County Budget & Finance Issues

1. County Budget & Finance Issues

2. What Counties Do

3. County Services • Counties provide some services on a countywide basis • Human services • Criminal justice services • Property tax collection • Other services • Counties provide municipal services to unincorporated areas

4. Countywide Services • Human services • Welfare • CalWorks -- TANF • Foster Care • General Assistance • Public health • Mental health • Protective services

5. Countywide Services cont. • Criminal Justice • Jails • Prosecution • Public defense • Probation • field services • juvenile institutions • court reports

6. County Municipal Services • Local police protection -- Sheriff • Public works • Local Parks • Fire protection • Some services may be provided by special districts

7. Prop13 to Now Historical Perspective

8. Role of Legislative Body • In American system only the legislative body (Congress, Legislature, Board, or Council) can: • Levy taxes • Appropriate proceeds of taxes • Approve spending authority for Executive

9. Counties before 1978 • Board of Supervisors used to set a countywide property tax rate to fund countywide services • Counties had a greater share of the costs of human services programs • VLF was a much less significant revenue source

10. Pre Prop 13 Relationship of Taxes & Spending • Board of Supervisors had discretion over property tax rate & property tax revenue • There was a political balance between taxing and spending. • An elected official could gain political credit for keeping tax rates down

11. Prop 13 & Aftermath • Property tax rate reduce to 1% • Base growth capped at 2% • System forced to use growth to maintain base spending • AB 8 & SB 54 • Shift of property taxes from schools to local government • State assumes greater share of human services

12. The Fix Unravels1991-1993 • The state’s support of local government was withdrawn in the early 1990s • Realignment -- share of sales tax & VLF replace shares of support for human service programs • MOE required • Base level of funding not reached for 3 years

13. ERAF • Education Relief Augmentation Fund • Undoing of AB 8 bailout by shifting property tax revenue from local government to schools • Partial backfill for counties & cities from Proposition 172 Public Safety Sales Tax • How wild fires saved local government

14. ERAF -- Sacto County • The ERAF legislation caused the shift 1/2 of Sacramento County’s current property tax revenues • 1993-94 $ 95 million • 2001-02 $ 126.7 million • Prop 172 backfill of 1/2 to 1/3 of total • Annual loss of $40 million to $50 million

15. Growth in the 1990s • The long economic boom of the late 1990s covered over structural problems of county finance • Income tax revenue grew faster than property taxes, sales tax, & VLF • Availability of state & federal funding • VLF rate reductions & backfill

16. Current Situation • Counties facing fiscal challenges due to slowing economy • Sales tax absolute reductions hit Realignment & Prop 172 revenue • MOE requirements not changed • Human service & criminal justice costs increase when economy slows • Significant problems without state actions

17. County Financing Sources

18. Countywide Revenues • Direct program support for human services & criminal justice • Welfare reimbursements • Statewide pool revenue • Realignment • Proposition 172 Public Safety • Fees & charges • General purpose financing

19. Municipal Financing • Sales tax • Franchise fees • Utility tax • Business license tax • Fees • Property tax (county fire, park, & library districts)

20. Sacramento County Financial Issues

21. Unique Nature of Sacramento County • Large urban Unincorporated Area with over 50% of county population • Significant sales tax base • Service responsibility • Sheriff • Public Works • Tension & conflict between countywide & municipal responsibilities

22. General Fund Budget & Resource Allocation

23. Budget Priorities • Funding mandates • County shares of state & federal programs • Honoring contracts • County workforce • Debt • Political priorities • Some are more equal than others

24. County Budget Dilemma • A county budget is tied to local & statewide economy • There is an inverse, or counter-cyclical relationship between revenue growth & human services & criminal justice program caseloads • When business is good, then revenues are bad

26. Requirement Appropriations Reserve contributions Financing Fund Balance Revenues Reserve releases Balancing the General Fund -- Theory

27. Balancing the General Fund -- Reality • Net cost of programs is determined & compared to general purpose financing • Net cost is equal to program expenditures less program revenues • General purpose financing is not linked to specific programs or groups of programs • No link between program net cost & availability of general purpose financing

33. 2002-03 Budget Forecast

34. Budget Forecast

35. Current County Financial Issues Incorporations & Annexations Retirement Benefit Enhancements

36. Incorporation • Formation of new city from portion of the Unincorporated Area • County issues • Regional governance • Fiscal impacts • Workforce impacts

37. Incorporation Fiscal Issues • Transfer of municipal service responsibility & municipal revenues • Balance between cost transfer & revenue transfer • Revenue neutrality • State law requires payments back • Negotiated structure • Securing payments

38. Annexation • Growth of existing cities • Transfer of municipal service responsibility & municipal revenues • Property tax exchange agreements required • Negotiations with entity that may enter into a binding & enforceable contract

39. Retirement Enhancements • Issue of increasing retirement benefit for public employees • Issues • Fiscal • Ethical • Workforce dislocation

40. Retirement Fiscal Issues • Defined benefit plans • Increasing benefits creates an unfunded liability for retirement systems • Employer, not employees, responsible for additional cost • $ 54 million for Sacramento County • Offsets