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COUNTY ~ MEMORANDUM COUNTY EXECUTIVE OFFICE

ADMINISTRATION County of Placer

OF ~ ~ ~ Placer® TO: Honorable Board of Supervisors DATE:

FROM: David Boesch, County Executive Officer

SUBJECT:

By: Gretchen Nedved, Principal Management Analyst

FY 2016-17 Mid-Year Fiscal Update

ACTION REQUESTED The Board of Supervisors is requested to:

March 21 , 2017

1. Receive a FY 2016-17 Mid-Year Fiscal Update and five-year budget projection; 2. Receive a report on FY 2017-18 budget development process and schedule.

BACKGROUND Each year the County Executive Office provides your Board with an update on current fiscal year budget trending and five year projection in advance of developing the next annual budget. The current fiscal year budget of $815,780,738 was adopted by your Board on September 13, 2016. The budget development process includes a multi-year budget framework as an implementation strategy of the Budget and Financial Policy. Additionally , the following fiscal policy guidelines are consistently included in the budget development process each year:

• Incorporation of economic analysis to inform long-term budgetary planning • Promotion of cost transparency by aligning costs with programs • Review and understanding unanticipated budget variances • Establishment and replenishment of reserves • Leverage external funding sources • A spending plan supported by sustainable resources

In the context of the framework and guidelines, staff has analyzed current FY 2016-17 revenues and expenditures and estimate a carryover fund balance of $36.6 million for the General Fund ($30 million) and Public Safety Fund ($6.6 million). Initial review of the department submitted base budgets for FY 2017-18 reflect $36.4 million is required to cover existing service level cost increases, with the remaining $200,000 to consider new supplemental requests . To arrive at these estimates, listed below is a summary of the FY 2016-17 Final Budget current year trending for each of the County's major funds.

GENERAL FUND The General Fund supports general government operations, including contributions for public safety, fire protection , road and capital construction, and library services.

The General Fund FY 2016-17 budget information is provided below:

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Carryover Fund Balance

Cancellation of Reserves

Revenues

Total Financing Sources

Expenditures

Total Financing Uses

Estimated Carryover I (Used) Fund Balance

$ $ $

$

$ $

)

$

FY 2016-17 FY 2016-17 Final Budget Estimated Actuals

33,255,750 $ 33,255,750 - $ 15,322,604

418,671,468 $ 418,160,811

451,927,218 $ 466,739,165

451,927,218 $ 436,684,433

451,927,218 $ 439,593,951

- $ 30,054,732

The General Fund FY 2016-17 Final Budget used carryover fund balance of $33.3 million plus anticipated revenues of $418. 7 million to balance anticipated expenditures of $451.9 million with no provisions (increases) to reserves.

The General and Economic Contingency Reserve continues at the targeted 5% ($23 million) of the annual operating budget to maintain fiscal sustainability. Other reserves are available such as $30 million for Capital, $5 million for HHS mandates, and a $7 million contingency. Uses of reserves are replenished as funding is available during the budget development process.

Anticipated Carryover Fund Balance: $30 million Carryover Fund Balance to FY 2017-18 in the General Fund is anticipated to be $30 million at the end of FY 2016-17. Carryover Fund Balance is a one-time funding source for the upcoming fiscal year, and is currently attributed to:

• Revenues+ Reserves: $511k under budget (-0.12%) + $15.3 Reserves Increases in property I sales taxes, decreases in intergovernmental revenues, plus use of reserves for Sunset Office Building and Countywide ERP system.

• Expenditures: $15.2 million under budget (-3.4%) Savings in salaries and benefits costs ("vacancy savings"), and professional services.

PUBLIC SAFETY FUND The Public Safety Fund includes the Sheriff's Office, District Attorney, Probation, and a single appropriation of the County Executive Office.

