County General Fund Budget Update

County General Fund Budget Update

By Zach Friend, Santa Cruz County Supervisor 2nd District

General Fund Times Publishing Group Inc tpgonlinedaily.comAt the most recent Board of Supervisors meeting the County Administrative Officer and Auditor-Controller-Treasurer-Tax Collector provided the most recent budget update — focusing on the County’s General Fund. The update provided a five-year General Fund forecast and an overall update on the fiscal position of the County budget.

The General Fund provides the majority of funding for important services such as public safety, parks and matching funds for important health and human service programs in our county. It is also the most at financial risk from economic trends and changes in state and federal budgets.

General Fund Times Publishing Group Inc tpgonlinedaily.comAt the state level, the Governor has been focused on fiscal balance. Even with a current state budget surplus, the Governor has been working to bring the Rainy Day Fund toward full funding — providing for a strong reserve should there be an economic downturn. The recent federal tax changes will impact the state budget but the extent of these impacts isn’t currently clear. Any federal cost shifting in health care or other entitlements to the state will impact the state budget and most likely have a resulting impact on our local budget.

Local Overview

Locally, unemployment rates are down and job growth is up. All local tax indicators – including sales tax, property tax (the County’s largest General Fund tax revenue), hotel/vacation rental (TOT) taxes and cannabis taxes are up.

This growth has allowed the Board of Supervisors to make modest investments in public safety, parks, roads and health and human services to restore some of the significant cuts during the Great Recession. However, the Board has also made a significant commitment to improving our reserves to address predictable future economic downturns. In the last few years the Board has improved the County’s bond rating by placing more in reserves (overall now at about 10 percent).

While the very short term indicators look good, there are some trends over the next five years that are concerning to our local budget – with many of them externally generated. Growing inflation (currently at about 2 percent) and increasing housing costs continue to put pressure on households and may dampen spending. A slowing tax revenue overall is anticipated, which is anticipated to reduce our revenues by two percentage points or more in the coming few years.

Increased costs for long-term borrowing (with higher interest rates – offset somewhat by our improved bond rating from increased reserves) will make larger ticket items such as Capital Improvement costs higher. PERS retirement rate changes from the state could significantly impact local cost-shares within the next few years. These rate calculations could add $14 million in costs over the next seven years. Additionally, there is uncertainty in state and federal grant revenue for a number of programs the County currently operates.

Meeting Future Challenges

The Board’s work to establish a higher reserve is the first step in protecting services during a future downturn. New economic development coming online (such as the Aptos Village) also provides a new funding source for services. But there are other things the County is doing to internally look at how programs are provided and whether they are being provided in the most cost effective (and impactful) way.

Through the current strategic plan process and process improvement process the County is developing performance measures for evaluating programs, which will allow for investments in the most impactful programs and also for modifications to those that aren’t providing the results the community desires. If efficiencies can be found through this process they will help ensure additional protections in a downturn.

Additionally, the County will continue to look at revenue growth options and your thoughts on ways to improve the budget over the long term are welcome during the continued strategic visioning process or feel free to give me a call.

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If you have any questions, I’d love hear from you. Please feel free to call at 454-2200.

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