Regular-General Government # 29.
Board of Supervisors
Financial Services
- Meeting Date:
- 01/23/2024
- Brief Title
- 2024-25 Budget Principles and Preliminary Budget Assessment
From:
Tom Haynes, Chief Financial Officer
Staff Contact:
Laura Liddicoet, Chief Budget Official, Department of Financial Services, x8825
Supervisorial District Impact:
Countywide
Subject
Receive preliminary assessment of the 2024-25 budget and approve the 2024-25 Budget Principles and Budget Development Calendar. (No general fund impact) (Haynes/Liddicoet) (Est. Time: 10 min)
Recommended Action
- Receive preliminary assessment of the 2024-25 budget;
- Approve the 2024-25 Budget Principles to guide budget development; and
- Approve the 2024-25 Budget Development Calendar.
Strategic Plan Goal(s)
 |
In Support of All Goals (Internal Departments Only) |
Reason for Recommended Action/Background
This report provides a preliminary assessment of the 2024-25 budget, and highlights some of the key factors that will need to be considered as part of the budget development process. Overall, 2024-25 is projected to be a challenging budget season. While the County is expected to see continued growth in discretionary revenues, the impact of interest rate increases and an uncertain economic outlook are beginning to take a toll.
This is particularly evident in property tax, which is the County’s largest source of discretionary revenue. Aggressive actions by the Federal Reserve to control inflation have caused mortgage rates to increase dramatically, resulting in widespread declines in both housing sales and prices. As a result, growth in property tax revenues is projected to slow, following years of robust growth.
In addition to modest projected growth in revenue, labor cost pressures have increased significantly. The shift in compensation philosophy to 100% of market, which was approved by the Board in December 2022, resulted in a 5% salary increase for most classifications beginning January 1, 2023, in addition to many subsequent equity adjustments in the following months. In addition, the potential impact of upcoming labor negotiations for certain bargaining units, and increased costs of supplies, materials and capital assets will likely all contribute to a challenging budget development process.
In addition to the factors described above, staff recommend that the items discussed below be considered as part of the 2024-25 budget process.
Pension: Following a reduction in required CalPERS contributions for both the Miscellaneous and Safety plans in 2023-24, required contributions will be increasing in 2024-25. The contribution for the Safety plan is increasing approximately 3.7%, while Miscellaneous is increasing 1%. These increases are being driven largely by CalPERS investment losses of 6.1% in fiscal year 2021-22. In accordance with the County’s Pension Funding Policy, the County’s discretionary supplemental pension charge will also increase from 2.0% to 2.25%.
Required CalPERS Employer Contributions
Total Pension Charge w/Supplemental
Notably, the required contribution for the Safety plan now equals 50% of payroll for the first time. For comparison, 10 years ago the County's required pension contributions were 26.5% for the Safety Plan and 19.1% for the Miscellaneous Plan, illustrating the substantial impact that pension contributions have had on the County's budget in recent years. It should also be noted that required contribution rates are expected to continue increasing over the next several fiscal years before leveling off.
OPEB: The Other Post Employment Benefits (OPEB) rate for 2024-25 will be 6.9% of payroll, a reduction of 0.8% from 2023-24. In accordance with the County’s OPEB Policy, an actuarial valuation study was completed as of June 30, 2022. Per policy, this study shall be performed at minimum every two years in order to determine the actuarial accrued liability, the actuarially determined contribution (ADC) and to measure progress of funding status.
General Reserve: The County policy on Fund Balance and Reserves establishes a General Reserve target of 10%. The 2023-24 Adopted Budget included a contribution of approximately $3.4 million, bringing the reserve balance to 8.5%. The County should strive to continue making contributions to the General Reserve to meet the policy target of 10%.
Insurance Premiums: Over the past several years, insurance premiums for Worker’s Compensation and General Liability insurance have gone up significantly, reflecting an average increase of 21% over the last three years. While premiums for 2024-25 are not yet available from YCPARMIA, staff anticipate another significant increase for the upcoming year.
