The purpose of this report is to provide the Board of Supervisors an update on the 2017-18 budget development process, and to receive Board direction on the proposed budget balancing strategies prior to finalizing the 2017-18 Recommended Budget.
In February, the Board approved the 2017-18 Budget Principles to guide budget planning for the upcoming year (Attachment A). In summary, the Budget Principles provide that the budget shall be developed in accordance with best practices, solutions to mitigate State budget impacts shall be prioritized, strategies to address the County’s pension liability shall be implemented, and that priority shall be given to funding requests that support the Board’s Strategic Plan Goals or enhance the use of technology to provide services.
At the outset of the budget process, all departments were provided with an initial net county cost target based on estimated labor cost increases and projected general purpose revenues for 2017-18. Each department submitted a requested budget, and in several cases the requests exceed initial targets. In total, department expenditure requests exceed initial targets by $10,228,359, which is not unusual at this point in the process as departments include new funding requests in their requested budgets.
Budget Strategies
Budget meetings have been held with each department to review the budget requests and, if needed, discuss options for balancing any resulting shortfall. In most cases, the strategy to balance department budgets includes removing new position requests, new vehicle purchases or replacements, and other new capital or equipment expenditures. These requests will be revisited with the 2017-18 Adopted Budget in September, once current-year fund balances and the impact of the IHSS cost shift from the State are known.
A significant new strategy reflected in the proposed Behavioral Health balanced budget scenario is implementation of a countywide crisis management program. This program will include a Mental Health Urgent Care site, and will be fully staffed by the Health and Human Services Agency. Currently, most individuals in need of acute mental health stabilization are assessed by local emergency room staff, and many times are then transferred to costly inpatient psychiatric units, which the County in turn must pay for. These hospitalization costs have spiked in recent years. To better manage these expenses, as well as improve outcomes for individuals in crisis through supporting continued community integration, the crisis management program aims to use Agency staff make to an initial assessment of individuals’ mental health needs, and when appropriate. direct them to less intensive and more cost effective supports. The Mental Health Urgent Care location will provide stabilization and support 7 day per week, 9 hour per day, at a community-based site, and will receive individuals brought in by law enforcement first responders, family or those who are self-referred. In addition, County clinicians will be available 24/7 to respond to the two local emergency rooms to conduct assessments and direct individuals to care specific to meet their presenting concerns. The proposed budget balancing scenario includes the addition of new positions to establish the crisis management program, with a projected parallel reduction in hospitalization costs. This will be discussed in more detail during the June 13 budget hearing.
Attachment B provides a summary of the projected available resources, the deficit (if any) resulting from each department’s requested budget, and the potential strategies identified to close the gap.
In addition, the proposed budget scenario includes the following key assumptions:
Reserves & Contingencies – It is recommended that the General Reserve be maintained at 5%, the minimum level established in the County policy on Fund Balance and Reserves. Due to increasing expenditures in both the General Fund and Public Safety Fund, an additional $514,423 is required to maintain the reserve at this level. Should funding be available, additional contributions may be recommended in the Adopted Budget in order to increase the General Reserve percentage.
The County Policy on Fund Balance and Reserves states that contingency appropriations shall be recommended during the budget process for major funds, usually 1% - 3% of total budgeted expenditures. These funds provide the first line of defense against uncertainty and to cover unanticipated needs that may arise throughout the year. As such, it is recommended that a General Fund contingency of $2 million, or approximately 2.7% of total General Fund allocations, be included in the 2017-18 Recommended Budget.
In addition, a contingency of $1.5 million has been set aside for the impact of the IHSS cost shift to counties from the State. While the full impact to Yolo County has been estimated at $3 million for 2017-18, negotiations between the State and counties are ongoing and staff is hopeful that a solution will be achieved that reduces the cost impact.
Pension & OPEB – The proposed 2017-18 budget scenario continues to fund the County’s pension and OPEB liabilities. OPEB rates remain unchanged from 2016-17 at 8% of payroll. Actions taken by the Board to cap retiree health benefits, combined with implementation of the pre-funding plan, have significantly reduced the County’s OPEB liability.
The 2017-18 budget also fully funds increased PERS pension rates, which are set 23.227% of payroll for Miscellaneous plan members and 34.082% for Safety plan members. In addition, staff continues to explore the feasibility of establishing a pension reserve or trust to further address the County’s unfunded liability, similar to what was done for OPEB. A key element of this strategy is to generate savings by prepaying the annual required contribution to PERS. These savings would then be allocated to the pension reserve or trust.
CIP Bond Financing – On April 25, the Board approved four capital improvement projects as part of a finance plan that will include issuance of a lease-revenue bond. Staff anticipates returning to the Board in June to seek final approval of the bond issuance and related documents. Reflecting this plan, the 2017-18 budget will include the use of bond proceeds to fund construction of the financed projects.
Long-Term Financial Sustainability – While economic growth has remained steady and County general purpose revenues, particularly property tax, have seen healthy gains over the past several years, increases in labor costs continue to exceed growth in available resources. However, actions taken previously to establish an OPEB pre-funding plan, cap OPEB liabilities and increase the General Reserve and have created a base for long-term financial sustainability. By maintaining the General Reserve, budgeting for appropriate contingencies, addressing the unfunded pension liability and limiting new positions and programs, the current budget scenario for 2017-18 continues this focus on financial sustainability.
Risks to Budget Scenario
While the proposed 2017-18 budget scenario takes a conservative approach, there are several key risks that should be considered.
State Budget Impacts – As previously mentioned, the proposed budget scenario includes a $1.5 million contingency for impacts related to the IHSS cost shift. While staff is hopeful that ongoing negotiations between counties and the State are successful in mitigating this impact, should the full estimated cost shift be enacted then additional balancing strategies will be necessary.
Crisis Management Program – The proposed balanced budget scenario assumes successful implementation of the crisis management program for Health and Human Services. However, if implementation of this program occurs at a slower pace than anticipated or hospitalization costs do not decline as much as assumed, there will be a resulting shortfall. This program will be monitored closely and any required budget adjustments will be made at the midyear budget monitoring.
Community Corrections Partnership – Current projections indicate that the CCP will have a deficit of over $600,000 in 2017-18 based on existing funding allocations. The CCP is scheduled to take up the budget issue on May 8, the results of which may have an impact on the County budget.
Federal Health Care Policy – Initial attempts at repealing or modifying the Affordable Care Act have been unsuccessful. However, this remains a high priority for the current administration, and any changes to the Affordable Care Act, particularly the Medicaid expansion, would have an impact on the County. It should be noted that the proposed budget scenario reinstates funding for CMSP participation fees.
Outstanding Funding Requirements
The proposed balanced budget scenario includes several outstanding items, including department position and vehicle requests, additional contingency funds, increases to the General Reserve percentage, Strategic Plan initiatives and external funding requests. As in previous years, staff recommends that these items be considered and addressed as part of the 2017-18 Adopted Budget in September, when final fund balance information and impacts of the IHSS cost shift will be known. |