By Wendy Lack
Contra Costa County is gearing up for 2017-18 budget season and has scheduled budget hearings for April 18th. Adoption of the final budget is scheduled for May 9th.
County officials like to tout the fact that they’ve maintained a AAA bond rating from Standard & Poor’s, and Moody’s has upgraded its lease bond ratings (from A1to Aa3). But bond ratings aren’t an accurate reflection of the nitty-gritty budget challenges facing Contra Costa.
While California’s short-term economic outlook appears stable, the long-term picture spells gloom. Notably, County officials say revenues are not projected to keep up with expenditures for 2016-17, nor are they projected to do so for 2017-18 and beyond.
Most economists expect California’s next recession to hit in late 2019 or early 2020. As Contra Costa County Administrator David Twa puts it, “Winter is coming.”
Here are some highlights from a recent county budget briefing:
Dependence Breeds Insecurity
Counties are highly dependent on funding from the state and federal governments. About two-thirds of Contra Costa County revenues come from these sources. With California all but waging war with the federal government, such dependency creates uncertainty.
In the Trump era it’s tough to predict how things like Affordable Care Act reform will turn out. And when state finance turn south, typically counties to end up getting the fuzzy end of the budget lollipop.
The county already contributes millions each year from its general fund to the hospital/healthcare enterprise funds. During the next couple of years the county expects it’s uncompensated (charity/bad debt) healthcare costs to increase. Time will tell what budget impacts will come from Trump’s national healthcare reform.
Contra Costa has negotiated three-year contracts with most of its 18 (not a typo) bargaining groups that cover over 8900 employees. As a result, employee wages are expected to increase by 10% or more over the next three years.
Four employee groups have contracts expiring this year: Physicians and Dentists (2/28), IAFF Local 1230 (Firefighters - 6/30), United Chief Officers’ Association (Fire Management – 6/30), and the California Nurses Association (12/31).
In bargaining, employees’ unrealistically high expectations are a perennial problem and this year is expected to be no different.
It’s also noted the county has added 1500 full-time positions during the past five years.
Years of deferred maintenance has taken its toll on county facilities and infrastructure, including its badly-outdated finance and tax software systems. The county has identified $272.2 million in deferred facilities maintenance and other capital requirements. During the past three years the county has budgeted $10 million annually for infrastructure maintenance and upgrades.
Recently the Board a new facilities plan expected to cost $100 million, to consolidate Sheriff’s Office operations on Glacier Drive and construct a new county administration building in downtown Martinez. It hopes to finance these projects via private placement, to minimize costs (and reduce transparency to the public), but ultimately may need to use bond financing instead.
Next year budget costs are expected to cost $282 million. The county’s pension plan has reduced its assumed rate of return for pension funds, from 7.25% annually to 7%. As a result, in three years annual pension costs are expected to rise to $293 million.
In 2015 the plan’s actual investment earnings were 2.4%, far less than the 7.25% earnings assumed. When actual earnings fall short of the assumptions, taxpayers make up the difference.
Since it’s unlikely 2016 earnings will meet the 7% growth rate assumed, in the long run taxpayers are on the hook for even more than are reflected in cost forecasts.
Property Tax Revenues
County property tax increases are expected to continue at the 5-6% annually. Property tax revenues to the County’s Consolidated Fire District are projected to continue at 6% annually. Following the post-recession property tax decline of over 11%, this is good news indeed.