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Receive the FY2023/24 Midyear Financial Report and consider taking action on the recommendations contained in the Report
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Published Notice Required? Yes ____ No _X _
Public Hearing Required? Yes ____ No _X _
DEPARTMENTAL RECOMMENDATION:
The County Administrator’s Office recommends that the Board of Supervisors:
1. Receive and accept the FY2023/24 Midyear Financial Report. (Attachments A, B, C, D, E)
2. Approve the attached Appropriation Transfer Requests (ATRs) (Attachment F) recognizing revenues and transfers in various departments requiring 4/5 vote and approve adjustments to existing appropriations in various departments requiring majority vote.
3. Adopt a resolution amending the List of Numbers and Classifications of Positions within Solano County for a net increase of 15.0 positions. (Attachment G)
4. Approve fixed asset purchases in the amount of $42,000 for the District Attorney, $80,000 for the Library, $483,231 for Probation, $178,735 for the Sheriff, $10,700 in the Sheriff Boating Safety Enforcement and Equipment (BSEE) Grant Fund, $44,000 for Parks and Recreation, $251,150 for Fleet Management, and $50,000 in the Recorder Special Revenue Fund. See Attachment A for details.
5. Affirm initial budget assumptions for FY2024/25. (Attachment H)
6. Receive Board Priority Setting Status Update. (Attachment I)
7. Confirm the FY2024/25 Budget Hearing dates from Thursday June 20, 2024 through Friday June 21, 2024.
SUMMARY:
The County Administrator’s Office (CAO) has reviewed and compiled the FY2023/24 Midyear Financial estimates.
At this time, the Board is asked to accept the Midyear Report for FY2023/24 and variance explanations. Each County department has reviewed their first 6 months of transactions (July 1, 2023 - December 31, 2023) and has prepared projections for their revenues and expenditures through Fiscal Year-End June 30, 2024 with explanations (Attachment A) for any significant variances between their Working Budget and their projections. Tables comparing total Working Budget to Midyear projection for County departments in the General Fund, Other Funds, and Internal Service and Enterprise Funds are provided as Attachments B, C, and D. The projection for Fiscal Year-End Fund Balance for the General Fund is shown in Attachment E.
As a result of the Midyear review, departments have identified and are seeking Board approval of changes to their budgets including operations, fixed assets and position allocations at this time. The CAO and Department of Human Resources (HR) are recommending Board approval of a resolution (Attachment G) of changes, additions and deletions to position allocations. Explanations and department justifications for position allocation changes at this time are provided in Attachment A. The net increase of 15.0 FTE positions is primarily attributed to recommended additions in Health and Social Services to support Administration, Behavioral Health, and Social Services Divisions funded with various federal and State grants, 1991 Realignment, Mental Health Services Act (MHSA) Funds, and Opioid Settlement Funds.
Several departments are requesting approval for fixed asset purchases including; $42,000 for the District Attorney, $80,000 for the Library, $483,231 for Probation, $178,735 for the Sheriff, $10,700 in the Sheriff Boating Safety Enforcement and Equipment (BSEE) Grant Fund, $44,000 for Parks and Recreation, $234,797 for Fleet Management, and $50,000 in the Recorder Special Revenue Fund. Explanations and justifications are discussed in Attachment A.
The Board is asked to consider and approve Appropriation Transfer Requests (ATRs) listed in Attachment F. The ATRs recommended in this Midyear Report are intended to address known budget shortfalls that impact a department’s ability to pay other obligations as well as recognize unanticipated revenue where expenditure of the new revenue is requested.
FINANCIAL IMPACT:
The current projected General Fund ending balance for June 30, 2024 (FY2023/24) is $36.7 million (Attachment E). The projection includes $14 million in unspent General Fund contingencies, a Net Change of $22.7 million in additional fund balance based on Midyear projections. The net change is primarily the result of increased revenues, the majority of which are attributable to a net increase in property tax revenues from assessed real estate values from the final tax roll, interest income due to a higher than anticipated yield on investments, and year-to-date adjustments and decreases in projected department expenditures for the current fiscal year when compared to the FY2023/24 Working Budget.
