2020-21 Preliminary Forecast and Budget Assessment
 
For fiscal year 2020-21 the County is expected to see modest growth in general purpose revenues, however, overall economic growth remains sluggish, and the risk of a near-term recession or market disruption has increased.  Increases in annual CalPERS and OPEB contributions, coupled with negotiated salary increases and additional positions required to staff the jail expansion, will likely consume growth in discretionary revenues.  Departments will be asked to continue looking at cost saving strategies and expenditure reductions may be needed to maintain a balanced budget.
 
Staff recommends that the following items be considered in order to guide the 2020-21 budget process:
 
State Budget Impacts: The Governor’s 2020-21 State Budget proposal is based on the assumption of continuing economic growth in the state economy. The proposal includes one-time funding opportunities in housing and services for homeless, enhanced funding in correctional and probation programs, public defender, mental health and agricultural initiatives. The County’s 2020-21 budget should take advantage of these funding opportunities, but also maintain focus on stabilizing core County operations, such as those dependent on realignment funding, where costs are outpacing revenue growth. The County continues to mitigate the impacts of the unwinding of the Coordinated Care Initiative and restructuring of the In-Home Supportive Services (IHSS) maintenance of effort. 
 
Pension:  The most recent CalPERS actuarial valuation report as of June 30, 2018 reflects an aggregate unfunded liability for Yolo County miscellaneous and safety plans of approximately $355 million, an increase of nearly 12% over the prior year. Pension rates in fiscal year 2020-21 are increasing from 30.4% to 32.2% for miscellaneous employees and from 40.1% to 43.7% for Public Safety employees.
 
OPEB: The funded status of Other Post-Employment Benefits (OPEB) continues to improve due to implementation of the OPEB benefit caps and continued pre-funding of the OPEB liability. As of the June 30, 2018 valuation report, the funded ratio was 14%. In fiscal year 2020-21, the OPEB rate charged to County departments increases from 8.5% to 8.8%, which reflects the full actuarially determined contribution (ADC) consistent with the revised OPEB funding policy.
 
Labor Costs:  Increases in required CalPERS employer contribution rates, OPEB rate increase, and negotiated cost of living adjustments are projected to increase labor costs by approximately $7 million. There may be further increases in costs resulting from IHSS wage negotiations and increased staffing needs due to Monroe jail expansion, which may be an additional $2 million.
 
General Reserve: Over the past several years, the Board has shown fiscal prudence by steadily increasing the General Reserve.  The county policy on Fund Balance and Reserves establishes a target reserve level of 10% of General Fund expenditures.  The County has chosen to include the Public Safety Fund along with the General Fund to accurately assess financial risk. At the end of fiscal year 2019-20 the General Reserve level is projected to be $14 million which is 6.5%. Additional contributions to the General Reserve are advisable to further mitigate risk in light of a worsening economic outlook, and to continue making progress in achieving the policy target. 
 
Budget Principles:  Staff recommends approval of the 2020-21 Budget Principles, as reflected in Attachment A.  The Budget Principles serve to highlight some of the best practices that underline budget development each year, and to guide budget planning for the upcoming year.  A few of the notable provisions in the Principles include: