2020-21 Adopted Budget Forecast and Budget Assessment
The Board of Supervisors approved the 2020-21 Recommended Budget at the June 9, 2020 budget hearing. That budget included preliminary estimates of the fiscal impacts of COVID-19 and potential impacts to County funding streams, especially sales tax-driven revenues such as General Sales Tax, Prop 172, and Realignment revenues. In addition, numerous budget balancing strategies were employed to balance the recommended budget.
Due to the uncertainty of COVID-19 and the economic recovery from the pandemic-induced recession, Financial Services staff have been monitoring economic indicators, state budget directives, and current cash receipts to prepare updated revenue estimates for the 2020-21 Adopted Budget. Based on factors such as larger than expected job loss, drop in Gross Domestic Product, extended shelter-in-place orders, and the slower pace of reopening of the economy has made the revenue picture more pessimistic than the estimates that were included in the recommended budget. The current Financial Services forecast assumes that April 2020 was the low point of the recession with a partial rebound in May 2020 as the economy starts to open, followed by a gradual recovery which is estimated to take approximately 2 to 2 ½ years before recovering to pre-COVID levels. This forecast does not take into account any additional full shelter-in-place order (such as was enacted in March 2020) and presumes that no major additional economic disruptions occur. The Department of Financial Services will continue to closely monitor revenues throughout the fiscal year to bring forth any updates or challenges that require adaptation.
During the Recommended Budget process, the County experienced the loss of about $8.8 million and current estimates indicate a further revenue loss of approximately $2 million. However, this loss is significantly smaller than originally anticipated due to numerous one-time benefits as a result of the State June budget for 2020-21 as described further below.
However, the Adopted budget will likely include further cost cutting, but staff believe it can be accommodated without the more drastic cutting originally envisioned, such as furloughs or significant layoffs, which would have necessitated the special August workshop on Mandatory/Discretionary Program Review. In all likelihood, if the recessionary outlook continues to worsen or conditions don’t improve going into the 2021-22 budget, the County will need to hold a special workshop sometime in late 2020 or early 2021. That workshop would then be a prelude to the Midyear Budget Update and the start of the 2021-2022 budget process. This approach was discussed with the Chair and Vice-Chair as part of the Budget Ad-hoc meeting on July 15, 2020 and received their support. A budget workshop will still be held in September, 2020 with the approval of the Adopted budget. In the interim, County staff will continue to check in with the Budget Ad-hoc as needed on significant budget developments.
General Purpose Revenue: In general purpose revenues, major additional revenue losses are projected to be in General Sales Tax, 7.3% or $300K, Teeter Transfer by 62.5% or $1 million, and Transient Occupancy Tax by 24.8% or $131K.
Prop. 172 Public Safety Tax: Further reduction is projected to be 3.4% or $747K, reflecting a total reduction of 8% from the pre-COVID revenue projection.
2011 Public Safety Realignment: Further reduction is projected to be 4.9% or $765K, which is a total decrease of 12.5% from the pre-COVID projection.
1991 & 2011 Health & Human Services Realignment: Further reduction is projected to be 4.3% or $2.1 million, or a total decrease of 12.5% from the pre-COVID projection.
One-Time Funding Opportunities: The overall projected revenue losses have been partially offset by several revenue increases and one-time funding opportunities:
- Property tax assessments coming in at 5% growth which is higher than previously estimated. 3.4% is included in the recommended budget resulting in additional revenue of $974K.
- The Proposition 172 Public Safety sales tax County allocation factor improved by 4.5% for 2020-21 resulting in additional revenue of $993K (otherwise loss percentage would have been 12.5%).
- State funds to backfill Realignment revenues of about $3.6 million from $750 million appropriated statewide. The County has not built-in additional funding from the state for $250 million of realignment backfill that is contingent on additional federal relief to the State of California before October 1, 2020.
- CARES act monies for COVID-19 response, about $22.6 million, which are required to be expended by December 30, 2020. While significant, much of this funding will be needed to support ongoing COVID response costs, or to reimburse the County for response costs that have already been incurred.
As described above, these significant additional funding amounts, which were unknown or uncertain at the time of the Recommended Budget, are significantly reducing the size of the gap going into Adopted Budget and the severity of the options that are required to balance the budget.
State Budget Impacts: The adopted 2020-21 State Budget was favorable to the County in several ways:
- Inclusion of $22.6 million of CARES act funding for Yolo County for COVID-19 Response.
- Realignment backfill of $750 million statewide, of which Yolo County’s share is approximately $3.6 million, and an additional amount of $250 million of realignment backfill ($1.2 million for Yolo County) if certain federal funding triggers are met. This additional amount is not being built into the County budget at this time as it is unclear whether these triggers will be met.
- The State has included $500 million of the State’s share of Coronavirus Relief Funds for Project Homekey to acquire properties to provide permanent housing for homeless individuals. This provides an opportunity for the County to collaborate with the Cities in order to attempt to take advantage of these funds.
- Funding for the November 2020 election of $111.6 million statewide to respond to the impacts of COVID-19 on the election process. The local amount is not yet known but still a positive development as the State has not funded elections for over 10 years.
This budget was still considered a workload budget from the state perspective and thus additional developments could occur as the State expects to revisit their budget after income tax receipts occur (due July 15th) and thus amendments to the State budget may occur by end of August 2020. The County will continue to monitor for additional impacts during the adopted budget process.
Cost Pressures: The County continues to experience cost pressures for Pension and OPEB costs that were built into the recommended budget. The County temporarily reduced the OPEB contribution rate from 8.8% to 7.8% and the Pension Supplemental Rate from 1.5% to 1.0% for the 2020-21 budget. These rates are being maintained for the Adopted Budget and will be revisited in 2021-22. It is expected that any investment underachievement of earning targets in the Pension or OPEB portfolio will add to the long-term funding pressures of these liabilities to the County.
Budget Principles: Staff recommends approval of the revised 2020-21 Budget Principles, as reflected in Attachment A. The prior budget principles were developed in February 2020 and thus have been revised to reflect some of the impacts of COVID-19 and a continued reduction scenario. Some notable provisions include:
- Reserves and contingencies – Reserves shall only allow withdraws to occur when policy triggers are achieved (Policy on Fund Balance and Reserves).
- Financial Sustainability – The 2020-21 budget shall continue efforts to strengthen financial sustainability and get through the current economic downturn protecting core functions.
- New Position Requests – Due to the current economic downturn, no new position requests will be entertained unless essential and have an additional funding source.
- Position Reductions – Any position reductions will be implemented strategically protecting the core County functions. Vacant positions will be first in line to achieve budget-saving before filled positions.
Budget Calendar: The proposed 2020-21 Adopted Budget process calendar is provided as Attachment B. Key dates for the Board’s consideration are as follows:
Jul. 22 Budget instructions & Budget System open for the departments
Aug. 12 Budget System closes for the Departments
Aug. 25 Mandatory vs. Discretionary Board Workshop
Sep. 29 2020-21 Adopted Budget Hearing
Interim Budget Preparation Guidance: The 2020-21 Adopted Budget still faces a gap; however, due to availability of the onetime funding resources the budget reductions appear to be of a small enough size to achieve through targeted reductions and have the County Administrator and Financial Services work with departments to achieve these targets within their operations.
Staff are recommending that the County postpone utilization of more severe budget-balancing tools at this time (ex. furloughs) and as discussed above utilize targeted reductions. This approach would be employed unless the economic situation deteriorates and more severe options need to be reconsidered. In addition, Financial Services staff recommend holding back on the utilization of reserves at this time to remain available in case of further deterioration and mitigate against further unexpected developments. It is noted that revenues continue to need to be monitored carefully due to ongoing uncertainty involved in the recession created as a result of the COVID-19 Pandemic.
The departments will start to enter Adopted Budget adjustments on July 22nd and a separate Board item will discuss the CARES Act spending plan and the approach to incorporate the plan into the Adopted Budget phase. Staff plans on bringing the final 2020-21 Adopted Budget for Board approval on September 29th.
