To: Board of Supervisors/Directors/Commissioners
Department or Agency Name(s): County Administrator
Staff Name and Phone Number: Peter Bruland 565-2431
Vote Requirement: Informational Only
Supervisorial District(s): Countywide
Title:
Title
Fiscal Year 2022-23 Budget Workshops
End
Recommended Action:
Recommended action
A) Receive the FY 2022-23 Department Budget Presentations
B) Receive the Updated 5 Year Forecast for the County General Fund
end
Executive Summary:
Each year the County holds a budget workshop in April. The purpose of these workshops is to provide the Board and the public with information about the Preliminary Budget for the next fiscal year, and to offer an opportunity for additional questions and direction that assist in ensuring that the Board has the information that they need before deliberation and adoption of the next fiscal year’s budget in June. No budget determinations for FY 2022-23 will be made at this hearing. The Fiscal Year (FY) 2021-22 Preliminary Budget includes $2.0 billion in operating expenditures funded by $1.8 billion in revenues and $181 million in use of available fund balances. The 3-day workshop includes an updated 5-year General Fund forecast and presentations by each department with an overview of their FY 2022-23 preliminary Recommended Budget. The FY 2022-23 Recommended Budget will be available online on May 16, 2022. The FY 2022-23 Budget Hearings will be held beginning on June 14. At the June Budget Hearings the Board will deliberate on adjustments to the Recommended Budget, and will officially adopt the Budget for FY 2022-23.
Discussion:
Each year counties are required to adopt balanced budgets for the following fiscal year, which runs from July 1 through June 30. In order to ensure that the Board has the information that they need to deliberate on and adopt a budget, the County has held spring budget workshops in which each department presents their budgets in advance of budget hearings since 2018. Generally, these workshops are held in April, with Budget Hearing and adoption occurring in June. The budgets included here are referred to as the “Preliminary Budget”. They will be substantially the same as the Recommended Budget, which will be published online on May 16, but in some cases Recommended Budgets were not finalized at the time of completing these presentations, so there may be minor changes for that document.
Budget Overview
The FY 2022-23 Preliminary Budget includes $2.0 billion in expenditures which is a 3.2% increase from the FY 2021-22 Adopted budget. The increase in the budget is largely attributable to capital projects in Transportation and Public Works, including those funded with one-time 2017 PG&E Settlement funds, and a set aside of ongoing funding for staffing and other costs at the Behavioral Health Unit in the Main Adult Detention Facility, which is expected to begin being staffed by FY 2023-24.
Beginning in FY2022-23 expenditures will be presented as “Operating Expenditures”. This means that expenditures associated with transfers and reimbursements internal to a department (for departmental presentations) or within the County as a whole (for County-wide references) are excluded. Governmental accounting often requires establishing appropriations to move sources between different funds or operational units to record the transactions. When these between budget units’ appropriations are included in the total budget, they effectively augment or gross up the total budget as both the authority to transfer funds and the final expenditures are budgeted. This updated presentation of “Operating Expenditures” allows us to describe those expenses only once and therefore provides a more accurate picture of the estimated cost to provide services. The total “Gross Expenditures” in the Preliminary Budget (without removing transfers and reimbursements) is $2.7 billion, as compared to the “Operating Expenditures” of $2.0 billion.
Individual presentations, attached to this item, detail the Preliminary Budgets for each department. For FY22-23, most departments do not need to make service delivery adjustments to create a balanced preliminary recommended budget. This is due in part to having paid off the 2003 Pension Obligation Bond (POB), which caused a reduction in POB debt payments in departmental payroll budgets. This reduction offset cost of living adjustments and increases in other salary and benefit line items. Additionally, departments were able to submit balanced budgets due to anticipated revenue increases. In some cases, however, decreases to specific departmental revenues and/or especially large cost increases lead to budget cuts. More information on these is included in the attached presentations.
In addition to the departmental presentations on budgets, there are two items that will receive separate presentations. First, AB 1869 repealed local authority to impose certain criminal justice fees effective July 1, 2022. The state is providing partial backfill for lost revenue for 5 years, which began in FY 2021-22. Because this revenue loss affected multiple departments (Probation, Public Defender, and Sheriff’s Office), the item will be presented as a multi-department issue. The workshops will include a brief overview of how staff have recommended allocating these funds in the Budget and give opportunity for board input. Second, the Board requested an update on the Inmate Welfare Trust during a meeting in the Fall. Following their departmental presentation, the Sheriff’s Office will provide an update with additional information on the Inmate Welfare Trust.
