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County of Santa ClaraOffice of the County ExecutiveOffice of Budget and Analysis

FGOC-CE02 021011 .

Prepared by:. Leslie CrowellCounty Budget Director

Mary Stephens

Budget Operations Manager

DATE: February 10, 2011

TO: Supervisor.Ken.Yeager, Chairperson

Supervisor.Dave.Cortese, Vice Chair

Finance & Government Operations Committee

FROM:

Jeffrey V. Smith

County Executive

SUBJECT: Preview of the FY 2011 MidYear Budget Review and Updated FY 2012 Financial Projection

RECOMMENDED ACTION

Accept Report previewing the FY 2011 MidYear Budget Review and the Updated FY 2012 Financial Projection

FISCAL IMPLICATIONSThere is no fiscal impact associated with the acceptance of the MidYear preview report.

The actual fiscal impact will depend on the specific actions which will be recommended by the Administration and

considered by the Board on March 1, 2011. The majority of the current fiscal impact is due to recommendations related

to the Property Tax Administrative Fee and an augmentation for the Independent Defense Counsel's Office (IDO). If the

Board were to approve all of the actions under consideration, the impact on the General Fund is $3.6 million, and this

amount has been incorporated into the FY 2012 deficit projection. Any use of reserves reduces our flexibility in three

areas: available cash, funds available to establish a Contingency Reserve and other one-time needs in FY 2012.

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REASONS FOR RECOMMENDATION

FY 2011 Midyear Budget

In advance of the Board of Supervisors' review of the FY 2011 MidYear Budget, the Administration is providing notice

to the Finance and Government Operations Committee of the items which are being considered for budget modifications

prior to the end of the fiscal year. Actions will be recommended to re-balance the FY 2011 budget, to correct errors, to

address critical operational issues, and to implement a variety of net zero technical adjustments in department budgets.

The Office of Budget and Analysis (OBA) is currently completing its analysis of Departmental Financial Status Reports

(based on actuals through December 31, 2010), and anticipates that the year-end General Fund balance is negative $35-

$40 million. The majority of this amount is attributable to revenue shortfalls which are tied to the under-performing

economy, such as delays in the sale or property, or reduced supplemental property tax revenues. Operating departments

are in many cases struggling to meet salary savings, and are under-realizing their budgeted revenues.

The Office of Budget and Analysis and the Office of the Controller are in the process of analyzing projection specifics

and the cash position of the County, respectively, but serious concerns exist as to how the slowness of the economic

recovery and State actions could affect the County's cash receipts as well as overall revenues. We anticipate refining theyear-end balance estimate between now and March 1 when we report to the Board.

RDA Non-payment

The FY 2011 Financial Status Report assumes that the County will receive the budgeted amount of $21 million in RDA

revenues from the City of San Jose, as agreed to between the City of San Jose and the County in March 2010. If the

payment is not made, the County will face an additional $21 million shortfall. Of the negative $35 - 40 million projected

balance, $6 million of the shortfall is attributable to RDA payments that the City of San Jose is unable to make to the

County since San Jose did not issue debt as originally planned last year.

Potential Budget Modifications

The MidYear budget is the time during the fiscal year for Departments to bring forward modification requests that relate

to operational issues facing the County since the budget was approved in June. This transmittal highlights

recommendations that the Administration intends to include in the March 1 transmittal to the full Board. Additional

information on the major modifications is included in the Background section.

Late-breaking modification requests, if any, will be included on the March 1 Board transmittal.

Property Tax Administrative Fee

Increase appropriations in the Office of the Controller by $2,300,000 for the possible repayment of Property Tax

Administrative Fee (PTAF) collected from cities pursuant to methodology established under SB 1096.

A legal ruling against counties and in favor of cities, now under appeal, could obligate the County of Santa Clara to

repay the cities $2,300,000 for the PTAF for FY 2010/11. The recommended action will allow the County to set aside a

reserve for future repayment of PTAF to the cities for FY 2010/11. The Department will accrue this amount as a

liability to the cities and retain the liability until the case is settled. If the final ruling determines that the PTAF must be

returned to the cities, the County will pay the fees from the accrued liability account and then adjust the future collection

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fee schedule. If the final ruling agrees with the current method of calculating the PTAF, the Department will return the

balance in the accrued liability account to the County fund balance, recognize the revenue and cease ongoing

appropriations.

