By Daniel Mintz
Although county budget conditions have improved, revenues aren’t likely to exceed spending levels in the long term unless staff salaries are frozen and property tax income returns to the peaks seen during the housing bubble.
The Board of Supervisors was told about various budget forecast scenarios at its Jan. 22 meeting. Deputy County Administrative Officer Cheryl Dillingham outlined three scenarios – an “optimistic” forecast, a “moderate” forecast that’s most likely to happen and a “pessimistic” forecast that’s based on sluggish economic recovery.
In the moderate forecast, revenues from taxes and other sources would exceed spending by $1.6 million in the 2017 to 2018 fiscal year. But in the preceding years, revenue would fall short of spending to allow investments in the budget’s reserve fund and capital improvements.
This year’s budget saw improvement but County Administrative Officer Phillip Smith-Hanes said capital projects and rebuilding a reserve fund that’s been “decimated” in the past to avoid deeper service cuts resulted in a $1.5 million spending overage.
He told supervisors that “continuing negative numbers” are seen in the next two years in the moderate forecast, though they’re “much smaller” than this year. That’s because the moderate scenario assumes continuing investments in the reserve and capital improvements.
But budget goals will be unfulfilled at the end of the forecast period. “We’re not, at the end of the five years, going to be able to meet your board’s adopted policy level of reserves,” Smith-Hanes said, adding that “under the pessimistic scenario, we go negative.”
Under the optimistic scenario, the county’s policy goals would be met. “But that requires some significant, robust economic growth,” he continued. “I think what this points out is just the vulnerability of the county and the types of services we’re able to fund to those larger economic forces.”
The moderate forecast is based on a projection from the state’s Legislative Analyst’s Office (LAO), which predicts an annual property tax growth rate of five percent in the final two years of the five-year forecast. That assumes a return to the peak conditions seen during the housing bubble and Supervisor Mark Lovelace doubts it.
At a recent state conference he attended, the LAO told the audience that the projections “require certain assumptions that he didn’t necessarily support” but are based on “standard” forecasting methods, said Lovelace.
“So I’d take those five-percent projections as already the ‘optimistic’ scenario, he continued.
Dillingham agreed and said, “For it to go above two percent, you’d basically have to have houses turning over and new construction going.”
She added that she checked with the county’s Planning and Building Department and confirmed that “We’re still not seeing a rebound on building permits coming up, so there’s not a lot of new construction.”
The county is in the midst of labor negotiations and Dillingham explained the fiscal consequences of five-percent pay raises. She said an across-the-board five percent hike in employee salaries would “make the numbers so negative and so big, they don’t fit.”