State and Federal Impacts: The Governor’s proposed 2024-2025 budget projects a $37.9 billion deficit, which is largely closed with use of $13 billion from the state’s reserve accounts, spending delays, program reductions, and borrowing. Staff have preliminarily identified the following issues as being pertinent to the County:
Budget Principles: Staff recommends approval of the 2024-25 Budget Principles, as reflected in Attachment A. The Budget Principles serve to highlight and reinforce best practices and to guide the budget development process for the upcoming year. A few notable provisions from the 2024-25 Budget Principles include:
This is particularly evident in property tax, which is the County’s largest source of discretionary revenue. Aggressive actions by the Federal Reserve to control inflation have caused mortgage rates to increase dramatically, resulting in widespread declines in both housing sales and prices. As a result, growth in property tax revenues is projected to slow, following years of robust growth.
| 2020-21 Actual | 2021-22 Actual | 22-23 Actual | 2023-24 Projected | 2024-25 Estimated |
| 5.15% | 4.45% | 7.06% | 6.80% | 4.00% |
In addition to modest projected growth in revenue, labor cost pressures have increased significantly. The shift in compensation philosophy to 100% of market, which was approved by the Board in December 2022, resulted in a 5% salary increase for most classifications beginning January 1, 2023, in addition to many subsequent equity adjustments in the following months. In addition, the potential impact of upcoming labor negotiations for certain bargaining units, and increased costs of supplies, materials and capital assets will likely all contribute to a challenging budget development process.
In addition to the factors described above, staff recommend that the items discussed below be considered as part of the 2024-25 budget process.
Pension: Following a reduction in required CalPERS contributions for both the Miscellaneous and Safety plans in 2023-24, required contributions will be increasing in 2024-25. The contribution for the Safety plan is increasing approximately 3.7%, while Miscellaneous is increasing 1%. These increases are being driven largely by CalPERS investment losses of 6.1% in fiscal year 2021-22. In accordance with the County’s Pension Funding Policy, the County’s discretionary supplemental pension charge will also increase from 2.0% to 2.25%.
Required CalPERS Employer Contributions
| Plan | 2023-24 | 2024-25 | Change |
| Miscellaneous | 32.57% | 33.67% | 1.10% |
| Safety | 46.29% | 50.00% | 3.71% |
Total Pension Charge w/Supplemental
| Plan | 2023-24 | 2024-25 | Change |
| Miscellaneous | 34.57% | 35.92% | 1.35% |
| Safety | 48.29% | 52.25% | 3.96% |
Notably, the required contribution for the Safety plan now equals 50% of payroll for the first time. For comparison, 10 years ago the County's required pension contributions were 26.5% for the Safety Plan and 19.1% for the Miscellaneous Plan, illustrating the substantial impact that pension contributions have had on the County's budget in recent years. It should also be noted that required contribution rates are expected to continue increasing over the next several fiscal years before leveling off.
OPEB: The Other Post Employment Benefits (OPEB) rate for 2024-25 will be 6.9% of payroll, a reduction of 0.8% from 2023-24. In accordance with the County’s OPEB Policy, an actuarial valuation study was completed as of June 30, 2022. Per policy, this study shall be performed at minimum every two years in order to determine the actuarial accrued liability, the actuarially determined contribution (ADC) and to measure progress of funding status.
General Reserve: The County policy on Fund Balance and Reserves establishes a General Reserve target of 10%. The 2023-24 Adopted Budget included a contribution of approximately $3.4 million, bringing the reserve balance to 8.5%. The County should strive to continue making contributions to the General Reserve to meet the policy target of 10%.
Insurance Premiums: Over the past several years, insurance premiums for Worker’s Compensation and General Liability insurance have gone up significantly, reflecting an average increase of 21% over the last three years. While premiums for 2024-25 are not yet available from YCPARMIA, staff anticipate another significant increase for the upcoming year.
State and Federal Impacts: The Governor’s proposed 2024-2025 budget projects a $37.9 billion deficit, which is largely closed with use of $13 billion from the state’s reserve accounts, spending delays, program reductions, and borrowing. Staff have preliminarily identified the following issues as being pertinent to the County:
- Reduction of $131.3 million to the Local Library Infrastructure Grant Program, which has provided substantial funding for construction of the Walnut Park Library. Details are not yet available as to whether existing grants will be impacted.
- Delay of $3.2 billion in funding related to Transit and Intercity Rail program funds which fund capital projects related to state and local intercity rail, bus, ferry and rail transit system, including the County Road 32A improvement project.
