current information is obtained. Sales and Use Tax Based Revenues ‘The County’s sales and use taxes have stabilized to base levels after several years of one-time increases in use taxes from construction activity. Revenues from fuel and service stations and business and industry groups continue to lead sales and use tax collections for the County. Sales and use taxes are budgeted at base revenue collections of approximately $42 million, which is approximately $718,000 more than FY 2019-20. While this revenue source is projected to remain stable over the next fiscal year, it can be greatly impacted by changes in the state and local economy. Realignment funds are projected to increase overall in FY 2020-21. An increase of $6.4 million in 2011 realignment funds is projected due to increases in public safety, behavioral health, and protective services of $2.8 million, $2.1 million, and $1.4 million, respectively. The 1991 realignment funds are projected to increase by approximately $10.8 million. Approximately $6 million of the increase in 1991 realignment is attributable to CalWORKs MOE and Family Support subaccounts. The CalWORKs MOE and the Family Support subaccounts offset the State’s General fund responsibility for the CalWORKs program administered by the Department of Human Services. Fluctuations in the funding levels of these two revenue sources does not affect service levels of the program. Additionally, the County has received $12.4 million in 2011 Realignment Growth Funds and $3 nillion in 1991 Realignment Growth Funds for FY 2018-19 that are available in this fiscal year, some of which may be carried forward to FY 2020-21. Nearly $1.9 million of 1991 realignment growth funds are associated with CalWORKs and are not available for operations. Any remaining available 2011 Realignment Protective Services Growth and 1991 Realignment growth funds will be used for cost increases in Foster Care, Adoptions and General Assistance. Board of Supervisors FY 2020-21 Budget Development Report and NGFC Guideline February 25, 2020 Page 4 Proposition 172 revenue, which is contingent on sales tax collections, declined over the past few years as one- time construction activity for renewable energy projects has slowed and is leveling out at the County's estimated base. In an attempt to minimize impacts to public safety departments, Proposition 172 reserves have been released cover the past four years and are projected to be fully depleted in FY 2021-22. Property Tax Revenues For budget development purposes and after discussion with the Assessor, an increase of 1.8% will be used to provide preliminary projections for next year’s assessed valuation. The Assessor has projected an increase of 3.5% in assessed value for residential and commercial property on the secured roll. However, oil and gas property assessments are projected to decrease by 5% based on a flat price per barrel of oil and the additional volatility associated with the regulatory process of permitting of oil and gas. The net impact for the General Fund of this projected overall slight increase in value is a corresponding increase in property tax revenue of $2.9 million and $2.2 million of property tax in-lieu of vehicle license fees for a total of $5.1 million. The Fire Fund is estimated to collect $642,000 more in property tax revenue than budgeted in FY 2019-20. As new information develops, the CAO will evaluate and adjust estimates if appropriate. The final estimates of property tax revenue for FY 2020- 21 will not be known until the assessment roll is filed on June 30, 2020. Fund Balance Carry-Forward Fund balance carry-forward is typically the result of excess revenue collected and appropriations not spent for a balance of funds at the end of the fiscal year that may be used in the following year’s budget. Best budget practices would limit the use of fund balance carry-forward to one-time expenses to the greatest extent possible. Prudently, your Board has used most of the carry-forward balance for one-time expenditures or designations over the past several years. However, these funds have been critical in phasing in reductions to departments as part ofthe Four- Year Deficit Mitigation Plan. Over the past four years, approximately $54 million of carryforward was used to minimize service level impacts and balance the budget. At this time, it is not anticipated that a portion of the carryforward at June 30, 2020 will be used towards operations. Any remaining balance at year-end of the one- time funds will be recommended for critical major maintenance projects or reserved for future use in accordance with Board policy. Designations and Reserves Designations and reserves for the General Fund totaled $180.4 million at December 31, 2019. Approximately $65 million of the balance is associated with reserves and designations that are either set aside for a liability or a cash loan to other funds. The remaining $115.4 million, which includes a $40 million General Reserve, is discretionary and available to assist with fiscal stability and mitigating a budget gap if needed. Since FY 2015-16, your Board has approved setting aside funds in a designation to pay for pension cost escalation, primarily for safety departments. The FY 2020-21 budget guideline assumes that at least $16 million in reserves will be used to pay for pension costs for safety personnel. The current balance of the retirement designation is $33 nillion and it is anticipated the account will be depleted by FY 2021-22 when the 1995 Pension Obligation Bond will be paid off and savings in pension costs will be realized, Itis the County's policy to maintain a General Reserve of 10% of discretionary resources, which is approximately {$40 million for next fiscal year in part to ensure that all of the County’s future debt obligations will be met. Sufficient reserves ensure financial protection during