Fund Balances
At the June 9, 2020 Board of Supervisors meeting, the Department of Financial Services was directed by the Board to complete an analysis of existing fund balances that may have the ability to aid in the resolution of budgetary challenges. In identifying those fund balances to be specifically analyzed, DFS consulted with the County Administrator’s Office to narrow down the selection of funds This was done utilizing three criteria: (1) the fund balance has been over $1 million on average in the past three years, (2) the fund is not an internal service or enterprise fund operating on a cost-recovery basis, and (3) the fund does not have long term restrictions on use (ex. Pension/OPEB Trust).
DFS staff projected FY 2019-20 balances and use of fund balance already contained in the 2020-21 budget (Attachment C) and consulted with departments responsible for the management of these balances to confirm the projection. Despite efforts to accurately project year-end balances, actual balances upon close of the 2019-20 fiscal year (around August 31, 2020) may differ than those represented in this analysis.
The descriptions below contain information from the Department of Financial Services on allowable uses as well as on planned utilization of fund balances from responsible departments.
General Fund
The Unassigned General fund is included for appropriation in the recommended and adopted budget processes. It is as part of that process either expended or set aside purposefully in reserves or contingencies. The $6.4 million was included as part of the Recommended budget which was approved on the June 9th budget hearing. The Unassigned General fund balance was a projected number for the recommended budget and will be updated in August 2020 for adopted budget once 2019-20 results are known. At that time, any additional funds would be subject to appropriation or any deficit identified would need to be closed to achieve an adopted budget.
General Fund-General Reserve
The purpose of the General Reserve is to protect the County’s essential services from the potential impacts of unanticipated events and circumstances not occurring during the normal course of operations. The target balance shall be 10% of the average of total expenditures in the General Fund and the Public Safety Fund in the County annual financial report of the preceding three fiscal years. Drawdown shall only be authorized by the Board of Supervisors in a four-fifth vote resolution or during the adoption of the annual budget.
General Fund-Reserve for Audit Disallowance
The purpose of the Reserve for Audit Disallowance is to mitigate against adverse audit findings from the state or federal government. The County historically had significant financial audit findings from the Mental Health cost claiming process which led to this reserve being established. As the County responds to COVID-19, the County has substantial audit risk from FEMA or the US Department of Treasury related to the expenditure of disaster relief funding that could be recaptured if spent improperly.
General Fund-Reserve for Capital Improvement
Allocation to this reserve is to set aside resources for future capital needs. There are numerous capital projects for which this reserve may be used that include but may not be limited to Yolo Library, Animal Shelter, Adult Day Health Center, or Knights Landing Levee improvements.
General Fund – Health & Human Services Reserve
The fund balance is categorized as contingency reserve to fund unforeseen expenditures emerging in the Health and Human Services area. Due to the COVID-19 pandemic, the reserve has been expended by $510,000 and will remain available to address unforeseen Health & Human Services’ needs.
1991 Realignment - Social Services
Social Services 1991 Realignment is the transfer of funding responsibility for social services costs from the state to counties. In exchange, counties receive dedicated funding sources to cover those transferred costs and some flexibility in spending the funds in order to meet local needs. CalWORKs Assistance, Employment Services, Foster Care Assistance, Child Welfare Services, Adoption Assistance, and In-Home Supportive Services are some of the major programs supported by the fund.
The fund balance of $1,500,000 is budgeted to fully deplete in 2020-21 to fund Social Services operations due to expanded demands due to COVID-19.
1991 Realignment - Social Services Family Support
In June, 2013, Governor Brown signed into law AB 85 that provides a mechanism for the State to redirect State health realignment funding to fund social service programs and created two new sub-accounts: Family Support and Child Poverty and Family Supplemental Support.
Leftover fund balances in this fund are recouped in the following fiscal year by the State. Since FY 19-20 is not officially closed, there is a chance FY19-20 may end with fund balance, however, it will not be available to cover FY20-21 costs, it will revert eventually to the State.
2011 Realignment - Protective Services
2011 Health & Human Services realignment realigned the former California Department of Social Services' (CDSS) funding for Adoption Services, Foster Care, Child Welfare Services, and Adult Protective Services, and programs from the state to local governments and redirects specified tax revenues to fund this effort.
No fund balance is projected for 2020-21.
Intergovernmental Transfer
The mechanism for securing these funds involved an Intergovernmental Transfer (IGT), whereby the County transfers funds to the State Department of Health Care Services (DHCS) which then uses them to increase Medi-Cal payments (within federally allowed levels) to the County’s providers. This resulted in the County getting back the transferred funds, along with the matching federal funds that are contained in the Medi-Cal expenditures.
