American Society for Public Administration State and Local Fiscal Challenges April 12, 2010 Santa Clara County, California

Nationwide - Counties Have Suffered From the Recession 2009 NACo Survey – 138 counties in 34 states  56% starting FY with at least a $10 million shortfall  Revenues the problem Property Taxes – 52% Reductions in state/federal funding – 50% Sales taxes – 46%  Counties respond by cutting Delay purchases/repairs – 60% Salary/pay freeze for employees – 59% Delay capital investments – 54% Hiring freeze – 49% Use of reserves – 44%  82% anticipate shortfalls in the next year

National Impacts Significant National Center for the Study of Counties  Balancing the budget in 2009 was more difficult – 59% Montgomery County, MD Mecklenburg County, NC States continue to erode local revenues  Maryland  Montana  New Mexico  Florida  Nevada

California – the REAL Horror Story Property Tax Revenue Slump Percent Growth in Property Tax Revenues Source: Beacon Economics

California – the REAL Horror Story 58 Counties  Alpine (1,201) – Los Angeles (10 million)  38 million people served  $55.6 billion in expenditures Los Angeles County > 36 states San Diego County > 12 states Orange County > 11 states Riverside County > 7 states Kern County > 3 states Severe cuts  5,500 lay offs  29% furlough employees  29% reduce new employee benefits  5% reduce existing employee benefits

Sacramento County, CA Population nearly 1.5 million Total budget $2.5 billion County employees – about 9,000  Property taxes down 6% Sales Taxes down 14% Cut $256 million from General Fund laid off 835 employees  Facing $118 million shortfall ($2b Gen Fund) Looking at 630 layoffs and cutting 170 vacant positions Reduction of Public Health nurses nearly 60% since 2007 Reduction in Probation 43% since 2008

California – the REAL Horror Story State-Local Relationship Dysfunctional  1910 Separation of Sources Act Counties would tax property  Govt that imposed tax determined use  1930s – Counties take over safety net programs  1978 – Proposition 13 Billons in property tax reductions, state back fills State Legislature responsible for allocating property taxes  1980s – fiscal roller coaster, counties get indigent health programs  1991 – Program Realignment $2 billion in health, mental health & social service programs  1992/93 – ERAF – $1 billion, 1993/94 – ERAF $3 billion Prop 1A (2004) stopped the hemorrhaging but did not solve the problem Fiscal Reforms needed – Constitutional Convention?

California – the REAL Horror Story State Government Dysfunction  budget adopted on Sept 23, 2008  Budget stalemate lasted 44 days  On Nov 6, 2008, Gov declares fiscal emergency – budget $10 billion in red Legislature failed to act, expired on Nov 30 New Legislature formed Dec 1, Gov calls another emergency session Combined and deficit totaled $45.3 billion  Special Session combines cuts ($14.9 billion) and new revenues ($12.6 billion) – adopts budget Relies upon special election ballot measures to balance budget Ballot measures all FAIL miserably  July 2009 – Legislature makes series of cuts, borrows $2 billion in local property tax dollars – Proposition 1A (2004)

California – the REAL Horror Story Budget Proposed Jan 2010  $20.6 billion deficit $6.6 billion in current year $14 billion in budget year  Gov proposes to shift significant burden to counties Social services program cuts Prison inmate reductions  Relies on $7 billion of new funds from feds  Calls another Special Session (#8) Special Session #8  Legislature send Gov $4 billion in cuts; signs almost $2 billion Guts gas tax and replaces it with excise tax (short cuts constitutional protection)  Hoping on revenue improvement before new fiscal year

California – the REAL Horror Story Physical Infrastructure failing  Water system  Freeways  Streets and Highways  County facilities Social Infrastructure failing as well  Overcrowded jails/prisons  Education failing  Social services stretched beyond capacity  University system in disarray

Cuts & Revenue Decline Come at a Time of Increasing Demand

California – the REAL Horror Story No light at the end of the tunnel  Unemployment statewide 12.5% Colusa and Imperial County 27.4% Trinity County 25.8% Central Valley – 50%  Los Angeles County – 636,000 unemployed Only 4 cities in CA with higher population  Foreclosures still high San Joaquin, Riverside, San Bernardino, Contra Costa