County outlook for 2008 strong

Factors such as the October 2007 fires, the State of California’s fiscal problems, the mortgage foreclosure crisis, and other economic problems could threaten many local governments.

The County of San Diego is still expected to provide services and capital improvements as it has been doing in recent years.

Perhaps the numbers which best support the case for a fiscally strong County of San Diego are shown in a December 11 Board of Supervisors action involving quarterly budget adjustments.

In addition to an annual budget, county staff provides the supervisors with quarterly updates along with recommendations for spending changes based on the change from expected revenue.

The projected balance was up by more than $90 million in a staff report which was prepared after the fires, the housing market downturn, and the decision that the Registrar of Voters would be holding two separate general elections in Fiscal Year 2007-08.

That doesn’t mean that the county’s fiscal future is assured. Although the county has an AA+ credit rating with Fitch and with Standard and Poor and an AA2 credit rating with Moody’s, the bond rating services have noted that the county’s dependence on the State of California prevents the county from achieving the top rating.

State property tax law allows for a temporary reassessment – and thus lower payments – when a property’s market value falls below the assessed value. But the county’s short-term outlook is still optimistic.

A county government (and its associated staff) serves two functions.

The first is as an agent of the state for both incorporated cities and unincorporated communities. Notable roles in this capacity include the Registrar of Voters, the court and correctional systems, the tax collector, the county recorder, public health, environmental health, and the Department of Agriculture, Weights and Measures (which includes agriculture in cities as well as unincorporated areas and also assures the accuracy of scales and gas pumps throughout the county).

The county’s other function is as the substitute for a city council (and city staff) for unincorporated communities.

This includes planning and land use, roads, flood control, parks, libraries, and law enforcement.

The county also operates eight airports, two of which are in incorporated cities, and several cities contract with the county for library or law enforcement services. The county’s estimated 2007 population is 3,098,269, including 481,216 residents of unincorporated communities.

The county’s role as agent of the state makes some of its funding subject to state mandates.

Additional revenues are dedicated for purposes for which they are collected, and much of the county’s discretionary funding is spent on public safety. Thus the county’s overall budget figures may be misleading, but the initial 2007-08 budget of $4,731,704,174 was an increase of 8.2 percent over 2006-07.

The budget included $719.5 million in reserves.

The first-quarter adjustments projected a fund balance of $91.8 million above the previously-budgeted balance, including $75.4 million in the general fund. The additional general fund balance was derived from $16.9 million in additional revenue, $25.8 million in net savings, and $32.7 million of unspent contingency and management reserve funds.

The supervisors added a net $50 million of expenditures and a gross $55 million of additional appropriations (while canceling $4.8 million of appropriations).

The additional expenditures included $1 million to cover Department of Planning and Land Use staff time to process permits to rebuild structures lost in the October 2007 fires.

The report on the first-quarter adjustments also noted that the fires would not have a significant impact on county finances and that the cost of the fires had been incorporated into the revised year-end fund balance projections.

The county’s philosophy of spending one-time revenues for one-time projects rather than for ongoing programs is considered a factor in the county’s fiscal soundness, but it also creates fluctuations in the county’s capital improvement program or other programs for which the one-time funds are designated. Such one-time funds include grants, legal settlements, Indian gaming compact payments, and special state or Federal appropriations.

Another factor causing fluctuations in the capital improvement budget involves past appropriations. Although the county appropriated $34.1 million in the 2007-08 capital budget and $102.4 million for 2006-07, the 2006-07 projects included $80 million for a new medical examiner and county veterinarian building.

The county had a $7.0 million capital budget for Fiscal Year 2005-06 and a capital budget of $8.2 million in 2004-05.

A capital budget only includes money appropriated for that fiscal year and does not include projects already under way for which money had previously been authorized.

The county’s 2007-08 capital budget included 26 new projects, and an additional 124 projects under way are covered by $222.7 million of previous appropriations.

A government agency’s debt is often subject to philosophy. Some boards believe that the pay-as-you-go method frees up interest payments for other projects. Another philosophy is that bonding for capital improvement projects translates into future beneficiaries paying their share as opposed to being paid for in full by current residents who leave the area before the project’s completion and newer residents not paying at all for the project.

The County of San Diego’s total budgeted debt of $1,616.1 million covers $1,209.6 million of pension obligation bonds, $393.6 million of certificates of participation (mostly for capital improvements), and $15.6 million of redevelopment agency bonds.

The most recently issued pension obligation bonds have a maturity of Fiscal Year 2033-34.

The county’s Fiscal Year 2007-08 net bonded debt per capita is $504, a decrease from the 2006-07 per capita figure of $515. The 2007-08 ratio of bonded debt to assessed value is 0.41 percent, a decrease from the 0.45 percent ratio for 2006-07.

Approximately 26.0 percent of the county’s 2007-08 revenues will be derived from state aid, including grants as well as allocations. An additional 20.2 percent of revenues will be obtained from property taxes.

Federal or other intergovernment revenues will provide 18.8 percent of the county’s revenues, and charges for services, fines, and fees will account for 17.2 percent.

The county’s Health and Human Services Group will receive 36.2 percent of the budget while the Public Safety Group will obtain 28.9 percent of the 2007-08 expenditures.

Approximately 8.1 percent will be spent on the Land Use and Environment Group which includes the Department of Planning and Land Use, the Department of Public Works, the Department of Parks and Recreation, and the Department of Agriculture, Weights and Measures.

The Community Services Group which includes County Libraries and the Registrar of Voters will receive 6.4 percent of the budget.

In terms of the type of expenditures, $1.613 billion will be spent on salaries and benefits while $1.636 billion is budgeted for services and supplies.

The original 2007-08 budget provided for 17,041 staff years, which is down from the 1997 figure of 18,046 despite a growth of more than 500,000 residents during that time.

The 2007-08 staffing covers 7,475 staff years for the Public Safety Group, 5,663 staff years for the Health and Human Services Group, 1,611 staff years for the Land Use and Environment Group, 1,009 staff years for the Community Services Group, and 1,281 staff years for the Finance and General Government Group.

Approximately $3.52 billion, or 74.4 percent of the county’s total budget, was placed in the general fund.

Debt service accounted for $239.5 million, special districts and redevelopment agencies saw $87.5 million appropriated, enterprise designations (such as County Airports) had total appropriations of $29.4 million, and $491.8 million was devoted to special revenue such as the road fund, libraries, and Proposition 172 funding for public safety.

Another county document noting county growth while acknowledging an economic slowdown is a June 28 press release from the County Assessor’s office. That release noted that new construction and sales were slowing in the residential sector while highlighting a 9.36 percent increase over the previous year in assessed property value.

Under Proposition 13, the assessed value of continually owned property only increases by 2 percent annually although sold and new parcels are assessed at the sale price.

The assessed value increase includes a 9.20 percent increase for property in the county’s unincorporated area.