CountyCounty ofof KernKern FYFY 2012-132012-13 RecommendedRecommended BudgetBudget grow by a combined $14.5 million in FY 2012-13, an 8% percent increase above the previous fiscal year. Most of the increase is attributable to oil and gas and wind energy property valuations. Sales and use tax and sales tax in-lieu revenue estimates are approximately $8 million more than budgeted in FY 2011-12. The County received nearly $17 million in unanticipated sales tax last fiscal year primarily generated by one-time construction of major road projects and wind energy turbines. It is anticipated that this construction activity will be completed by the end of FY 2013-14 and revenues will stabilize at normal levels. For this reason, the one-time revenues from FY 2011-12 were isolated in the budget and were used to finance one-time expenditures and designations for future use. It is recommended that this practice be continued into FY 2012-13 to avoid establishing operational ongoing costs, such as salaries, that will not be sustainable in the future. Petroleum products and equipment and continuing gains from higher fuel prices also contributed to increased sales tax receipts. The County is estimated to receive approximately $14 million more in Proposition 172 Local Public Safety Funds than budgeted in FY 2011-12. This revenue source is the result of a half cent sales tax and, as such, is also being impacted by the significant one-time revenues from construction activity. This revenue increase was pivotal in meeting the increased budget requests from public safety departments. The revenue levels for this funding source are anticipated to decline over the next two years. The County’s net available carryover balance from the fiscal year ending June 30, 2012 was $44.5 million. As fund balance carryover is a one-time source, a large portion of this balance was recommended for one-time projects and specific purpose designations. EMPLOYEE COST INCREASES Employee salary and benefit costs (including retirement and healthcare) continue to rise, especially among public safety positions. It is anticipated the required County retirement contribution will increase by $15 million in FY 2012-13 and by an additional $17 million in FY 2013-14. Beginning in March 2012, all new and future safety employees were placed in a new lower benefit retirement tier that will reduce future pension liabilities. Last fiscal year, many employee groups came to the negotiating table to help the County to achieve immediate cost savings in health benefits and future cost savings in retirement benefits. They offered benefit concessions resulting in approximately $5 million of health benefit savings in FY 2012-13, although these savings are partially offset by salary increases that were also negotiated. The County’s overall cost for employees’ salaries and benefits is projected to increase in FY 2012-13 by approximately $50.6 million, which is reflected in each department’s budget. Over the past four years, departments have absorbed employee cost increases by deferring needed capital improvements and equipment and by deleting or not funding departmental positions. Many departments continue to rely on Budget Savings Incentive (BSI) credits, spending $4 million in prior accumulated savings to fund a portion of their FY 2012-13 employee costs. The recommended staffing for FY 2012-13 is approximately 8,883, a total increase of 152 positions from the FY 2011- 12 adjusted budget. PROVISIONS FOR RESERVES, DESIGNATIONS, AND CONTINGENCIES The County Administrative Office recommends the following General Fund identifiable contingencies, reserves, and designations. ► Appropriations for Contingencies: $9.3 million — Appropriations for Contingencies earmark funds against unexpected future costs or costs that are identified after the County Budget is adopted. The recommended amount is funded solely from the General Fund. The funding level includes earmarks for uninsured litigation, Grand Jury indictments, reclamation costs for Planning, abatement costs for Code Compliance, project costs for the Kern County Museum, potential increased costs resulting from indigent defense cases and general purpose contingencies. 