General Fund Forecast | Attachment C - General Fund Fiscal Forecast
The General Fund is currently projected to end FY 2021-22 with a $12.8 million surplus. This surplus primarily exists because some tax revenues, particularly transient occupancy tax and documentary transfer tax, have come in higher than expected. Unlike property tax, which is generally more stable, these sources tend to see more extreme fluctuations and are less predictable. In addition, departments are estimating that FY 2021-22 will experience greater than expected salary savings due to higher than expected vacancy levels. The final amount of these savings will not be known until after the close of books. During the June budget hearings staff will include estimated remaining surplus or one-time year-end balance for consideration during the Board’s deliberation.
The FY 2022-23 General Fund is projected to be balanced without the use of year-end savings or other one-time fund balances. In other words, and consistent with the Board’s current financial policy, the budget is structurally balanced with ongoing expenditures matching annual estimated revenues. The preliminary recommended budget includes the set aside of $6.6 million in ongoing capacity for staffing at the new Behavioral Health Unit to be added to the Main Adult Detention Facility. In FY 2023-24, the current forecast projects a $12.5 million, or 2.1%, deficit. This deficit is driven by a projected 6.2% increase in staffing costs, driven by several factors including: $7.2 million in staffing costs related to the staffing of the Behavioral Health Unit, largely offset by $6.6 million in available funding capacity set-aside; expected increases to pension costs related to the lowering of the expected investment return (discount rate) assumed by the Sonoma County Employee Retirement Association; and preliminary estimated changes to labor costs. With County agreements with all bargaining units slated to expire either in FY 2022-23 or early in FY 2023-24, there is significant uncertainty as to actual changes to labor costs.
This uncertainty clouds the outlook beyond FY 2023-24. Under current assumptions, tax revenue (which makes up approximately 60 percent of General Fund revenue) is expected to increase at roughly the same preliminary estimated rate of change as wages and benefits (which make up just over two-thirds of General Fund expenditures). The projections currently show slight annual increases to the deficit mainly because the remaining 40 percent of revenues, which come primarily from state and federal revenues, fees and charges for services, and transfers in from other funds, have traditionally grown more slowly than tax revenue and thus are not projected to keep up with growth in local costs. .
Recommended Actions
There are no formal budget actions associated with this item; the Board will adopt the Budget, including any modifications based on Add-Backs, Program Change Requests, Community and Board Budget Requests, or other Budget Hearing Actions during the June Budget Hearings. The purpose of the workshops is for the Board to hear from departments and to ask questions to receive additional information for hearings. Staff are requesting guidance in two areas. First, recommended budgets have been built using a proposed allocation of state backfill revenues related to AB 1869 that are proportional to the amount of revenue lost by departments. If a different distribution is desired by the Board, staff will return with other options at Budget Hearings. Second, on March 15 the Board approved one additional year of support for the Sheriff’s Helicopter program while further review of the program and potential alternatives is conducted. Staff recommend that a second year of funding be added (for FY 2023-24) in order to allow sufficient time for this review. Funding for the second year can also be reserved from the FY 2022-23 Behavioral Health Unit set aside, so there will be no net impact on the FY 2023-24 budget.
Strategic Plan:
This item directly supports the County’s Five-year Strategic Plan and is aligned with the following pillar, goal, and objective.
Pillar: Organizational Excellence
Goal: Goal 2: Increase information sharing and transparency and improve County and community engagement
Objective: Objective 3: Ensure County budget process and information are understandable, accessible, and in a format that enables the public to identify County investments and funding for major initiatives and services.
Prior Board Actions:
June 15, 2021 - Adopted of the FY21-22 Recommended Budget
Fiscal Summary
Narrative Explanation of Fiscal Impacts:
There is no direct fiscal impact related to this item. The Board will make final determinations and adopt the FY 2022-23 Budget during the June Budget Hearings.
Narrative Explanation of Staffing Impacts (If Required):
None
Attachments:
Attachment A - Budget Workshop Schedule
Attachment B - Board Information Request Form
Attachment C - General Fund Fiscal Forecast
Attachment D - Department Presentations
Attachment E - Budget Change Requests
Related Items “On File” with the Clerk of the Board:
None