March 9, 2007

County Report

General fund budget deficit grows, despite small projected surplus for fiscal year

By Supervisor Pete McHugh
Special to the Times

During February, the Board of Supervisors conducts a comprehensive status check on the current fiscal year’s (FY) budget. It also reviews the County Executive’s revised projection from October of revenue and spending for the next fiscal year.

This year, the Board added significantly to the Contingency Reserve and heard that the General Fund is likely to end the current fiscal year with a modest surplus. Unfortunately, the report on the upcoming fiscal year showed a larger deficit than previously projected.

Overall, the Board increased the Coun-ty’s Contingency Re-serve by a net amount of approximately $43.8 million. The Board recognized over $57.9 million in one-time revenues and placed them in the Contingency Reserve while spending $14.1 million from it. Almost 90 percent of the revenue came from revised figures for year-end savings from prior years. Approximately $10.7 million of the approved spending went to cover higher than budgeted expenses in mental and custody health services. The $43.8 million amount raises the total Contingency Reserve to $129.1 million, which equals about 7 percent of General Fund revenues that the Board controls.

The County’s Office of Budget and Analysis (OBA) reported on the current fiscal year spending and revenue patterns of 30 General Fund departments. OBA estimates that these departments will spend $50 million less than the $2 billion the Board has budgeted for them. Revenues will come in less than budgeted in a range from $15 million to $32 million. The combination of budget savings and revenue shortfall translates into year-end savings ranging from $17.2 million to $34.2 million.

The County also budgets for some of its major functions in enterprise funds, such as Valley Medical Center (VMC). For VMC, the Board added 39 positions including six doctors, 18 nurses, three laboratory technicians and one pharmacist. These positions will provide adequate staffing for a patient volume this year that has been consistently higher than budgeted. For the Roads and Airport Department, the Board recognized a $3.5 million repayment of local transportation funds that the State had suspended in 2004 and 2005. It also took budgetary actions on 18 transportation projects throughout the County that included $640,000 more funds for two projects on Montague Expressway.

Last fall, County staff projected that the budget deficit in the General Fund for FY 2008, starting on July 1, 2007, would equal $201.6 million. It now reports that the deficit has grown to $238 million. Three factors have driven the increase of $36.4 million in the projected deficit.

Retiree health and retirement cost projections have in-creased by $25 million.

Projections of taxes from home sales and state and federal revenues have decreased by $850,000.

Costs to provide acute psychiatric care and health care to inmates have grown by $10.7 million.

The County’s plan to raise $1.2 billion over the next 10 years for seismic compliance and modernization at VMC complicates the search for deficit solutions this year. Since FY 2003, the Board has used almost $345 million in one-time solutions to cover annual deficits totaling $802.4 million. Continuing to spend one-time revenues to cover ongoing operations makes them unavailable for the VMC project. So far, County staff has only identified approximately $172 million in local resources for it. With the financial viability of VMC at stake, the Board will have difficult choices to make in how to spend any available one-time funds.

The Board will conduct public workshops on the County Executive's Recommended Budget during the week of May 14, 2007. Given the size of the deficit, I appreciate any comments on the budget before, during and after those workshops. Contact me at primo.mchugh@bos.sccgov.org or by phone at (408) 299-5030.