Title
a. Receive and accept the FY 2013-14 Year-end Estimate and Annual Three-Year Financial Forecast for the period of Fiscal Year (FY) 2014-15 through FY 2016-17;
b. Approve recommendation that the County Counsel-Risk Management Office provide an annual report to the Board's Budget Committee and to the Board of Supervisors detailing annual funding levels and estimated cost obligations based on results of the annual actuarial for the County's General Liability Insurance fund.
Report
RECOMMENDATION:
It is recommended that the Board of Supervisors:
a. Receive and accept the FY 2013-14 Year-end Estimate and Annual Three-Year Financial Forecast for the period of Fiscal Year (FY) 2014-15 through FY 2016-17;
b. Approve recommendation that the County Counsel-Risk Management Office provide an annual report to the Board's Budget Committee and to the Board of Supervisors detailing annual funding levels and estimated cost obligations based on results of the annual actuarial for the County's General Liability Insurance fund.
SUMMARY:
The Three-Year Financial Forecast (attached) provides County policy makers and the public with an updated assessment of the County's financial condition through the current and next three fiscal years. Forecast outcomes are intended to provide a projection of General Fund and individual department costs for maintaining current year levels of service moving forward. Projected totals are developed based on current year statutes, policies, and operations. Salary and benefits expenditures include Board-approved employee group salary and benefits changes, assumed increased costs for employee healthcare insurance and PERS retirement, earned step increases, and related changes in salary-driven costs such as Social Security and Medicare. Departmental changes in estimated revenues are based on the most recent financial data and available information about federal and state funding levels, and approved changes in fees and service charges as of December 31, 2013. The resulting analyses presents a "road map" to help guide deliberations and strategies for maintaining existing service levels, and preserving the County's long-term fiscal stability.
DISCUSSION:
Though Monterey County ended FY 2012-13 with its healthiest fund balance since FY 2005-06, current forecast results indicate that adoption of a FY 2014-15 balanced budget will require in-depth analyses and collaboration between all County functions to ensure that recommended funding is aligned with organizational priorities as set forth by statute, existing codes and policies, and Board-adopted Strategic Initiatives. As described in the attached report, challenges to the County's ability to maintain current service levels continue in the coming years, as General Fund fiscal resources remain constrained by growing costs for salary, retirement, health care premiums, and requirements for pre-funding retiree health care. Other cost drivers include County infrastructure and facility needs, and the critical need for replacement of and/or upgrades to information technology systems.
Additionally, future year operational capacity in many departments is challenged by rising costs for General Liability Insurance. It is well understood that litigation and related costs impact governmental finances across the nation. Public entities spend millions on lawsuits each year, and Monterey County is no exception. General Fund departments experienced an overall 18.9% increase in general liability charges in FY 2013-14, with costs growing from $3.4 million in FY 2012-13 to $4.0 million. The estimated total rises by 47.8% to $5.9 million in FY 2014-15, followed in FY 2015-16 and FY 2016-17 with estimated costs of $6.8 million and $7.1 million respectively.
This issue requires engaged partnership between all County departments and risk managers to understand and negotiate through risk challenges and to develop long-term solutions focused on managing the County's risk factors on an ongoing basis. To provide a more thorough and transparent understanding of the County's general liability and potential future fiscal and operational impacts, the County Administrative Office recommends that the Risk Management Office present an annual report to the Budget Committee and the Board outlining the progress made in meeting funding levels and operational costs and outcomes. This recommendation provides for compliance with Board adopted General Financial Policies for Internal Service Funds.
In summary, the FY 2013-14 Three-Year Forecast reflects a General Fund deficit of $8.3 million between spending needs and available funding in FY 2014-15. This structural gap expands to $15.7 million in FY 2015-16 and $18.3 million in FY 2016-17. This forecast highlights the importance of maintaining a countywide culture of spending restraint. Even with projections for steady revenue growth, cost increases continue to outpace the County's ability to fund them. It is prudent to assume that this trend will be the norm well into the future. It is within this context that the County Administrative Office and Monterey County departments are currently developing FY 2014-15 baseline budget requests.
OTHER AGENCY INVOLVEMENT:
Development of the Three-Year Forecast is a cooperative effort between all departments and the County Administrative Office (CAO). The CAO's Office projects County discretionary funds, with considerable input from the Treasurer-Tax Collector, Assessor, and Auditor-Controller. Department heads and their staff provide critical expertise and input relevant to operational needs and funding sources, as well as current trends and statutory requirements that may influence their respective forecasts. The CAO's Office consolidates departmental results and prepares an overall countywide analysis to help aid the Board in setting fiscal policy and direction. The CAO's Budget and Analysis team extends thanks and appreciation to all County departments for their vital assistance in providing the data and expertise necessary for development of the FY 2013-14 year-end estimate and three-year forecast.
FINANCING:
There is no fiscal impact related to receiving this report.
Prepared by: Mari Beraz, Principal Administrative Analyst, x5112
Approved by: Dewayne Woods, Assistant CAO, x5309
Attachments: Three-Year Financial Forecast