economic uncertainties from one year to the next. On page Gof Attachment A, the projected use of reserves and designations is provided. Board of Supervisors FY 2020-21 Budget Development Report and NGFC Guideline February 25, 2020 Page 5 PROPOSED FY 2020-21 GENERAL FUND CONTRIBUTION GUIDELINES As recommended in previous fiscal years, the proposed budget development guidelines are based on the “net General Fund contribution” concept. The net General Fund contribution approach relates expenditure targets to the amount of the projected discretionary revenue. General Fund discretionary revenue is that portion of the County's operating budget over which your Board has some level of control. Discretionary revenue is estimated to increase by a projected $4.3 million. While the General Fund is projected to collect nearly $5.9 million more in property and sales tax related revenue, this amount is offset with the reductions in the countywide cost allocation charges and other miscellaneous revenue adjustments. ‘The net General Fund contribution approach in the budget guidelines will take into account departmental revenue collections (program-specific revenues) as well as expenditure requirements. Some departments may have the capability to generate additional program revenues, or to increase charges to other departments where appropriate. ‘Therefore, absorbing potential cost increases does not necessarily equate to a like reduction in appropriations or spending authority. The CAO is requesting that departments evaluate their programs and prioritize them for your Board’s consideration if needed, To prepare for the known and potential impacts on available discretionary revenue, departments will also be required to submit strategic Budget Step-Down Plans up to an additional 3% reduction from the proposed recommended NGFC guideline, These plans will be used to identify additional incremental funding reductions and relative priorities below the established NGFC target, and will be essential in evaluating the expected service impacts and consequences at alternative funding levels in each department. Step-down plans will identify specific service impacts related to budget reductions up to the additional 3% and will provide the planning framework necessary to identify options for your Board to consider if the County’s financial condition worsens. Departments? requested budgets, step-down pians, and supporting documents are due to the CAO on April 10. For initial budget development purposes, departments are required to submit their budget requests at approximately the same level of net General Fund contribution as FY 2019-20. The proposed net General Fund contribution consists of the FY 2019-20 adopted net General Fund contribution less funding for nonrecurring items added in FY 2019-20, and departments’ Budget Savings Incentive credits. The guideline maintains the commitment of discretionary resources to critical public safety recruitment and retention issues, including negotiated salary increases for Deputy Sheriff and Detention Officers classifications. Also included isa fifth year of funding for a Deputy Sheriff Training Academy in Appropriation for Contingencies. Increases to the Economic Opportunity Area Designations have not been included in the proposed Net General Fund guideline. Increases will be evaluated after the assessment roll is filed on June 30, 2020. Departments will be required 10 absorb all potential cost impacts from other operating cost increases and to ‘manage their budgets within the targeted amount. Attachment B identifies the proposed FY 2020-21 General Fund contribution guideline for each department, which provides a starting point for the development of the FY 2020- 21 budget. The baseline NGFC for departments such as, Utilities and the Indigent Defense Program may require future adjustments. BUDGET DEVELOPMENT PROCESS ‘The County will have three scheduled Board meetings specifically assigned for budget workshops and discussions. In addition, in accordance with State law, the County will provide your Board with a Preliminary Recommended ‘Budget prior to June 30, The Recommended Budget will be issued in August and used for budget hearing purposes. Board of Supervisors FY 2020-21 Budget Development Report and NGFC Guideline February 25, 2020 Page 6 ‘The Board meetings scheduled for budget development are as follows: mn and Preliminary Budget Submittal 1) June 23, 2020 ~ Budget Priority Discus 2) July 20, 2020 — Special evening meeting ~ Public Comments 3) July 21, 2020—Budget Priority Discussion with final year-end balances 4) August 25, 2020 ~ Budget Hearings CONCLUSION The development of the FY 2020-21 County budget will continue to require thoughtful strategic planning by management and an innovative cooperative spirit among County staff, While the deficit mitigation plan resolved the structural deficit, moving the County towards long-term fiscal stability will require balancing the County's priorities and the increased strain on services with limited discretionary resources we have available. It is imperative that departments continue to be vigilant in finding efficiencies and alternative resources to maintain their services. Major factors impacting next year’s budget are still unknown, such as final assessed valuation, carryover balance, and final State budget impacts. The proposed General Fund contribution guidelines will provide this office and departments with a preliminary planning framework to develop a balanced recommended budget for the coming year. The annual “budget kick-off” meeting for department heads and their staff is scheduled for February 27, 2020 to provide more detailed information on the budget guidelines and to clarify ‘budget development procedures. ‘Therefore, IT I$ RECOMMENDED that your Board discuss the FY 2020-21 budget development report, provide

    You might also like