County Executive Office
1195 Third St.
Suite 310
Napa, CA 94559
www.countyofnapa.org
Main: (707) 253-4421
Fax: (707) 253-4176
Nancy Watt
County Executive Officer
TO:
Members, Board of Supervisors
FROM:
Nancy Watt, County Executive Officer
DATE:
April 21, 2015
RE:
Budget Study Session – Background and Discussion
FY 2015-16
Introduction
On January 6, 2015, your Board began the FY 2015-16 budget process by approving the Budget Policies, guiding
staff in preparing the County’s proposed budget. On March 17, your Board reviewed estimated FY 2014-15
revenues and expenditures based on the first six months of activities. This review included an estimate of what
the General Fund’s fiscal condition would be at the end of the current fiscal year. Departments have now
submitted their FY 2015-16 budget requests, and County Executive Office (CEO) staff is in the process of
reviewing those budget requests in detail.
The budget study session allows the Board the opportunity to receive an update and provide direction to the
budget process. This budget study session will examine discretionary revenues projected over the next five
years and request policy direction in several key areas related to development of the proposed budget.
Financial Status
The County has established prudent fiscal policies and has ended each of the past six fiscal years with an
increase in General Fund fund balance ranging from a low of $995,990 in FY 2008-09 to a high of $27,073,560 in
FY 2010-11. Consistent with policy, any remaining available funds have been used to fund reserves and capital
projects, including the purchase of the South County Campus. For the current fiscal year (FY 2014-15), as
reported on March 17, revenues are expected to exceed expenditures by approximately $9.4 million in nonearthquake-related areas. However, earthquake related expenditures are expected to exceed current year
insurance and FEMA/Cal OES reimbursements by nearly $14 million. To address this gap without the need to
drastically reduce County services, your Board authorized the use of up to $13.9 million of General Reserve
funds. The General Reserve is currently funded at $24.6 million. If the entire $13.9 million in General Reserve
use were to materialize, the reserve would drop to $10.7 million, or roughly 4 percent of current year
appropriations. Eventually insurance and federal/state reimbursements will be realized that will also restore
the General Reserve, but that may take years. In adherence with the Board’s established policy, it is
recommended that any available funds beyond what is necessary to fund the Recommended FY 2015-16 Budget
be used to rebuild the General Reserve.
In addition to the General Reserve, the General Fund maintains a “Fiscal Uncertainty” assignment within the
General Fund of $24.6 million. As seen in the aftermath of the August 24, 2014 earthquake, it is imperative to
maintain reserves at a level sufficient to withstand a significant disaster or severe economic downturn.
Discretionary and Semi-Discretionary Revenues
Discretionary revenues are made up of Property Taxes (including excess ERAF), Sales Tax, Transient Occupancy
Tax, various fees, penalties, and central service charges to non-General Fund departments (A-87 costs). For FY
2015-16, Property, Sales, and Transient Occupancy taxes, estimated to total $96 million, are anticipated to make
up 87.5% of discretionary revenue and 52% of total General Fund revenue.
In forecasting discretionary revenues, the CEO’s office worked with the Auditor-Controller and the AssessorRecorder-County Clerk to develop assumptions for growth over the next five years. For FY 2015-16, Property
Taxes were assumed to increase by 4% from current year estimates; in FY 2016-17 by 4%; and in FY 2017-18 to
FY 2019-20 by 5% annually. Sales Tax was assumed to increase by 3% annually for each of the five forecasted
years, and Transient Occupancy Tax was assumed to increase by 4% annually during the same five-year period.
Beginning in FY 2017-18, the state repayment of Economic Recovery Bonds will be complete, ending the “Triple
Flip.” This will increase Sales Tax and commensurately reduce Property Taxes. The Governor’s proposed FY
2015-16 budget indicates his intent to repay the bonds one year early in FY 2016-17. Either way, the net effect
to the General Fund is expected to be immaterial. Beginning in FY 2014-15, we are anticipating a drastic
reduction in excess ERAF revenue returned to the County. Excess ERAF revenue is expected to be approximately
$7 million in the current year, a reduction of $4.8 million from FY 2013-14. For FY 2015-16, excess ERAF is
projected to drop to $2 million and to be eliminated beginning in FY 2016-17. The reduction is directly related
to additional revenue at the state level assigned to education as part of the Proposition 98 guarantee. Since
local property taxes and ERAF are used first to fund education, an increase in the Local Control Funding Formula
for schools increases the draw on local taxes. This leaves little or no ERAF to be returned to local government
entities. At the Board’s direction, beginning in FY 2014-15, a reduction in the use of excess ERAF for General
Fund operations was implemented, and for FY 2015-16, no use of excess ERAF for operations is projected.