The FY2023/24 Adopted Budget reflected a Beginning Fund Balance on June 30, 2023 of $50.5 million. Of this amount $14 million was designated as General Fund Contingency, $39.2 million was used to balance FY2023/24 Adopted Budget (revenues versus expenses) and a net $2.7 million was transferred from Reserves.
Several ATRs have been prepared and included in the FY2023/24 Midyear Report that recognize unanticipated revenue in various department budgets and funds. Explanations for variances are provided in Attachment A. Attachments B, C, and D are tables showing the comparisons of FY2023/24 Working Budget to projected year-end balance at June 30, 2024.
The table of Other County Funds shows that all County operating funds are within budget or using available fund balance (Attachment C).
DISCUSSION:
Midyear Forecast Overview:
The Midyear FY2023/24 forecast reflects predictable revenues and existing patterns of expenditures for the General Fund and all other Funds including Public Safety, Health and Social Services, Library, Road Fund, and Child Support Services. Based on Midyear forecasts most departments were able to absorb increased operating costs largely due to timing in filling vacancies of allocated positions.
General Fund - Fund 001
The FY2023/24 Midyear projections for the General Fund anticipated expenditures are $365.4 million and $334.7 million in revenues and will require the County to continue to utilize prior year Fund Balance for FY2023/24.
The decrease in expenditures in the General Fund of $9.2 million represents operational savings attributed largely to the timing in filling of vacant positions funded with General Fund contributions throughout the County departments. The combined impact of decreased expenditures will reduce the amount of fund balance utilized in FY2023/24.
Net increases in revenue to the General Fund include: $8.9 million in revenues primarily due to increases in Property Tax revenues attributed to an increase in assessed values as verified by the County Assessor, and increases in interest income due to higher than anticipated yield on investments and an increase in average daily cash balance for the County’s investment pool.
Public Safety Fund - Fund 900
The Public Safety Fund, Fund 900, consists of the budgets from the departments of the Sheriff, District Attorney, Public Defender, Conflict Defender, Probation, and Other Public Defense. The FY2023/24 Midyear projection reflects a net decrease of $10.1 million in revenues and expenditures compared to the Working Budget. The decrease in expenditures is primarily due to reductions in Salary and Employee Benefits due to the timing of filling vacancies in Public Safety departments. Revenues reflect a decrease in General Fund contribution and a projected decrease in Proposition 172 (sales tax based) revenue when compared to the Working Budget. The projected decrease in Proposition 172 revenue is due to lower statewide taxable sales and County share of sales tax. Staff is working with HdL, the County’s Sales Tax consultant, to monitor the statewide trend in Proposition 172 funding and will provide updates to the Board as part of FY2024/25 Budget Hearings.
Based on the individual Public Safety department projections, it is anticipated that there will be a net decrease in General Fund support needed of approximately $7.3 million at FY2023/24 year-end closing when compared to the Working Budget for the Public Safety Fund. Please refer to Attachment A for additional detail by department.
Health and Social Services Fund - Fund 902
The Department of Health and Social Services (H&SS) Fund 902 is comprised of 7 divisions: Administration, Behavioral Health, Social Services, In-Home Supportive Services (IHSS) - Public Authority, Health Services, Family Health Services, and Public Assistance Programs. H&SS has a Working Budget in the amount of $482.0 million. The FY2023/24 Midyear projection reflects a net decrease of $11.9 million in revenues and a decrease of $15.6 million in expenditures for a potential net cost decrease of $3.7 million. This decrease is the net of changes in several divisions included in Fund 902 detailed in Attachment A and summarized as follows:
1. A decrease of $711,000 in Administration primarily due to higher interest income for the County’s investment pool.
2. An increase of $3.7 in Family Health Services primarily due a decrease in Federally Qualified Health Center (FQHC) patient-related revenues resulting from reduced patient encounters.
3. A decrease of $3.3 million in Social Services’ Employment and Eligibility Services (EES) primarily due to increases in federal and State allocations compared to estimates at the beginning of the fiscal year.