Additional Appropriations for the Independent Defense Office (IDO)

Based on the first half of FY 2011 financial results, and a projection for the current fiscal year for the IndependentDefense Counsel Office, the Office of the County Counsel anticipates that the IDO operation will cost an additional

$1.325 million more than is currently budgeted. The Administration recommends appropriating the budgeted reserve of

$850,000, as well as increasing appropriations for this function by $1.325 million, for a total increase in appropriations

of $2,175,000.

Appropriate Interest Expense on Retiree Health Loan to Purchase Downtown Medical Clinic

This action will increase the FY 2011 appropriation by $586,560 and revenue by $586,560. Funds will be transferred

from Fund 0060 (VMC Enterprise) and transferred out to Fund 0050 (General Capital Improvements) to pay interest on

the loan from the Retiree Health Trust fund. In FY 2012 and FY 2013, interest will be budgeted in Fund 0050 through

the annual budget process.

Appropriations for Tax Collection and Apportionment System (TCAS) Project

The Administration is recommending the transfer of $150,000 from the Delinquent Property Tax Improvement Fund

Balance to the Tax Collectors Office budget for the Tax Collection and Apportionment System in Fiscal Year 2011.

This fund is used specifically for enhancing and improving technology for property tax collection. The current balance in

the Delinquent Property Tax Improvement Fund Balance is $163,000.00.

This is the final year of the Tax Collection and Apportionment System (TCAS) project. The final four months of the

TCAS project was planned to be staffed by County coded employees, but due difficulty in hiring qualified personnel

(JAVA support and development), the last four months of the project must be staffed by consulting subject matter

experts at the additional cost of $150,000. These consultants will support the TCAS system, ensuring that tax bills are

generated and mailed, tax payments are collected and processed and apportioned to the relevant jurisdictions.

ISD Use of Retained Earnings for Information Technology

The Information Services Department (ISD) will be submitting a separate transmittal to FGOC relating to their mid-year

budget adjustment requests, which will include a report back to the Committee regarding other technology changes and

potential improvements identified with the organization's work related to the Center for Leadership and Transformation.

The requested budget adjustment allocates $752,000 from the ISF Fund 0074 retained earnings for new technology

projects in FY 2011, and $748,000 for ISD infrastructure refresh needs. The new technology projects being

recommended include:

Continuation of the SharePoint migration for the public and employee portals, $340,0001.Web Conferencing Service contracts, $60,000, which will allow for a broader use of the

Internet for web meetings, classes, and seminars, and

2.

A Learning Management System for the administration, documentation, tracking, and

reporting of training programs, classroom and online events, e-learning programs,

training content, and more, $352,000.

3.

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These projects will be discussed in further detail in the ISD transmittal.

Recommendations Being Reviewed by the Administration

Transfer of Health & Hospital Human Resources (HHS-HR) to Employee Services Agency

The Administration is currently reviewing a proposal to transfer HHS-HR to the Employee Services Agency (ESA).Mid-Year recommendations would focus on a transfer of authority and responsibility, while the reallocation of staff and

other resources from the Santa Clara Valley Medical Center (SCVMC) budget to the ESA budget would be part of the

FY 2012 budget process.

The Santa Clara Valley Health & Hospital System (SCVHHS) currently has the only decentralized, full service Human

Resources function in the County. HHS-HR is responsible for maintenance of the classification plan for HHS

classifications, recruitment for HHS-specific positions, the full scope of Service Center responsibilities including the

processing of human resources transactions, as well as facilitating reasonable accommodation placements for

employees.. The Human Resources Manager, SCVHHS, has traditionally reported to HHS-Management and currently

reports to the Acting Director, HHS - Deputy County Executive. A consolidation with the Employee Services Agency is

under review as a way to enhance efficiencies, standardize processes, facilitate communication and provide for adequate

supervision and coverage. Such a consolidation could also allow for more flexible staffing during times of budgetdifficulties and high workload and would enhance the Employee Services Agencys accountability for compliance with

applicable ordinances, Merit System Rules and other legal requirements.

The salary of the Human Resources Director in Employee Services Agency would be increased by 10% at a cost of

approximately $14,000 to recognize the additional responsibilities of assuming for the management of the HHS-HR

staff. In addition to the HHS-HR staff, the Human Resources Director also assumed responsibility for management of

the Employee Development Division (ten positions) in July 2008 with no change in salary. The Employee Development

Division is the central provider and resource for the Countys training needs. This additional cost will be absorbed by

Employee Services Agency with the deletion of the Insurance Program Manager.