After payment to the State in Managed Care Organization taxes, Partnership Health will distribute the funds to the Health Department, as their contracted medical provider to provide additional health services to Medi-Cal patients in the following priority areas: Mental Health, Substance Abuse, Care Coordination & Access to Specialty Care. The Board of Supervisors approves a spending plan annually, the last plan was approved on June 9th to spend $3,484,095 in the 2020-21 Recommended Budget.
1991 Realignment - Public Health
The fund balance is used to fund Public Health operations and up to 10% of the current year receipts can be transferred to fund gaps in Social Services and Mental Health. In 2020-21 expenditures are expected to increase due to COVID-19 Public Health specifically in emergency preparedness and communicable disease programs, therefore reducing the available fund balance for 21-22. These increases will be included in the adopted budget presented by staff on methods to sustain the County’s COVID-19 response.
Alcohol & Drug Programs
Used to account for funds related to programs from the former State Department of Alcohol and Drug Programs. The fund was established in 2007 to track these programs with the primary funding source being the Substance Abuse Prevention and Treatment (SAPT) grant.
The funding is to be used in accordance with the terms required for Substance Abuse Prevention and Treatment block grants. The largest amount of funds are allocated to counties in blocks to provide (1) Discretionary Services to plan, carry out and evaluate activities related to substance abuse disorders, (2) Prevention set aside funds to carry out a prevention plan, (3) Perinatal set aside funds to increase or maintain perinatal services, and (4) Adolescent and Youth Treatment Programs.
Fund balance is budgeted to fully deplete in 2020-21.
Mental Health Services Act (MHSA)
The fund is used to account for the County's share of funding from a 1% income tax on personal income in excess of $1 million, approved by Proposition 63 (Mental Health Services Act or MHSA) in 2004, that is directed toward mental health services and programs.
Funding must be used for programs and services that align with the five core components of the MHSA: Community Services & Support (CSS), Prevention & Early Intervention (PEI), Innovation (INN), Capital Facilities & Technical Needs (CFTN) and Workforce Education & Training (WET). The specific programs and services are further identified and defined within the Three-Year MHSA Plan, which counties must prepare and submit following an extensive community stakeholder process.
The next 3 year MHSA spending plan is going to the board in a separate item on July 21, 2020 and the 2020-21 Adopted Budget will include additional appropriations.
Emergency Medical Services (EMS)
This EMS fund compensates health care providers for emergency services for people who do not have health insurance and cannot afford to pay for emergency care and for discretionary EMS purposes. Each county may establish an EMS Fund. Counties may use the initial 10% of these revenues for EMS fund administration. The remainder is expended in the following formula,
- 58% payments made to physicians who care for patients who have no insurance coverage
- 25% payments made to hospitals for the provision of emergency care to the uninsured,
- 17% Discretionary Account - payments made for other EMS purposes, determined by each county.
HHSA is planning to invite the partner care providers to create a plan and expects to incorporate it in the 2021-22 budget.
Demeter Endowment Fund
The Demeter Fund was created in 2002 as part of the Pooled Tobacco Securitization Program. This fund receives any excess from the deallocation of these Tobacco monies (currently in the Ceres Fund) above $225,000 which funds Health & Human Services emerging needs. It is expected that it will take until 2043 for the Pooled Tobacco Securitization program to complete the deallocation process. After that time, these Demeter funds would be utilized by the Board to continue to sustain Health & Human Services emerging needs. This program was created via Board resolution and could be revisited sooner than 2043.
Cannabis Cultivation Regulation
Under the Cannabis Ordinance, regulated businesses are required to pay the relevant permit fees associated with their operation. Initially, when the county began the program, the fees accumulated fund balance, which has been set aside, included a $2 million reserve against potential litigation for the outcome of the Comprehensive Land Use Ordinance (CLUO) and a $800,000 set aside for the construction of a more permanent facility for the Cannabis Task Force.
2011 Realignment – Community Corrections Partnership
Community Corrections Partnership (CCP) was created as part of 2011 Realignment to address realigned services associated with AB109. Fund balances are required to be utilized as part of the CCP plan in order to address Criminal Justice outcomes.
