San Mateo County is on track to narrow a structural deficit that once ballooned to triple digits to roughly $21 million by fiscal year 2017-18 although unknowns about the economy and new jail funding could add more debt.
"The point is we're moving in the right direction,” County Manager John Maltbie told the Board of Supervisors yesterday during his mid-year budget update.
The county will end the year with $61.7 million less than last year and a $14 million structural deficit that will jump back up in the next five years.
Maltbie said primary reasons for the deficit to reverse course are the "smoothing” of remaining losses sustained by the retirement fund in 2008-09 and the new replacement jail. The jail would add $16.4 million assuming that 320 beds are filled and the county receives $80 million state construction funds. If the county does not get the money, the deficit will increase by $6.7 million.
Other expenses include salaries and benefits which are expected to grow $41.4 million, capital and IT initiatives, contracts with outside service providers and anticipated deficits in programs for in-home health care and low-income children's insurance.
The deficit estimate doesn't take into account Measure A sales tax funds which will begin accumulating in April and have yet to be officially allocated. The totals also don't include major budget issues that could hurt future finances like extra property taxes known as Education Revenue Augmentation Funds, lawsuits stemming from the dissolution of redevelopment agencies, realignment growth, health care reform and possible shortfalls in the vehicle license fee allotments.
That said, Maltbie's projection was positive, focusing on the recovering economy and the concessions by employees like increased contributions.
The contributions by county employees "cannot be underemphasized,” Maltbie said, ticking off salary freezes and workforce reductions as key factors.
The county does have some options for helping to solve the structural deficit such as reopening Camp Kemp at the juvenile hall as a group home or other living arrangement, leasing the Circle Star towers for up to $2 million each and using excess ERAF or Measure A money to reduce long-term liabilities like retirement health benefits.
For example, Maltbie said, if the board puts aside $10 million annually in both ERAF and Measure A money, the total would be $200 million over the course of 10 years which translates to about $16 million a year in hard dollars savings. Subtracting the $16 million from the $21 million structural deficit is a $5 million difference which, by that point, with a $2 billion overall county budget, is "essentially budget dust,” Maltbie said.
Supervisor Carole Groom favors using ERAF over Measure A for liabilities because residents voted for the tax to enhance and create new programs. The availability of the ERAF money was another concern.
"If the worry is that ERAF goes away, let's use it early and quickly,” Groom said.
Supervisor Dave Pine also supports the use of reserves and ERAF to pay down some of those areas, particularly pensions costs.
"It's real operating savings when we pay down liabilities and will make a big contribution to the structural deficit as well,” Pine said.
Maltbie reemphasized that ERAF is the county's own property taxes so the governor's proposed school funding changes could have significant negative consequences on how much is returned from the state.
"They're not some magical money that the state graciously allows us to use,” he said.
Even with the unknowns and increased costs, Maltbie said the county is in a good spot.
General fund reserve levels are maintained at around 20 percent of the budget and the county is the only one statewide with AAA rates from Moody's and Standard and Poor's. The ratings show that the county is well-managed and financially viable as both a government and an employer, Maltbie said.
This year marks the county's shift to a two-year budget cycle for fiscal years 2013-14 and 2014-15. The recommended budgets will now be presented in September rather than June with periodic check-ins and reviews.
Maltbie is also suggested changing the county's department reserve policy, shifting from each entity accumulating balances within its own budget back to a more traditional approach of keeping reserves within the general fund.
The board will consider the recommendation at a future meeting.
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