County budget analysts are projecting a general fund operating shortfall beginning in fiscal year 2018-19 that will grow larger each year at least through fiscal year 2020-21.
“Our projections do not predict a full recession but rather an economic slowdown,” County Administrator Matthew Hymel told the Board of Supervisors on Tuesday.
The supervisors granted Hymel’s request to implement a “hiring review process.”
“That’s different than a hiring freeze,” Hymel said. The county has about 2,200 employees.
Hymel said the purpose of the review is to ensure that county departments are responding to the priorities that the Board of Supervisors has set — investing in county roads, reducing unfunded retiree obligations, preserving affordable housing, addressing traffic congestion and climate change; enhancing mental health and homeless services and implementing the county’s five-year business plan.
Hymel said, “Now that we’re facing tougher budget times, these are even more important to guide the discussions we’re having with departments.”
County supervisors adopted a two-year budget, which was balanced, in June. This year’s fiscal 2016-17 budget increased 4 percent over the previous year’s budget to $540 million.
But county Budget Manager Bret Uppendahl Tuesday forecast escalating general fund operating shortfalls beginning in fiscal 2018-19 with a deficit of $4.7 million, and $7.4 million in fiscal 2019-20, $10.6 million in fiscal 2020-21 and $12.7 million in 2021-22.
“It’s important to point out that these projections do not include any changes in state or federal funding,” Uppendahl said.
Over 40 percent of county services are funded by state and federal revenues.
Uppendahl said two major contributors to the shortfall will be rising pension costs and road repair expenses.
“Many of the pension boards throughout the country are reducing their long-term forecasts for how much they’re going to make in investment markets,” Uppendahl said.
Several years ago, the Marin County Employees’ Retirement Association, MCERA, reduced its annual expected rate of investment return from 7.5 percent to 7.25 percent. Uppendahl said he expects MCERA to follow the lead of the California Public Employees’ Retirement System and further reduce the rate to 7 percent next year. Uppendahl estimates that will cost the county’s general fund an additional $2 million annually.
The forecasted shortfalls also assume that the county will need to spend about $5 million in general fund money to repair local roads over the next five years since gas tax revenue, which funds road repair, is lagging far behind what is needed.
Uppendahl said growth in property tax revenue, one of the county’s biggest revenue sources, is beginning to slow. After plummeting due to the Great Recession, property tax revenue began a steady recovery in 2011-12, peaking at a growth rate of about 7 percent in fiscal 2015-16. Uppendahl expects the growth rate to hover around 5 percent over the next five years, slightly below its 20-year average.
Hymel made it clear on Tuesday that there is a good chance the county’s budgetary challenges over the next five years will be even greater than projected in this forecast. He noted that the United States is in its eighth year of economic expansion, the fourth-longest expansion in its history.
“Most economists are anticipating a recession sometime within the next five years,” Hymel said.
If the economy were to slip into a recession, state and federal revenues would be expected to fall along with investment returns, which would also increase pension costs.
The state of California is already seeing falling income tax and corporate tax revenue, causing Gov. Jerry Brown earlier this month to submit a frugal state budget proposal for fiscal 2017-18.
Reporting to the Board of Supervisors on that budget proposal on Jan. 24, Assistant County Administrator Dan Eilerman said Brown’s proposal to cut state subsidies for In-Home Supportive Services could increase county costs by $2.5 million annually beginning next year.
And Hymel said President Donald Trump’s pledge to dismantle the Affordable Care Act has cast uncertainty over federal funds the county receives for health care.
