COUNTY OF SAN MATEO Inter-Departmental Correspondence

County Manager's Office

DATE: BOARD MEETING DATE:

SPECIAL NOTICE/HEARING: VOTE REQUIRED:

August 17, 2009 August 25,2009 None Majority

TO: Honorable Board of Supervisors

FROM: David S. Boesch, County Manager ~& SUBJECT: Budget Balancing Principles

RECOMMENDATION: Adopt a Resolution approving bUdget balancing principles for Fiscal Years 2010 through 2013 to eliminate the General Fund structural budget imbalance.

BACKGROUND: Over the last two years, your Board took thoughtful, deliberate and strategic actions to stem the growth in the County structural budget imbalance, including approving a five-year plan to eliminate the gap by Fiscal Year 2013, implementing a hiring freeze, reducing department budgets, using reserves to pay down unfunded retiree health liabilities, and shrinking the General Fund contribution to the Medical Center.

At the conclusion of June budget hearings, your Board re-adopted the following policies and strategies to remain in effect to eliminate the structural imbalance by 2013: • Continue the existing hiring freeze through June 30, 2010, requiring departments to maintain plans for a 5% vacancy rate and 2% operating reserves, and hiring freeze updates to the Board at mid-year as part of the County Budget Update; • Continue preparing five-year forecasts for local discretionary revenues and net county costs at mid-fiscal year to update projected structural deficit calculations; • Undertake no new expenditures without a corresponding source of new revenue or cost reductions; • Cap the annual growth in net county costs to match projected growth in local discretionary revenues; • Maintain operating reserves and contingencies at levels that meet or exceed the County Reserves Policy; • Eliminate or avoid General Fund subsidies to Fire and other special funds;

• Reduce General Fund contributions to San Mateo Medical Center to a level consistent with state law and subsidy levels found in other public hospital systems, with a target of $50 million by 2013; and • Limit the future use of property taxes (excess ERAF) returned to the County from the state to one-time uses, including but not limited to, priority technology and capital improvements as identified in the Countywide IT Strategic Plan and Capital Improvement Program, debt reduction, productivity and cost avoidance projects.

Despite these efforts, the County continues to face significant financial challenges. The nation is mired in an economic slump, unemployment continues to increase, the state has reduced and diverted funds, our retirement fund has suffered significant investment losses, and local property and sales tax revenues have fallen. These financial challenges come as demand for our safety-net services rise due to the same economic forces that harm our budget.

Conservatively, the County's structural budget gap was projected at $100 million in April 2009. As a result, immediately following the adoption of the County's 2009-10 BUdget, department leadership came together in a day-long collaborative leadership retreat to frame the budget challenge and begin the process of developing scenarios for 10-20-30 percent reductions in Net County Cost, or General Fund allocations.

DISCUSSION: As the County, organized labor and community partners work together to seek ways to reduce costs, it's imperative to remind ourselves of the reason for our organization's existence: to serve our community. With that in mind, for your consideration is a set of budget balancing principles to guide the process to eliminate the $100 million General Fund imbalance over the next three fiscal years. The intent is to help everyone make proposals and recommendations with the same idea in mind: to serve others. With a modest reserve, the County remains in an enviable position of being able to thoughtfully plan for and strategically implement reductions over the next several years.

Adoption of budget balancing principles contributes to the Shared Vision 2025 outcome of a Collaborative Community, where leaders forge partnerships, inform and engage residents, and demonstrate fiscal stewardship by sustaining core services for future generations and for the most vulnerable members of our community.

FISCAL IMPACT: Adoption of these principles will guide the elimination of the $100 million budget gap.

RESOLUTION NO. _ BOARD OF SUPERVISORS, COUNTY OF SAN MATEO, STATE OF CALIFORNIA

****** RESOLUTION APPROVING BUDGET BALANCING PRINCIPLES FOR FISCAL YEARS

2010 THROUGH 2013 TO ELIMINATE THE GENERAL FUND STRUCTURAL IMBALANCE

RESOLVED, by the Board of Supervisors of the County of San Mateo, State of California, that

WHEREAS, the County faces a structural budget imbalance in its General Fund; and,

WHEREAS, it is in the best interests of current and future generations and the most vulnerable members of our community to eliminate this structural imbalance in a thoughtful and strategic manner and with a long-term perspective; and,

WHEREAS, the County Manager has submitted to the Board of Supervisors a set of Budget Balancing Principles for its consideration;

NOW, THEREFORE, IT IS HEREBY DETERMINED AND ORDERED that the following budget balancing principles will be used to develop strategies and solutions toward eliminating the General Fund structural budget imbalance by Fiscal Year 2013:

A. Our highest priority is a sustainable community for current and future residents of San Mateo County as defined by achievement of our Shared Vision for a healthy, prosperous, livable, environmentally conscious and collaborative community. We aim to continue progress toward our vision while the economy suffers, and position ourselves strategically for when the economy rebounds. Therefore, • All options will be explored to reduce costs and/or redesign services in order to

minimize service reductions • Near-term decisions must be made in the context of long-term strategic goals • Long-term cost effectiveness of prevention and early intervention is recognized • Existing services and service levels will be evaluated based on performance and

alignment with County's mission and Shared Vision 2025, as well as minimum legal requirements (mandates).

B. We aim to continue performing at levels of service quality and outcomes that are at or above average of comparable agencies or established benchmarks

C. We recognize that budgeting is a process. Solutions will emerge over time and be implemented to meet the goal of a balanced budget by Fiscal Year 2013. An effective multi-year process that restores structural balance will create a stronger organization and contribute to a stronger community. • Solutions may be phased-in, with managed use of reserves, to avoid disruption of

service and to cushion transifions to reduced service levels • Where possible, employment and training options will be provided to displaced

employees

D. Our budget process will engage the community we serve to inform inclusive, fact-driven and thoughtful decision-making on multiple strategies, including the reduction and elimination of services. As such, • We will be transparent and forthcoming throughout and will work closely with our

employees, organized labor and community partners. • Reliable information will be provided in a timely way to continue to build trust,

confidence and credibility throughout the process. • We will seek input from the general public regarding strategies developed by staff.

E. We aim to not impact anyone geographic, ethnic or linguistic community disproportionally as we sustain efforts to address long-standing disparities

F. We will work together as a single organization while recognizing the unique services offered by each department • All County Departments will contribute to the solution. • Departments will be afforded flexibility to achieve efficiencies in all areas of operations,

operational support and administration • We value our employees and will continue to develop our workforce, retain and

promote high-performers and continue succession planning efforts • We value our broad range of partnerships that cut across departmental lines, and also

value partnerships with our community-based organizations and neighboring municipalities