4. A decrease of $3.7 million in Health Services primarily due to salary savings, offset by a net reduction in federal and State revenues.
5. An increase of $398,000 in Behavioral Heath resulting in a decrease in projected Department of State Hospitals (DSH) grant revenue to be transferred to a restricted fund at year end.
6. A decrease of $140,000 in Public Assistance primarily represents the County’s proportionate reduction in its share of cost for projected decreases in Foster Care and California Work Opportunity and Responsibility to Kids (CalWORKs), offset by increase in General Assistance expenditures.
State and Federal Budget Update
State Budget
On January 10, 2023, Governor Newsom released his proposed budget for FY2024/25. Due to multiple tax filing extensions for the 2022 tax year, the State lacked adequate data to develop FY2024/25 revenue projections. Recent revenue collection data indicates the State’s budget deficit is significantly worse than what was originally estimated in January. The California Legislative Analyst’s Office (LAO estimates that the State’s budget deficit is $73 billion, which is significantly worse than the Governor’s original budget deficit estimate of $38 billion. The Governor’s proposed budget had relied on a combination of drawing down state reserves, cutting funding, and increasing revenue through the managed care tax and some augmentations.
While the Governor’s budget proposed cuts to housing programs and some social services, it did not propose to access local property tax dollars or other dedicated local revenue streams. In prior budget deficit years these proposals were common. It is unknown whether or not the Governor’s budget solution proposals can withstand the revenue declines that the state has witnessed since January.
During March and April 2024, the Legislature’s budget committees will begin to consider the various budget solutions presented by the Governor. However, given the projected increase in the budget deficit, it is likely that by the time the May Revision is released there will be additional cuts and other unidentified budget solutions that will impact the County. It is also possible that as early as mid-March, the Legislature could take initial actions to reduce the imbalance in the current year budget.
Because of the projected size of the State’s deficit, County staff will be prepared to act quickly once the May Revision is released to assess the local impacts. In the interim, the County will likely see slower reimbursement rates from the State since cash management is a tactic used by the State when cash flow is slow or stagnant.
Federal Budget
Since the beginning of federal fiscal year 2024, federal departments and agencies have been operating on limited financial resources due to Congress’ inability to approve a new long-term appropriations package. As of the end of February, they have until early March to either pass another Continuing Resolution, or omnibus spending bill that funds the entirety of the federal government through September 30, 2024.
Although final figures for fiscal year 2024 will not be known until the details of a negotiated appropriations deal are released, it is currently expected that Congress will produce a largely status-quo budget, with many local programs likely to be funded at levels comparable to federal fiscal year 2023.
The final budget is expected to direct billions in funding to local community projects (known as earmarks). Currently, Solano County has submitted to receive $637,000 for a new Emergency Operations and Communications Center; $500,000 for the Vallejo Early Learning Center; and a portion of a $150,000 earmark designated for the Delta Counties Coalition for various water project initiatives.
Initial FY2024/25 Budget Assumptions
Based on Midyear Projections for Fiscal Year 2023/24, the County Administrator is recommending a set of initial budget assumptions and affirmation of standing Board budget policies and guidelines to be incorporated in the preparation of the Recommended Budget for FY2024/25 Budget. Please refer to Attachment H for detail.
Set Budget Hearing Dates for FY2023/24
The Board is asked to set Budget Hearings to consider the FY2024/25 Recommended Budget. Staff recommends that Budget Hearings begin on Thursday June 20, 2024, at 9 a.m.
ALTERNATIVES:
There are a number of recommendations included in the FY2023/24 Midyear Financial Report for Board consideration at this time. The Board may choose to adopt none, some, or all of those listed. The Board may also choose to delay action on the recommended appropriation transfers or position allocation changes. These options are not recommended, as the changes reflected in this FY2023/24 Midyear Report are intended to support department operations and their ability to deliver the best possible service within available resources.
OTHER AGENCY INVOLVEMENT:
All County departments were involved in developing the information included in the Report.
CAO RECOMMENDATION:
APPROVE DEPARTMENTAL RECOMMENDATION