Receive an update on the 2024-25 Budget Development process including proposed strategies to balance the recommended budget. (No general fund impact) (Haynes/Liddicoet) (Est. Time: 15 min)

Receive an update on the 2024-25 Budget Development process including proposed strategies to balance the recommended budget.

On January 23, 2024 the Department of Financial Services (DFS) and County Administrator provided the Board a preliminary assessment of the 2024-25 Budget. At that meeting the Board was briefed on the challenging nature of the budget process and adopted the 2024-25 Budget Principles.  While the County is expecting to see continued growth in discretionary revenues, the impact of cost increases and the uncertain economic outlook is taking a toll. The Board adopted Budget Principles recognizing the continuing pressure of labor cost increases and the potential impact of upcoming labor negotiations for certain bargaining units, while continuing to prioritize adjusting to the change in compensation philosophy to 100% of market while minimizing operational and service impacts.

Under this backdrop, departments submitted their budget requests through the Sherpa budget system at the end of February. As part of the Board of Supervisors Budget Workshops on March 11th and 12th, DFS presented revenue projections to the Board, which reflected growth in some areas, but largely reflected that these revenues continue to be outpaced by the growth in County expenses.

Despite projected growth of 4.0% in general-purpose revenues, initial base budget requests exceeded revenue projections by approximately $31 million. As presented at the Budget Workshops, base budget salary and benefit costs increased by approximately 7%, with the required pension contribution for the Safety plan hitting 50% for the first time.

Throughout the months of March and April, DFS and CAO have met with all County departments to review their budget requests. Through those meetings, staff have identified options to reduce departmental base budgets by $12.5 million. These options include the following:

These options successfully reduced the base budget gap from $31 million to $18.5 million.

In considering solutions to balance the budget, DFS is projecting that $16 million in additional fund balance will likely be available at the end of the 2023-24 fiscal year.  When added to available general-purpose revenues of $104.6 million, the base budget deficit further decreased to $2.5 million, prior to funding any contingencies or reserves.

The remainder of the budget gap is likely to be balanced through the use of available one-time funding source such the Chula Vista fund, ARPA Interest earnings, a temporary pause on the supplemental pension charge and reductions to departmental training and travel budgets.

Due to difficulties in balancing the base budget, the Recommended Budget will likely include lower contingencies than in prior years and will defer contributions to the General Reserve until the Adopted budget.  Likewise, almost all General Fund augmentation requests will be deferred to the Adopted budget process.

Looking Forward
Staff will present a balanced budget to the Board of Supervisors on June 11, 2024; however, balancing the budget in future fiscal years is likely to present distinct challenges. In balancing the 2024-25 Recommended budget, staff is proposing the use of multiple one-time resources such as fund balances and interest earnings from American Rescue Plan Act revenues. 

Over the past several years, the amount of fund balance used to balance the Recommended Budget has steadily increased.  In developing solutions to balance the FY24-25 Recommended Budget, staff have again presumed high estimated available fund balance from the 2023-24 fiscal year, as reflected in the table below.  

HHSA has submitted a requested baseline operating budget of $261.5 million that includes a General Fund contribution of $17 million, which supports a variety of programs and funds 750 full-time equivalent positions.  In comparison to the 2023-24 Adopted Budget, HHSA revenues are projected to decline by $4.3 million.  Expenses are also projected to decrease by $4.3 million in comparison to the 2023-24 Adopted Budget.

HHSA has also had to work through some funding challenges coupled with the cost of doing business, which include:

Similar with other County departments, expenses in HHSA continue to outpace revenues, which in turn creates pressure for the County’s general fund and other HHSA major revenue funds that have limited flexibility to fund programs now offered to the community.  HHSA is also concerned about potential impacts from the Governor's May Revise budget and changes in funding from the federal government.

Given the significance of HHSA’s programs and the size of their budget, the County Administrator’s Office and the Department of Financial Services have taken the initiative to provide HHSA with more resources to assist them through these challenging fiscal times.  The near-term goal of this collaborative effort is to:

These are some of the deliverables that staff is focusing on now.  As more analysis and dialogue takes place between staff and the Board of Supervisors, staff is hopeful that we can effectively resolve the fiscal challenges confronting HHSA in a manner consistent with the Board’s priorities.

The Department of Financial Services has collaborated with the County Administrator's Office and Health and Human Services Agency on preparation of this budget update.   

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