The Insurance Program Manager position allocated to ESA Risk Management has been vacant since December 2008.

The position is responsible for administering and overseeing the County's self-insured liability program, and providing

guidance to special districts in the development, funding, maintenance and improvement of their insurance programs.

Since this position was vacated (by the incumbents promotion to the Director, Risk Management), the management of

the Insurance Program and the supervision of its 10 staff has been delegated to the Director, Risk Management. In

addition, in recognition of this additional responsibility, the Director, Risk Management salary range would be be

increased by 10%, an annualized cost of approximately $12,700.

Bank Charges Incurred from Bank of America

Increase appropriations and revenues in the the Controllers Office by $285,000 for bank charges incurred from Bank ofAmerica. The Department is incurring higher than anticipated ongoing costs for services provided by the Bank of

America since the implementation of the new banking services contract, and OBA is working with the Department on

how the banking system is working. There is no effect on General Fund balance as these additional costs are offset by

additional revenue in an equal amount.

The Department manages bank accounts and activities for the County, schools, and special districts, and pays for the

banking service costs from its budget. These costs are then charged to all commingled pool participants based on their

respective average daily cash balances.

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Facilities and Fleet MidYear Requests

Add two (2) Janitor (H18) Positions for the Evans Lane Wellness and Recovery Center

The addition of these positions is the result of staff shortages which do not allow for the absorption of janitorial services

for the Medical Examiner's facility, or the for the Evans Lane Wellness and Recovery Center. The addition of these

positions will reduce the use of extra help and overtime in the Facilities and Fleet Department. The cost for FY 2011 is$55,594, and for FY 2012 is $166,781. Mental Health has indicated that they can draw down some reimbursement for a

portion of these costs, but OBA is still working with all of the parties involved on whether or not reimbursement is

possible prior to finalizing the recommendation.

Requests from FAF Related to Energy and Capital Activities

OBA is in the process of reviewing an FAF request for a variety of appropriation modifications to:

transfer $595,000 from holding accounts to Board identified projects to four projects

relating to renewable energy, energy efficiency, solar thermal and conservation.

1.

recognize $538,000 in revenue to support Court Seismic activity related to bond funds,and $91,000 in revenue from the PG&E Rebate for the Valley Health Clinic project, and

2.

appropriate $400,000 to fund the board identified FY 2011 Juvenile Hall project that has

yet to be funded.

3.

Technical Adjustments

Each year, the MidYear Budget Review provides an opportunity for Departments to bring forward technical adjustments

which are net zero cost. A number of these will be included in the March 1 transmittal to the Board. Departments

currently preparing technical adjustment requests include the Office of the County Executive, the Clerk Recorder, the

District Attorney, Facilities and Fleet, ISD, the Office of the Sheriff, SCVHHS, and SSA.

Updated FY 2011 Financial Projection

The FY 2012 projected General Fund deficit is approximately $230 million. The deficit is roughly comprised of the

following components, and additional detail will be provided in the March 1 transmittal to the Board of Supervisors.

Deficit Factors for FY

2012Value in Millions

Use of One-time Budget

Solutions to balance the

FY 2011 Budget

$138.4

Use of One-time Budget

Solutions to re-balance

the FY 2011 Budget for

State Impacts

$22.0

Increased Costs related to $56.0

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Employee Benefits

Other revenue and

expenditure variations,

net

$13.6

Total Initial FY 2012

Deficit Projection $230.0

BACKGROUND

Property Tax Administrative Fee

During the fiscal year 1990/91 State budget deliberations, the State legislature enacted SB 2557, allowing counties to

charge PTAF in the amount of property tax administrative costs proportionately attributable to all local jurisdictions

receiving property taxes within each county. Schools were excluded from this by an amendment passed during the fiscal

year 1991/92. From fiscal years 2004/05 to 2009/10 the fee has generated approximately $61 million in revenue for the

County of Santa Clara. The calculation method for PTAF adopted by the County of Santa Clara is the same as the

method used by the County of Los Angeles, which follows the SB 1096 implementation guidelines and has been adopted

by a majority of the California counties.