Excess ERAF not used for operations is transferred to the Accumulated Capital Outlay Fund to address significant
ongoing and future capital project needs.
Actual and Projected Discretionary Revenues
100,000,000
90,000,000
80,000,000
70,000,000
60,000,000
50,000,000
Triple Flip Ends
40,000,000
30,000,000
20,000,000
10,000,000
-
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Property Taxes (No EERAF)
Sales & Use Tax
Transient Occupancy Tax
Budget Study Session Memo
Page 2
2018-19 2019-20
Property Tax Excess ERAF
April 21, 2015
Proposition 172 sales tax revenue for Public Safety is considered semi-discretionary as it may be shifted between
public safety functions. In the current fiscal year, Proposition 172 revenue of $14.6 million is expected, which is
approximately $800,000 above budget. This amount includes a one-time payment of $226,793 due to a multiyear miscalculation of sales tax at the state level. For FY 2014-15, a growth factor of 2.1% is assumed.
Proposition 172 revenue supports multiple public safety departments within the County, offsetting what would
otherwise be a General Fund cost to maintain current service levels. Nearly 82% of Proposition 172 funding
goes to the Sheriff, Probation and Corrections to support ongoing operations. The remainder supports District
Attorney and Public Defender operations. In previous years, a portion of these funds also supported County
Fire. In consideration of the fiscal health of the County Fire Fund discussed later in this report, no change in the
formula is recommended at this time.
The Governor’s proposed FY 2015-16 budget includes payment for pre-2004 unpaid mandated costs and a small
amount of Payment in Lieu of Taxes (PILT) for counties. Revenue appears to be coming into the state above
January projections, so the likelihood of these revenues materializing is growing. However, because the funding
is not secure, it was not used in our revenue projections. Any additional revenue would ultimately be
transferred to the General Reserve.
Revenue performance, however, provides only part of the picture of the financial health of the County. The
CEO’s office will return to the Board in June with the Third Quarter estimates and then again in the fall after the
close of the 2014-15 fiscal year with a more comprehensive analysis of revenues and expenditures and their
impact on fund balance available in the General Fund.
Appropriations
Appropriation requests totaling $196.0 million (including a $5.7 million appropriation for contingency and a
transfer of $2.0 million to the Accumulated Capital Outlay Fund) are offset by $188.5 million in Departmental
and Discretionary revenues. This leaves a budget deficit of $7.5 million. This deficit is recommended to be
funded using estimated available fund balance carryover of $9.4 million from FY 2014-15. Consistent with
policy, the remaining $1.9 million is recommended to be used to begin to restore the General Reserve.
Requested appropriations are $2.4 million higher than the FY 2014-15 Adopted Budget. This increase is due
mainly to increased salaries and benefits related to negotiated raises, increased PERS and Other Post
Employment Benefit (OPEB) costs, and a $5 million appropriation request for FY 2015-16 expenditures related to
earthquake recovery. Increases are offset by reductions in new requested General Fund capital projects and a
transfer of only $2 million in excess ERAF revenue to Accumulated Capital Outlay (FY 2014-15 was $9.3 million).
Requested appropriations include the addition of a total of nine new positions (8.0 FTE) in the District Attorney,
Sheriff, Corrections, and Planning, Building and Environmental Services departments to transition away from the
use of extra help for certain positions. Recent law changes regarding health care, pensions, and sick leave
accrual have made it difficult to continue to use extra help to fill more than very short term needs. We
recommend a phased-in approach over a multi-year period beginning in FY 2015-16. The County will continue to
review programmatic needs when filling position vacancies and requesting new positions to ensure vacancies
are appropriately and effectively staffed given changes in employment and benefit laws.
Budget Issues for Board Consideration
In formulating the County’s Recommended Budget for FY 2015-16, CEO’s staff have identified a number of issues
where direction from your Board is helpful. These issues, which impact the General Fund as well as the HHSA,
Fire, and Capital Projects funds are detailed below.
Budget Study Session Memo
Page 3
April 21, 2015
Construction of Space for the Therapeutic Child Care Center (TCCC) – (Health and Human Services Fund)
Proposal
Authorize use of HHS Fund Balance to
complete construction of the TCCC at South
County Campus.
Cost Impact
CEO Position
$2,000,000
Recommended
In 2014, your Board authorized up to $16 million to design and remodel space at the South County Campus for
use by the Health and Human Services Agency (HHSA) programs. The design is now complete. However,
estimates for the cost to complete construction exceeded available resources by approximately $2 million after
all value engineering had been completed to reduce costs. The only large item that was able to be eliminated to
bring projected cost in line with resources was remodeling space in Building 1 for TCCC. At this point,
construction of space for TCCC has been postponed and TCCC would remain at the Old Sonoma Road campus.