- $350 million reduction in legislative requests and a $4 million dollar reduction in grant program funding at State Parks.
- Maintains the $1.1 billion commitment for Homeless Housing, Assistant and Prevention (HHAP) Round 5 and describes it as an investment across 2023-24 and 2024-25. The $260 million in supplemental HHAP funding included in the 2023 Budget Act is proposed to be delayed until 2025-26.
- Maintains funding efforts to transform the healthcare delivery system through CalAIM.
- Significant reductions ($90m) to climate resilience and adaptation programs, including:
- Regional Climate Resilience—A reversion of $25 million in 2023-24 funding, and a reduction of $50 million for the Regional Climate Resilience Program at the Office of Planning and Research. The Governor’s Budget maintains $25 million previously allocated to this program.
- Regional Climate Collaboratives—A reversion of $9.8 million in 2023-24 funding for Regional Climate Collaboratives Program at the Strategic Growth Council. The Governor’s Budget maintains $10 million previously allocated to this program.
- Climate Adaptation and Resilience Planning Grants—A reversion of $5 million in 2023- 24 funding for the Climate Adaptation and Resilience Planning Grants at the Office of Planning and Research. The Governor’s Budget maintains $20 million previously allocated to this program.
Budget Principles: Staff recommends approval of the 2024-25 Budget Principles, as reflected in Attachment A. The Budget Principles serve to highlight and reinforce best practices and to guide the budget development process for the upcoming year. A few notable provisions from the 2024-25 Budget Principles include:
- The budget shall be developed in accordance with best practices and principles as established in County financial policies.
- The budget will recognize the continuing pressure of labor cost increases and the potential impact of upcoming labor negotiations for certain bargaining units. Additionally, the budget will continue to prioritize adjusting to the change in compensation philosophy to 100% of market and minimizing operational and service impacts.
- The budget will prioritize funding for programs and projects that support the County’s Climate Action and Adaptation Plan (CAAP) and further the County’s goal of achieving net-negative emissions by 2030.
- Funding recommendations shall prioritize and reflect the Board’s strategic priorities that are established in the 2024-2028 Strategic Plan.
- The budget shall seek to strengthen financial sustainability by continuing to fund liabilities, build reserves, and considering the long-term impact of policy and funding decisions.
- Jan. 29 Budget instructions released to department
- Mar. 11/12 Board Budget Workshop
- Apr. 23 Budget Development Update to Board
- Jun. 1 2024-25 Recommended Budget Book and Staff Report released
- Jun. 11 2024-25 Recommended Budget Hearing
Collaborations (including Board advisory groups and external partner agencies)
The Department of Financial Services has worked closely with the County Administrator's Office in developing the 2024-25 budget principles and budget development calendar. These items were discussed with the Budget Ad-Hoc Subcommittee on January 18, 2024.
Competitive Bid Process/Vendor Performance
N/A
Fiscal Impact
No Fiscal Impact
Fiscal Impact (Expenditure)
- Total cost of recommended action:
- $ 0
- Amount budgeted for expenditure:
- $ 0
- Additional expenditure authority needed:
- $ 0
- On-going commitment (annual cost):
- $
Source of Funds for this Expenditure
- General Fund
- $0
Further explanation as needed:
There is no fiscal impact.
Attachments
Form Review
| Inbox | Reviewed By | Date |
|---|---|---|
| Financial Services (Originator) | Laura Liddicoet | 01/12/2024 07:17 AM |
| Financial Services (Originator) | Laura Liddicoet | 01/12/2024 07:17 AM |
| Tom Haynes | Laura Liddicoet | 01/12/2024 07:18 AM |
| Financial Services (Originator) | Laura Liddicoet | 01/12/2024 07:24 AM |
| David Estrada | David Estrada | 01/12/2024 07:38 AM |
| Tom Haynes | Tom Haynes | 01/12/2024 11:23 AM |
| County Counsel | Hope Welton | 01/12/2024 11:51 AM |
| Cindy Perez | Cindy Perez | 01/17/2024 09:30 AM |
- Form Started By:
- Laura Liddicoet
- Started On:
- 12/15/2023 09:24 AM
- Final Approval Date:
- 01/17/2024