3 ► Designation for Department of Human Services: $15.5 million ($3.1 million increase) — This designation is the result of a one-time carryover balance within the Department of Human Services’ Funds 00130 and 00140 due to an accounting change by the Auditor-Controller. The accounting change allowed the department to accrue revenues for up to nine months after June 30. This produced a one-time “catch- up” of budgetary revenue that allowed a reduction in the County contribution request for FY 2011-12. Since it is unknown how the funds will stabilize after this change, the recommended budget designates the additional funds to help offset future General Fund contributions. ► Tax Liability Reserve: $4 million (no change)— This reserve earmarks funds for the potential loss of County property tax proceeds due to: 1) Assessment Appeals Board’s decisions in favor of the taxpayer; 2) tax roll adjustments by the Assessor; or 3) resolution of court cases related to disputed property assessments. The reserve has been maintained at approximately 10-12% of the anticipated contingent liability. ► General Reserve (formerly Fiscal Stability Designation): $40 million ($2.8 million increase) — This reserve represents the transfer of the Fiscal Stability Designation that was maintained in Fund 00003 in FY 2010-11 to the General Fund. The designation was converted to a general reserve to comply with GASB 54 requirements. In accordance with Government Code section 29086, except in cases of a legally declared emergency, a general reserve may only be canceled or decreased at the time of adopting the budget, thus protecting the reserve from unintended uses. The proposed increase of $2.8 million will achieve a balance that equates to approximately 6% of General Fund appropriations for FY 2012-13. ► Designation for Retirement Contributions: $14.6 million ($2.3 million increase) — This reserve earmarks funds to mitigate known increases to the County’s retirement contribution for employees in future years. The projected increase in County retirement costs for FY 2013-14 is approximately $17 million. ► Designation for PILT/TARP: $0 ($101,900 decrease) — This designation earmarks funds allocated from the federal government under the Troubled Assets Relief Program (TARP). The remaining balance of $101,900 has been included in the Planning Department’s budget for costs associated with the Joint Land Use Implementation, Indian Wells Valley Community Plan and for the Airport Land Use Compatibility Plan. ► Designation for Sheriff’s Aircraft $977,207 (no change) — This designation earmarks funds for the long term maintenance of and periodic replacement of aircraft components, including propellers and engines, as required by Federal Aviation Administration regulations. The current balance of the designation is $977,208 and no changes to the designation are recommended. ► Designation for Information Technology Projects $450,000 — This designation earmarks funds for information technology projects, including the Auditor-Controller’s cost accounting and payroll programming efforts. ► Designation for Infrastructure Replacement $12 million ($6 million increase) — This designation earmarks funds for capital asset replacement and was established with one-time construction sales tax receipts in FY 2011-12. In addition, 50% of the increment from property taxes attributable to wind energy property valuations is deposited to this account annually. ► Designation for KMC Working Capital $6 million —This designation is new in FY 2012-13 and is recommended as a long-term plan to mitigate the ongoing cash advance concerns that have impacted the General Fund for several years. The General Fund accommodates up to a $70 million annual cash advance to KMC. KMC’s ongoing working capital shortfall associated to timing of major revenue streams is 4 COUNTY OF KERN COUNTY ADMINISTRATIVE OFFICE FY 2012-13 RECOMMENDED BUDGET Submitted by John Nilon County Administrative Officer BOARD OF SUPERVISORS Jon McQuiston Supervisor District 1 Zack Scrivner Supervisor District 2 Mike Maggard Supervisor District 3 Raymond A. Watson Supervisor District 4 Karen Goh Supervisor District 5 KERN COUNTY SUPERVISORIAL DISTRICTS ELECTORATE OF KERN COUNTY BOARD OF SUPERVISORS COUNTY ADMINISTRATIVE OFFICE PUBLIC PUBLIC HEALTH AND CULTURE, EDUC. & PUBLIC WAYS & GENERAL PROTECTION ASSISTANCE SANITATION RECREATION FACILITIES KERN MEDICAL PUBLIC HEALTH CLERK OF THE ASSESSOR- DISTRICT FIRE HUMAN SERVICES LIBRARY ROADS ATTORNEY DEPARTMENT CENTER SERVICES BOARD RECORDER EMPLOYERS' ENVIRONMENTAL MENTAL HEALTH PARKS AND INFORMATION AUDITOR SHERIFF- PUBLIC TRAINING HEALTH AIRPORTS TECHNOLOGY CONTROLLER- CORONER DEFENDER RESOURCE SERVICES RECREATION SERVICES COUNTY CLERK EMERGENCY PROBATION AGRICULTURE AND VETERANS MEDICAL SERVICES FARM AND HOME GENERAL WASTE ELECTIONS DEPARTMENT MEASUREMENT SERVICE ADVISOR SERVICES STANDARDS MANAGEMENT PLANNING AND ANIMAL CONTROL GRAND JURY AGING & ADULT ENGINEERING TREASURER - TAX COMMUNITY SERVICES AND SURVEY DEVELOPMENT SERVICES COLLECTOR CHILD SUPPORT SERVICES COUNTY COUNSEL PERSONNEL DEVELOPMENT SERVICES AGENCY BOARD OF TRADE LEGEND FULL ACCOUNTABILITY TO BOARD OF SUPERVISORS FISCAL ACCOUNTABILITY TO BOARD OF SUPERVISORS ELECTIVE OFFICE PREPARED BY: COUNTY ADMINISTRATIVE OFFICE, JULY 2012 FY 2012-13 RECOMMENDED BUDGET SCHEDULE OF BUDGET