The Public Safety Fund FY 2016-17 budget information is provided below:

FY 2016-17 FY 2016-17 Final Budget Estimated Actuals

Carryover Fund Balance $ 5,645,922 $ 5,645,922

Cancellation of Reserves $ 6,412,957 $ 6,541,111

Revenues $ 168,369, 787 $ 171,325,007

Total Revenues and Carryover $ 180,428,666 $ 183,512,040

Provision to Reserves $ - $ -

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Expenditures

Total Expenditures and Reserves

Estimated Carryover I (Used) Fund Balance

$

$

$

180,428,666 $ 176,945,157

180,428,666 $ 176,945,157

- $ 6,566,883

The Public Safety Fund FY 2016-17 Final Budget used carryover fund balance of $5.6 million and a cancellation of $6.5 million in contingency reserves, plus anticipated revenues of $168.4 mill ion to balance anticipated expenditures of $180.4 million.

The Contingency Reserve is currently $8 million to maintain fiscal sustainability. Other reserves are available for AB109 Growth ($512k) and Vehicle Replacement ($400k). Reserves and carryover fund balance each fiscal year may be required to balance the Public Safety Fund based on the five-year budget framework.

Anticipated Carryover Fund Balance: $6.6 million Carryover Fund Balance to FY 2017-18 in the Public Safety Fund is anticipated to be $6.6 million at the end of FY 2016-17. Carryover Fund Balance is a one-time funding source for the upcoming fiscal year, and is currently attributed to:

• Revenues: $3 million over budget (1.76%) Increases in public safety sales tax and budget General Fund contribution of $99 million .

o The Public Safety departments receive approximately 55% of their total funding from the General Fund.

• Expenditures: $3.48 million under budget (-1.93%) Savings in salaries and benefits costs ("vacancy savings"), and professional services, plus reserves utilized for Sunset Office Building and Countywide ERP system.

PUBLIC WAYS AND FACILITIES FUND The Public Ways and Facilities Fund ("Road Fund"), is administered by the Department of Public Works and Facilities for road , bridge and ancillary projects including maintenance of 1,047 miles of roads.

Reserves of $2 million in FY 2016-17 are earmarked to fund shortfalls anticipated due to recent storm damage that is pending uncertain reimbursement from State and Federal disaster programs. The Road Fund continues to have declining State Gas Tax revenues and delayed reimbursements from the State, which is resulting in potential loans from other funds to balance the end of FY 2016-17 and a $3.4 million supplemental request for FY 2017-18.

CAPITAL PROJECTS FUND The Capital Projects Fund is also administered by the Department of Publ ic Works and Facilities for facility and infrastructure improvement projects, including building maintenance. The Capital Fund has received contributions from the General Fund over the past several years averaging $4.5 million annually for small capital projects, including parks, trails , and building maintenance. Over $6 million is estimated as the need for FY 2017-18.

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LIBRARY FUND The Library Fund provides public library services for Placer County's citizens. The main revenue source for the Library Fund is Property Tax, which continues to be outpaced by ongoing operational costs. Your Board can anticipate an update of the Library Strategic Plan as part of the FY 2017-18 Proposed Budget.

FIVE- YEAR STRATEGIC BUDGET MODEL - GENERAL FUND AND PUBLIC SAFETY FUND The Five-Year Strategic Budget Model (Model) is built on FY 2016-17 service levels, anticipated revenues, expenditures, and carryover fund balance. The Model focuses on the General Fund and Public Safety Fund as the two largest operating funds .

Basic assumptions include property tax and sales tax increases of 2% annually, a vacancy savings estimate for funded and vacant positions, and a General Fund contribution to public safety held steady at $99 million.

The models suggest that current levels of service will likely require increases in General Fund contributions to Public Safety and the use of reserves to balance the budget. To uphold the Budget and Financial Policy, staff are evaluating mechanisms to maintain reserve levels utilizing General Fund discretionary revenue in order to ensure the General Fund and Public Safety Fund are funded at appropriate levels to maintain long-term sustainability.

FY 2017-18 BUDGET DEVELOPMENT On March 3, 2017 departments submitted their budget requests to the County Executive Office. Staff are continuing to review base budget and supplemental requests, and at the time of this staff report provide the following preliminary information:

Base Budget Impacts - Status Quo Initial review of the submitted base budgets from departments require $36.4 million in FY 2016-17

carryover fund balance to cover FY 2017-18 anticipated costs in the General and Public Safety Funds combined . The five-year budget model estimates the current fiscal year will end with sufficient carryover fund balance to cover the anticipated costs . These estimates will change, but are reflective of the work that remains in preparing a balanced budget that maintains current service levels and that considers the following:

• Modest discretionary revenue recovery County's discretionary revenue sources projected to continue increases of 2-3%.

