Thursday, December 11, 2008
Monterey County has a nearly $25 million gap to fill in order to close the massive hole in the fiscal year 2008-09 budget. And next year’s financial situation could be even worse– a shortfall reaching upwards of $30 million or $40 million, according to a budget committee report.
“It’s no secret that this is an unprecedented financial crisis,” says Monterey County Administrative Officer Lew Bauman. “Many have said this is the worst financial crisis this country has seen since the ’30s.”
While Wall and Main Street tank, the county loses money, too– from declining property, sales and hotel taxes, from bonds invested through Washington Mutual and Lehman Brothers, both now in bankruptcy proceedings, and from other revenue-generating programs, like planning and building permits. As the housing market continues to freefall (according to some analysts, commercial property values will soon follow), fewer individuals and companies are looking to remodel or build new homes and office parks in Monterey County.
The state and federal governments’ financial problems means fewer dollars for local counties and cities.
“Federal financial policy generally takes some time before you see it affect our local conditions, and generally government lags behind the private sector in term of downturns,’’ Bauman says. “But the impacts have been unprecedentedly quick; the loss of the major financial institutions, their bankruptcy has almost instantaneously affected our treasury. The mortgage-backed securities have dealt a heavy blow to our property tax revenues and we expect further blows in 2010. In the absences of immediate and effective federal policy changes, we’ll continue to see erosion of our local revenues.”
On Tuesday, Dec. 16, county supervisors will begin the unpleasant task of re-balancing the 2008-09 budget.
“Both the state and federal financial conditions are far worse than we ever contemplated back in March 2008 as we were preparing the budget,’’ Bauman says, “so the actions the board will take on Tuesday are current year budget actions– eliminating vacant positions, formally freezing programs and setting us up to weather the storm. But the really difficult decisions will come in March 2009 [when county officials prepare the 2009-10 budget]. Should there be a continued decline of the national and state economy it will be very painful at the local level, not only at the county but also for cities.”
In order to close this year’s $25 million gap, county budget staff is recommending a series of actions, including:
• Rolling over millions of dollars from 2006-07’s fund balance. The state reimburses counties for various programs and services and a big chunk of cash arrived late to Monterey County. Budget staff suggest using $4.5 million of those rollover funds to plug the 2008-09 hole.
• Downsizing programs, including some that that help at-risk youth, assist crime victims, serve mentally ill offenders, work to eradicate methamphetamine trafficking and fund children’s medical services. Social service caseloads will likely increase as the state cuts funding for safety-net services like Medi-Cal, Food Stamps and CalWORKS. State and federal funding for the gang task force has also been reduced, which means less money for the sheriff and police departments involved in the joint effort to fight rising gang violence. Additionally, the Silver Star Gang Prevention and Intervention program, which costs about $1.3 million annually, doesn’t have enough money to operate in the second half of the fiscal year. County staff suggest funding the program for January, which they say should give the probation department time to come up with a transitional plan, “and/or ‘ramp down’ some or all programming, and/or seek alternative fund or international redirection.”
• Eliminating 26.5 vacant positions within social services, health, planning and building departments. Staff isn’t recommending cutting jobs– yet. But the budget report warns that up to 30 positions may need to be eliminated in the future in order to balance the budget.
“Unlike the federal government,” says Rosie Pando, assistant county administrative officer, “we [counties and cities] have to have a balanced budget. We’re looking at about a $25 million gap this fiscal year. So, how did we get here?”
It’s been a perfect storm of budgetary doom and gloom.
“All the revenue sources are down,” says County Assessor Stephen Vagnini. “Meanwhile, salaries and retirement costs continue to go up.”
Since supervisors adopted the 08-09 budget in June, the state has sunk into an even deeper financial hole and now anticipates a nearly $28 billion budget deficit. This means the county will receive less money for state-funded programs. Pando estimates a $3.1 million reduction in money from the state, but this figure could grow as Sacramento lawmakers attempt to fix the state’s financial crisis.
The county’s also losing money from its investments– an estimated $2.8 million hit to the general fund.
Planning and building revenue (from permits and the like) is down $3.4 million, and other county program revenue has declined $1.2 million.
Additionally, other anticipated cash isn’t materializing. Property-tax income– the county’s single largest source of non-program revenue– is down about $1 million (see sidebar), as are sales tax, hotel tax and other local taxes. These non-program revenue streams represent a nearly $8.5 million hit.
Soon, county supervisors will need to make difficult decisions about the 2009-10 budget, which looks even bleaker.
“When you look at the state’s $28 billion problem, further reductions in property tax revenue, sales tax revenue, TOT (Transient Occupancy Tax) revenue, we need to look at more than just not filling vacancies,” Pando says, adding that the budget team has begun meeting with department heads to close the 2009-10 shortfall, which could be between $30 million and $40 million.
“It’s going to require all of us to come together,” Pando says. “It’s the Board of Supervisors, it’s the department heads, it’s the community, it’s labor. It takes all of us to solve the problem.”