March 15, 2011 > County braces for tough times
County braces for tough times
Unpaid redevelopment agency bills contribute to shortfall and mid-year cash flow problems
Submitted By Gwendolyn Mitchell and Laurel Anderson
Several issues are converging to create the proverbial perfect storm in Santa Clara County's finances; the most troubling is a projected negative fund balance of $46M - $67M at the end of the fiscal year, June 30. By law, the County is required to end the fiscal year with a balanced budget.
"There are a few things that are extremely worrying on the horizon," said County Executive Jeffrey V. Smith. "The projected negative fund balance has far-reaching consequences. It affects our ability to issue Tax and Revenue Anticipation Notes (TRANS) to cover short-term cash needs to make payroll when the revenue owed to the County hasn't come in yet."
The projected year-end deficit has several components. While spending has been below budget, a revenue shortfall of $79.3M (or 3.8 percent) is anticipated, due in large part to the economy. Revenues are below budgeted projections. The largest among them are $5M less in property tax revenues, $3.3M less in court-related fines and fees, $3M less in State Motor Vehicle funds.
The projected shortfall does not include the impact of any future actions the State might take to deal with California's budget deficit, nor does it include a contingency reserve that the Board holds back to preserve the County's credit rating and associated costs of borrowing.
Key financial staff members meet monthly to review the County's cash position. In December there were concerns about the organization's ability to make payroll due to cash flow.
"We might be unable to pay our bills or employees because the San Jose Redevelopment Agency SJRDA) owes us money," said Supervisor Liz Kniss. "The failure to pay the funds owed might also result in our having to cut services, many to residents of San Jose who depend on County services."
The County has been in settlement discussions with the SJRDA for some time. The SJRDA is in arrears in the amount of $62.9M, three years of back payments owed by contract.
"With an unlikely redevelopment repayment and a cloudy State budget future, we cannot afford to waste a single penny," said Supervisor Ken Yeager. "We have to delay every project or purchase possible, so we're better prepared for what is yet to come."
In early March, the County Executive issued a "STOP" memo instructing department and agency heads to: "STOP Spending, STOP Procuring, STOP Hiring and STOP Expanding Operations in any Manner." County departments had already curbed spending in response to earlier projections. Now as much as 50 percent of all unspent non-personnel funds in departments are being held back to ensure that the year ends in a positive cash position.
The Board is moving forward with a comprehensive attrition plan, developed at the request of Supervisor Mike Wasserman. The goal is to preserve jobs for as many employees as possible and avoid layoffs, maintain crucial public services and reduce labor costs.
Under the attrition plan, administration will review vacant positions and positions that departments do not wish to freeze or delete. The County Executive's Office will determine whether a vacant position is mandated by law or critical to County operations and the impact on services, if the position were to be deleted. The administration will report back to the Board's Finance and Government Operations Committee. Any non-mandated positions that become vacant and can be deleted from the budget will be formally eliminated as part of budget process, resulting in on-going salary savings. An estimated 1,000 positions annually will be subject to review.
President Dave Cortese requested that staff provide this report in light of the County's very thin cash margin this year.
"We're responsible for providing life and death services to extremely fragile populations in Santa Clara County," said Cortese. "When the state or federal government reduces or eliminates our funding but not the responsibility, the County must work extra hard to help families from falling through the cracks."