• Salary and Benefit Costs Comprises approximately 45% of the total Operating Budget, and contract negotiations and CalPERS increases will require increased funding .

• Unknown Federal and State Impacts

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Potential nationwide reinvigorated business and investment in the nation's infrastructure; however, sustainability and returns are unknown.

• Service delivery models evaluated against short- and longer-term cost drivers Service delivery model options are reviewed for cost and delivery efficiencies.

• Analysis and alignment of costing methodologies Internal Service Fund charges to departments evaluated for consistency and transparency.

• Focused reduction of carryover fund balance Minimize one-time revenue used for ongoing operating expenditures. Carryover fund balance budgeted to accurately reflect annual fiscal requirements.

• Priority Based Budgeting Program budgeting using business analytics to benchmark the results of allocating County resources to programs and priorities.

• FY 2016-17 State of California Governor's Proposed Budget The Governor's budget continues to emphasize prudence and caution due to reduced revenue expectations and uncertainty and seeks to cover what would be a $1.6 billion dollar deficit by reducing spending .

FY 2017-18 Initial Supplemental Requests - Above Status Quo Supplemental Requests are defined as new requests from departments since the approval of the FY 2016-17 Final Budget. Approximately $13.9 million in supplemental requests have been received thus far from departments for consideration. A summary of supplemental requests by fund is provided in the table below:

Supplemental Requests

Fund Expenditures (Revenue) NCC

General Fund $ 12,057,109 $ (5,477,389) $ 6,579, 720

Public Safety Fund 3,191,793 - 3,191,793

Public Ways and Facilities Fund 2,782,757 - 2,782,757

Capital Improvements Fund 1,300,000 - 1,300,000

Open Space Fund - (1,000,000) (1,000,000)

Library Fund 92,923 (60,000) 32,923

Fire Fund - - -

ISF and ENT Funds 3,171,989 (2,202,669) 969,320

Total $ 22,596,571 $ (8,740,058) $ 13,856,513

Staff is reviewing these requests, identifying those with external funding sources and I or funded by one-time reserves as priorities during FY 2017-18 Proposed Budget development.

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FY 2017-18 Emerging Issues Staff have identified emerging issues for FY 2017-18 budget development to be considered as more information becomes available. Your Board may provide direction on these issues to further inform the FY 2017-18 budget development:

-Budget Impacts ($ Estimated) Budget Impact ($ Unknown)

CalPERS Discount Rate - $3 million Sales Tax I Public Safety Sales Tax increase effective FY 2018-19 qrowth stabilizinq County building renovations and major Health and Human Services Realignment maintenance requests estimated at over J IHSS MOE Elimination by the State $6 million Storm damage costs currently calculated Road Fund Gas Tax revenue decline at $9 million Countywide Capital Project Fund and California Forensic Medical Group Road Fund one-time and ongoing cost contract costs considerations (millions) FY 2017-18 Measure F Impacts at $1 County Fire Services million

Juvenile Detention Facility program to open additional wing Community Development fee studies and General Plan update PPEO Contract Negotiations

BOARD REVIEWS OF THE FY 2017-18 BUDGET To further the FY 2017-18 budget development process, your Board can anticipate receiving the following over the next several months:

• Ongoing- Periodic Updates • June 2017- Board consideration of FY 2017-18 Proposed Budget and Position Allocation

Ordinance • September 2017 - Public Hearing and Board adoption of FY 2017-18 Final Budget

CONCLUSION As the FY 2017-18 budget development process continues, staff will incorporate the long-term impacts of the fiscal challenges presented above while assuring continued adherence to County policy and the delivery of efficient and effective services. Staff will further update the five-year budget models presented above based on ongoing operations and cost drivers. Staff will return to your

Board , as needed, with subsequent budget updates and the FY 2017-18 Proposed and Final Budget.