Receive preliminary assessment of the 2022-23 budget and approve the 2022-23 Budget Principles and Budget Development Calendar. (No general fund impact) (Haynes/Patterson)

1. Receive a preliminary assessment of the 2022-23 budget; and
    
2. Approve the 2022-23 Budget Principles and Budget Development Calendar.

In Support of All Goals

2022-23 Preliminary Forecast and Budget Assessment
 
For fiscal year 2022-23, the County is expected to see modest growth in general purpose revenues. However, increases in pension costs, along with continued salary increases and insurance cost increases is projected to consume a large portion of the County's discretionary revenues. Departments will be asked to continue looking at cost saving strategies to maintain a balanced budget.
 
Staff recommends that the following items be considered in order to guide the 2022-23 budget process:
 
State Budget Impacts: The Governor’s 2022-23 state budget proposal includes potential funding opportunities for continuing the fight against COVID-19; homelessness and mental health housing; combating climate change including drought response; safer streets including local law enforcement grants; and affordability including small business relief. The County’s 2022-23 budget should take advantage of these funding opportunities, but also maintain focus on stabilizing core County operations.
 
Federal Stimulus Impacts:  The Federal government’s approval of the American Rescue Plan Act (ARPA) has provided a substantial amount of funding in order respond to and recover from COVID-19.  In addition, in November 2021 the Federal government passed the Infrastructure Investment & Jobs Act.   As the plan for funding allocation becomes more clear, the County should also take advantage of this funding opportunity. 
 
Pension:  The CalPERS actuarial valuation report as of June 30, 2020 reflects an aggregate unfunded liability for Yolo County miscellaneous and safety plans of approximately $370 million, an increase of nearly 5.6% over the prior year. Pension rates in fiscal year 2022-23 including supplemental charge are increasing from 32.9% to 34.4% for miscellaneous employees and from 45.9% to 48.6% for Public Safety employees.
 
OPEB: The funded status of Other Post-Employment Benefits (OPEB) continues to improve due to implementation of the OPEB benefit caps and continued pre-funding of the OPEB liability. As of the June 30, 2020 valuation report, the funded ratio is 24%, an increase of 10% from the 2018 valuation report.  In fiscal year 2022-23, OPEB rate to be charged to County departments will remain unchanged at 7.7%, which is the full actuarially determined contribution (ADC) rate. 
 
Insurance Premiums:  Worker’s Compensation and General Liability insurance premium costs continue to increase.   Preliminary estimates project Worker’s Compensation to increase by about 6.5% and General Liability to increase by 18%, for a countywide total increase of $915,000.
 
Labor Costs:  Increases in required CalPERS employer contribution rates, negotiated cost of living adjustments, and potential equity adjustments are projected to increase labor costs. If on-going general purpose revenues cannot keep pace with the cost growth, the use of vacancy savings that were incorporated into last year’s budget process may be required to balance the FY2022-23 budget.
 
General Reserve: The County policy on Fund Balance and Reserves establishes a target reserve level of 10% of General Fund expenditures. In the FY21-22 budget, the County was able to contribute $3.2 million to bring Reserves to 7.0%. Additional contributions to the Reserve are advisable to restore the fiscally prudent practice to achieve the policy target and further strengthen the fiscal foundation of the County. 
 
Budget Principles 
Staff recommends approval of 2022-23 Budget Principles, as reflected in Attachment A. The Budget Principles serve to highlight some of the best practices that underline budget development each year, and to guide budget planning for the upcoming year.  A few of the notable provisions in the Principles include:

• The budget shall be developed in accordance with key best practices and principles as established in County financial policies.
• The County should take advantage of State and Federal funding opportunities but continue to stabilize core County operations.
• The budget shall strengthen the County's financial sustainability by funding liabilities and limiting General Fund position growth. Resource reductions from prior years will not be automatically restored but treated as new funding requests.
• Priority shall be given to new funding requests that support the Board’s 2020-2025 Strategic Plan Goals and priority focus areas, or use technology to provide online access to County services and reduce workload.
• Departments shall endeavor to purchase the most environmentally sustainable option when replacing or purchasing new vehicles, starting with electric, then electric-hybrid, hybrid and finally combustion.  Hybrid or combustion vehicles will only be considered if there is a compelling business reason.

Budget Calendar
The proposed 2022-23 budget process calendar is provided as Attachment B. Key dates for the Board’s consideration are as follows:
 
Jan. 31                      Sherpa Budget System open for data entry & Budget Instructions sent to departments
 
Mar. 15-16                 Board Budget Workshop
 
Apr. 26                       Budget development status update to Board
 
May 27                       2022-23 Recommended Budget document released
 
Jun. 14                       Board budget hearing & approval of Recommended Budget
 
Budget System:  The budgeting software SHERPA will be open for the County department fiscal staff to enter their budgets from January 31, 2022 through February 25, 2022.
 
Interim Budget Preparation Guidance:  Budget instructions will be provided to departments on January 31, which will include information to assist departments in developing their budget requests. Staff will continue to work with the Budget Ad-Hoc Subcommittee throughout the budget development process to provide interim policy guidance on proposed budget balancing strategies. In addition, a budget development update will be provided to the full Board on April 26 to allow for review and feedback on proposed strategies prior to finalizing the 2022-23 Recommended Budget.

Budget staff in the Department of Financial Services worked with the County Administrator's Office and the Board Chair/Vice Chair to develop the 2022-23 Budget Principles and the Budget Development Calendar

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