In 2009, some cities in the County of Los Angeles disputed this methodology and filed a lawsuit against the County of

Los Angeles. The cities in the County of Santa Clara have also disputed our PTAF calculation method. To avoid

excessive litigation costs on this issue, the County of Santa Clara and the cities entered into a tolling agreement and

agreed to follow the judgment rendered by the courts on this issue with adjustments starting with fiscal year 2004/05. In

July 2010, the Second Appellate district court ruled in favor of the cities in the County of Los Angeles and demanded the

County of Los Angeles to recalculate its PTAF and return overcharged fees to the cities. The County of Los Angeles has

since filed an appeal of this ruling with the California Supreme Court. Although the appeal process is in progress, the

existing Appellate court's decision is the only case law that dictates the method of calculating PTAF.

Independent Defense Counsel's Office

The Independent Defense Counsels Office (IDO) was established as a separate unit of the County Counsels Office on

July 1, 2008. IDO took over responsibilities formerly handled by the Legal Aid Society (LAS) for oversight of contracts

with private attorneys and other related service providers to represent indigent criminal defendants who cannot be

represented by the Public Defenders Office or the Alternate Defenders Office due to legal conflicts. This is a

mandated cost to the County. Initial budget estimates for this work were based on previous expenditures by LAS,

conjecture about the number of indigent defendants requiring representation, and the seriousness of the cases. Many

large gang cases and numerous cases alleging the most serious crimes, including murder cases, are requiring

extraordinary unanticipated expenses over long periods.

It has become apparent that the $3.9 million in Object 2 funds, plus the $850,000 in reserve funds originally allocated for

indigent defense costs will not be sufficient to cover the expenses related to the mandated representation of indigent

criminal defendants. A jury trial in one such case, reputed to be the largest criminal trial in Santa Clara County history,

commenced late last year and is expected to last eight to twelve months. That case was filed prior to the transfer of IDO

to the County Counsels Office, so the assignment of attorneys on that case was done by LAS, even though the case is

only now going to trial. As reported in previous transmittals, the total case costs in this matter alone are expected to be

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between $1 - $2 million.

In FY 2009, indigent defense costs were $5.0 million and in FY 2010 the costs were $5.9 million. The current

recommended action would result in a total appropriation of $6.083 million for IDO Legal Services.

Appropriate Additional Funds for the TCAS System

TCAS was transitioned into production on July 1, 2010, replacing a collection of disparate 40-year-old legacy tax

collection and apportionment systems. To date, the new TCAS system has sent out over 510,000 annual bills (secured

and unsecured), 16,000 supplemental or corrected bills and over 35,000 delinquent notices (redemption and unsecured).

Over $1.8 billion has been collected, processed and apportioned using TCAS.

For the remainder of the fiscal year, additional functionality for roll corrections and apportionment will be implemented,

as well as regular support and maintenance of the production system. Without these additional appropriations, funds for

the support staff would not be available, and problems could occur with sending out additional bills, processingpayments and apportioning funds. Planned functional improvements would not be able to be made, including additional

functionality on roll corrections and apportionment. The 2nd installment tax payments are due on April 10th, and there are

numerous apportionments of funds that must take place before the end of the fiscal year. Management is currently

working on obtaining long-term staff for support and maintenance of the TCAS system.

Add Two Janitor Positions in Facilities and Fleet

In the FY 2011 recommended budget, FAF indicated that a portion of the janitor deletions were made possible when

SCCVMC agreed to provide services at the Medical Examiners facility on a reimbursable basis. However, due to a

high rate of absenteeism, FAF has been using extra-help and overtime in the interim to provide services. At the

Countys 2090 Evans Lane Wellness and Recovery Center, janitorial services were contracted out by the Mental Health

Department, but Mental Health has requested FAF provide services in the future.

The FAF budget, excluding capital fund 50, is approximately $43 million, and has little flexibility remaining to address

additional program needs; 44% or $19.3 million is attributed to uncontrollable expenses relating to Court Facility Fees

and utilities. The remaining $23.7 million represents $16.5 million in personnel and $7.2 million in services and

supplies, which are primarily allocated to direct operations to support maintenance.

CONSEQUENCES OF NEGATIVE ACTION

The Board of Supervisors will not receive a report on the pending items for the FY 2011 MidYear Budget, scheduled for

March 1, 2011.

STEPS FOLLOWING APPROVAL

The report will be included in the report-out of the Finance and Government Operations Committee to the Board of

Supervisors.

ATTACHMENTS

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Summary of Major FY 2011 MidYear Requests

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Documents