As part of its budget, the HHSA has been directed to establish a “fiscal uncertainty” designation within fund
balance of 10 percent of budgeted operating expenditures. This designation, totaling approximately $9 million,
is proposed to be phased in over FY 2014-15 ($6 million) and FY 2015-16 ($3 million). The Board could allow a
three-year phase-in of the economic uncertainty designation to free up the funds necessary to complete
construction on the TCCC, shifting $2 million from the current year to FY 2016-17. This would allow construction
to move forward and effectively relocate the HHSA entirely out of the Old Sonoma Road campus in FY 2016-17.
Future Jail Construction – Accumulated Capital Outlay (Capital Projects Fund)
Proposal
Set aside funding within the Accumulated
Capital Outlay for future jail construction.
Cost Impact
$12,500,000 in FY 2014-15
$2,000,000 in FY 2015-16
CEO Position
Recommended
The County is preparing to submit an application through the SB 863 process to fund a portion of the
construction cost for a new jail. The application will request $20 million from the state to augment local funding
for a new facility that would meet a portion of current and future jail needs. The facility would be built in
phases, and the first phase would cost approximately $60 million. The County would be responsible for
approximately $40 million to complete the project. The Accumulated Capital Outlay fund is projected to have an
ending fund balance of approximately $18 million at the end of FY 2014-15. It is recommended that the Board
of Supervisors designate $12.5 million of the fund balance and any excess ERAF received in FY 2015-16 for future
jail construction. Assuming that the County receives $2 million in excess ERAF in FY 2015-16, the remaining
$25.5 million would then need to be raised over the next few years. Approximately $9 million of this could be
released from the General Fund Fiscal Uncertainty assignment as the HHSA builds up a commensurate reserve in
the Health and Human Services fund. Other funding sources will be identified and brought to the Board at a
later date.
Enhanced Code Enforcement Activities (General Fund)
Proposal
Fund an existing vacant 1.0 FTE Planner
position in for code enforcement.
Cost Impact
CEO Position
$180,000
Neutral
In an effort to improve adherence to existing County codes and ordinances, the Board could elect to fund an
existing 1.0 FTE Planner I/II/III in the Planning, Building and Environmental Services budget. The total cost for
Budget Study Session Memo
Page 4
April 21, 2015
the position, including salary and benefits, support services (such as IT), and furnishings and a vehicle (PBES
only), is approximately $180,000. Additional legal work generated by an enhanced program will be absorbed in
County Counsel with the filling of a vacant attorney position in FY 2014-15. In light of recent concerns regarding
land use issues, enhanced code enforcement activities could encourage local businesses to adhere to current
codes, ordinances, and operating permits and help to ensure consistent business practices in Napa County.
The cost of funding this position would be borne entirely by the General Fund unless additional fee or fine
revenue was generated. Since this request is inconsistent with the Board adopted policy of not adding positions
without secure outside funding, the CEO is not recommending that the position be funded. Other positions that
are recommended this year are supported in part by cost savings (e.g., elimination of extra help) and are
necessitated by changes in current laws. The Board could take no action, make an exception to its policy to
accommodate the addition of staff specifically to enhance enforcement activities, or could defer a decision until
the Agricultural Preservation Advisory Committee completes its analysis and makes recommendations or a later
date.
Fire Fund and Proposition 172 Funding
Proposal
Redirect Proposition 172 funding from General
Fund departments to the Fire Fund
Cost Impact
CEO Position
Historically $600,000
Not Recommended
Prior to the recent recession, the Fire Fund received approximately $600,000 annually in Proposition 172
revenue. The Board could consider restoring this funding to the Fire Fund. This action is not, however,
recommended due to the strength of the reserves within that fund. Because the majority of services currently
funded with Proposition 172 revenue reside within the General Fund, reallocating revenue would result in
increased County cost or a reduction in services.
For FY 2014-15, the Fire Fund (Fund 2100) had a beginning fund balance of $11.8. Current year revenues are
budgeted at $10.7 million and appropriations are $15.0 million. Appropriations are assumed at a “worst case
scenario,” and it is unlikely that the appropriations will be fully expended during the current fiscal year. Over
the past four years, actual expenditures have averaged $10.2 million per year and revenues have exceeded
expenditures in the fund by an average of $365,000 per year. In the current year, the department has added a
three-person engine company (five staff) and an engine at CalFire’s Gordon Valley station during the winter
months, fully funded building two new volunteer satellite fire stations in the Lake Berryessa area and purchased
three new water tenders. For FY 2015-16, the department has requested one engine, one rescue vehicle and
one utility vehicle as well as two thermal imaging cameras and two chest compression systems. Current fund
balance is sufficient to sustain the projected level of service, including replacement of equipment, for at least
the next three years.
Budget Study Session Memo
Page 5
April 21, 2015