Part 4 of a Series
Fiscal Restoration Plan continued
Mitigation of threats to Cash Flow:
A) Compensated Absences Liability:
The county has identified the increase in compensated absence liability as a threat to the treasury that must be mitigated. During the early phases of the fiscal crisis, the county had to engage in layoffs of many employees. It had to put restrictions in place on overtime and other near term cash expenditures, but in order to meet work load and mandates with limited staff there was an increase in comp time.
Comp time is a threat to the treasury in the event that a state or federal program is eliminated and any unfunded liability has to be paid out to workers in a lump sum. Similarly, a department has been identified that may have a demographic wave of retirees that could lead to an impact on cash flow.
In order to mitigate this, the county has incorporated designations in order to fund comp absence liability where appropriate and possible within FY11/12 adopted budget.
Furloughs have also been implemented by the adopted budget in multiple general fund departments, which are also intended to assist in reducing comp time liability in some general fund departments with larger outstanding comp time balances. Finally, the county intends to evaluate by use of a consultant the concept of utilizing a compensated absences liability fund which could be managed on an actuarial basis.
B) Mello Roos Library Deficits:
The Modoc County library has been impacted by a severe reduction in Mello-Roos assessment revenue due to non-payment by property owners of taxes. After the new hospital district formation, there has been a severe impact on secured property tax revenue, many absentee property owners are simply defaulting on their property tax bills. The county could not afford to front tax revenue so the board has authorized a resolution where the county no longer teeters.
This reduction in assessment revenue has adversely impacted the library. Second, the library has been running chronic deficits for many years, utilizing the fund balance available that had accumulated from a fixed assessment from 1987. Historically the library relied on interest from the fund balance available, but declining interest rates and deficit spending has decimated such revenue. These three factors have led to a major revenue shortfall that must be addressed in FY11/12.
The library projected cash balance is only $2800 at the end of the year. If costs and services are not drastically reduced or a revenue measure placed in front of the voters, then partial shutdown costs that would remain unfunded could adversely impact the county general fund in FY12/13 and beyond. Therefore a committee has been appointed by the Board of Supervisors in September 2011, and immediate action plan is being worked on.
C) Waste Management Enterprise Fund Deficits:
The Waste Management enterprise fund has been impacted by a severe reduction in special assessment tax revenue. After the new hospital district formation, there has been a severe impact on secured property tax revenue, many absentee property owners are simply defaulting on their property tax bills. The county could not afford to front tax revenue so the board has authorized a resolution where the county no longer teeters. This reduction in assessment revenue has adversely impacted the waste management enterprise fund. The enterprise fund has also seen an increase in costs, and reductions in other forms of revenue. The board has raised gate fees, and this has not filled the shortfalls. Under the current FY11/12 adopted budget, the waste management fund is projected to run out of money in early spring of 2012.
The county board made a difficult decision to not assist waste management fund with an infusion of funds from the general fund with no provision for repayment from the enterprise fund. The waste management fund also received severe cuts in certain expenditures, and still has a large deficit spending situation on a relative basis.
Services are mandated, and any corrective action through tipping fees, gate fees, or other
revenues will take time to collect. This poses a threat to cash flow of the general fund if and when the enterprise fund utilizes all of its fund balance available.
To address this issue a committee has been appointed by the Board of Supervisors in September 2011 and an immediate action plan is being worked on to resolve the issue.
D) Reduced Secured Tax from Property Taxpayer Non-Payment:
After the new hospital district formation, there has been a severe impact on secured property tax revenue, many absentee property owners are simply defaulting on their property tax bills.
The county could not afford to front tax revenue so the board has authorized a resolution where the county no longer teeters. This has lead to a reduction in interest and penalty revenue to the benefit of the general fund. Also, treasury participants such as the two entities listed above and special districts are having to draw down fund balances to make up for revenue shortfalls since they are no longer teetered. The reduction in secured tax revenue has adversely impacted the county general fund, and also late payments affect cash flow.
Given the financial situation, the reduction in property tax revenue could pose a serious threat to the viability of the county. This may not only compromise the ability to meet debt service, but the ability to fund essential services, and the viability of other treasury participants such as select special districts. Clearly, additional taxes have led in some respects to diminishing returns to many treasury participants. However, securing additional tax revenue to support historic tax revenue levels may be necessary. The county general fund is at a minimal staffing level that compromises the ability to meet state and federal mandates. Core general fund revenue from secured role, vehicle license fees, and sales taxes is near $5,000,000. Supporting a debt service and meeting such mandates will be difficult at best when declining tax revenue is taken into consideration.
Although extremely unpopular, it is recommended that the county evaluate pursuing either special tax or general tax initiatives via sales tax or other methods in order to supplant the declines in the secured roll and delinquency in property tax payments. Preliminary discussions have taken place, and more are expected to occur prior to ballot initiative filing.
E) Increase in Crime:
Crime has increased in Modoc County. A few years ago the County faced its first murder trial in many years. Now the county is facing multiple alleged murder cases coming in the pipeline. The county has seen a huge cost in processing crime cases, and indigent defense costs have risen dramatically. This poses a threat to cash flow. The county recently engaged in a contract for a fixed level of public defender services at a reduced cost compared to prior years. The county is evaluating improving measures to maximize recourse with defendants who have court orders to utilize county resources for defense. The situation is being monitored closely, and the county foresees that it may become necessary for the county to pursue special legislation in order to properly fund costs related to this rise in crime.
Q.
Under “Mitigation of threats to cash flow” you refer to a department that may have a “demographic wave of retirees.” Which department is this and what is the impact on cash flow in terms of dollars?
Robertson. I would prefer not to answer this as to not cause disruption in the workplace for staff in the affected department with speculation about lots of people retiring. A retiree wave is not imminent, but must be planned for. There are things management can work to stagger retirements as well. However, if you utilize services of various county departments, next time feel free to look at the ages of the various staff members.
Q. Regarding the negative balance of the library, was this caused by the use of restricted funds in treasury?
Robertson. No. If anything, the larger county fiscal crisis led to restrictions on the library from spending at the expenditure levels as budgeted in order to support county cash flow needs through interfund borrowing. It could be presented that this probably led to slowing the decline of the library’s fund balance from the library’s deficit spending.
The three primary causes of the library’s deficits are as follows: A decrease in Mello-Roos assessment revenue due to recent increase in taxpayer delinquency rate. Chronic deficits for a number of years that have reduced the fund balance from a fixed assessment from the late 80’s with no provision for rising inflation. A decline in the previously generated interest from a once healthy fund balance.
Q. Can you explain one more time the “teeter” reference?
Robertson. Historically the county fronted (teetered if you will) all tax revenue to special districts, enterprise fund, and the Mello-Roos Library. The county absorbed the tax delinquencies and defaults. The county would then get the benefit of the interest, fines, and penalties revenue since the districts and others had already received their full amount of taxes. To fund this advance of funds, the county has to have adequate cash flow which it can no longer support with the high delinquency rates from taxpayers and the large hospital deficit balance in excess of $13 million. Without teetering the special districts, waste management, and the library only get the revenue of the actual tax revenue collected. This has led to major declines in what they have to operate from.
Q. Do you have an approximate dollar amount that can used in reference to the reduction in secured tax revenue?
Robertson. This fiscal year’s budget shows a reduction of $441,821 in secured tax revenue from last year’s budget to a budgeted level of $2,455,051. Remember this is only looking at the County’s portion of the decline. The AB-8 allocation factor only provides that a portion of secured property tax revenue goes to the county. The declines in the secured roll and the delinquency of payments will have an adverse impact on special districts, schools, and other agencies. This has big implications on the community at large.
