1. 1 County Budget & Finance Issues

2. 2 What Counties Do

3. 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. 4 Countywide Services Human services –Welfare CalWorks -- TANF Foster Care General Assistance –Public health –Mental health –Protective services

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

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

7. 7 Prop13 to Now Historical Perspective

8. 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. 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. 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. 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12. 12 The Fix Unravels 1991-1993 The state’s support of local government was withdrawn in the early 1990s Realignment -- share of sales tax & VLF replace shares of support for human service programs MOE required Base level of funding not reached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. 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. 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. 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. 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. 17 County Financing Sources

18. 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. 19 Municipal Financing Sales tax Franchise fees Utility tax Business license tax Fees Property tax (county fire, park, & library districts)

20. 20 Sacramento County Financial Issues

21. 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. 22 General Fund Budget & Resource Allocation

23. 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. 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

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

27. 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

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33. 33 2002-03 Budget Forecast

34. 34 Budget Forecast

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

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

37. 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. 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. 39 Retirement Enhancements Issue of increasing retirement benefit for public employees Issues –Fiscal –Ethical –Workforce dislocation

40. 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