The accumulated fund balance in the CCP is expected to be consumed due to revenue declines associated with COVID-19; since sales tax is the underlying funding source for this program.
Youthful Offender Block Grant
The Youthful Offender Block Grant (YOBG) reassigned from state to local authority, the non-violent, non-serious, non-sexual offenders within California’s juvenile justice system. Funded by Realignment dollars, YOBG allocations are to be used to enhance the capacity of county probation to provide appropriate rehabilitative and supervision services to youthful offenders and allowable uses of YOBG funds are very broad within this purpose.
Prior to the COVID-19 Pandemic, the Probation department identified several programming uses for future utilization of approximately $645,000 of the fund balance. These included additional programming at the Juvenile Detention Facility, gardening and parenting projects, Yolo County Youth Construction program for the West Sacramento area, and set up and programming for an evening Learning Center. In light of anticipated reductions in Realignment revenue, the department is also considering the appropriation of YOBG fund balance at adopted budget to balance any further other funding source reductions in the FY 2020-21 budget.
Juvenile Justice Program
The Juvenile Justice Crime Prevention Act (JJCPA) provides a stable funding source for local juvenile justice programs aimed at curbing crime and delinquency among at-risk youth. Funded through Realignment, the JJCPA requires funded programs to be modeled on strategies that have demonstrated effectiveness in curbing juvenile delinquency.
Prior to the COVID-19 Pandemic, the department identified several uses for future utilization of approximately $160,000 of the fund balance. These included a Racial Disparity study, twelve months of re-entry housing for five youths, and a Juvenile Case Management Model. In light of anticipated reductions in Realignment revenue, the department is also considering appropriation of additional fund balance as needed to offset any further reductions at adopted budget in the FY 2020-21 budget.
Sheriff-Small & Rural County Law Enforcement
Funds allocated by the State to Sheriff’s to enhance law enforcement efforts within the County. Funds may not be used to supplant other funding for Public Safety Services. The funds may not be used for any video surveillance or monitoring of the general public.
The fund balance has increased over the years to pay for the Record Management System (RMS)/Jail Management System (JMS) software implementation project. In FY2020-21, $911,600 of fund balance was budgeted to continue the implementation. Additional plans into the future may include the implementation of body cameras. This plan is contingent on a source of funding for related, on-going costs. The proposed plan will be brought to the Board of Supervisors at a later time.
Consumer Fraud and Environmental Protection
This fund is to account for penalties and settlements collected from violators, and are used for the continued enforcement of consumer and environmental protection laws. In addition, funding may be allocated by court-ordered settlement. The DA’s planned use of the fund is to cover operational expenses when penalty and settlement revenue are inadequate to cover their expenses. Currently, the fund balance would cover at least 3 fiscal years of no penalty or settlement revenues.
While a possibility exists they would have no revenue in a given year, from DFS’ analysis, this does not match the past trend in which the average revenue over the past five years (FY2014-FY2019) is $2.3 million. It is recognized however that due to the settlement nature of this fund that revenue can be difficult to predict. The District Attorney’s Office has provided additional information on Attachment D.
Included in the fund balance is $674,115 restricted for the testing of retail products for toxicity per a court settlement agreement.
Library Community Facilities District
In 1989, the Yolo County Board of Supervisors created Community Facilities District (CFD) No. 1989-1 for the purpose of expanding the facilities and services provided by the Davis Branch Library. In November 2007, Davis voters residing within CFD No. 1989-1 approved an increased special tax. The special tax was approved to repay bonds; maintain the Mary L. Stephens Davis Branch Library’s hours of operation; expand its collection, resources, and children’s services; enlarge and modernize the building, and to authorize library services for South Davis. The special tax increases at a rate of 2% each year.
Currently, and in past years, the proceeds from the special tax have exceeded the cost of the debt service payments and thus subsidized operations for the Davis Branch Library. However, with increasing costs for salaries and benefits, along with an increase in the indirect costs charged to the Library department (a discretionary cap was removed), it is projected that costs will exceed proceeds in the next 2-3 years, with the gap widening each year until the accumulated fund balance is eliminated. |