LANE COUNTY BUDGET COMMITTEE
May 3, 2005
6:15 p.m. – 9:00 p.m.
Harris Hall Main Floor
Members Present: Scott Bartlett, David Crowell, Bobby Green, Sr. Denis Hijmans, Mary Ann Holser, Anna Morrison, Peter Sorenson, Bill Van Vactor, Dave Garnick and Recording Secretary Melissa Zimmer. Bill Dwyer and Francisca Leyva-Johnson were excused.
I. CALL TO ORDER
David Crowell called the meeting to order.
II. COMMITTEE BUSINESS
A. Election of Chair and Vice-Chair
MOTION: to nominate David Crowell as Chair of the Budget Committee.
Bartlett MOVED, Green SECONDED.
MOTION: to nominate Mary Ann Holser as Vice Chair of the Budget Committee.
Bartlett MOVED, Sorenson SECONDED.
B. Approve Lane County Budget Committee Minutes:
May 6, 13, 18, and 20, and June 8, 2004
MOTION: to approve the minutes of May 6, May 13, May 18, May 20 and June 8, 2004.
Green MOVED, Morrison SECONDED.
III. BUDGET MESSAGE
Van Vactor gave his annual budget message.
IV. BUDGET OVERVIEW
Dave Garnick, Budget/Financial Planning Manager, reported that in the last three years they have had to reduce the general fund by $9.3 million and non-general fund programs by $16.1 million. He said the total reductions for the past three years is $25.4 million. He discussed that going into the next budget they told the departments that they had to establish a status quo budget. He added the general fund departments had to meet a discretionary fund target. He said they only let the discretionary revenue grow by 4.3% and the non-general fund departments had to stay within their resources. He explained what the status quo budget meant was the general fund departments had to find revenue or they had to cut their costs. He said an example is the Sheriff’s Office had to reduce its budget in the process of building it by $675,000. He indicated they reduced materials and services. He added the non-general fund departments had to reduce their budgets by $1.6 million.
Garnick indicated the total budget is $473.4 million, up $13.6 million or a 2.9% increase over the current year. He said the general fund is up by 3.3%. He noted the enterprise and internal services were the funds growing the most. He said for the entire budget of $473.4 million, special revenue is the largest fund. He said the general fund is less than a quarter of their entire budget. He added out of the entire budget, only 12% is discretionary that the budget committee could spend. He said the rest of the money is otherwise dedicated or restricted on how it could be spent.
Garnick reported that taxes and assessments are up around 2.7% but federal and state revenues are going down. He said as a result of continued increases with PERS and medical care, departments have to come to the Finance and Audit Committee and the Board to try to raise their fees. He indicated that fee revenues were up by $4.9 million or 18.3%. He added that internal services are up 16.2%. He noted overall the total revenue is up 2.9%, or $13.6 million.
With regard to major expenses, Garnick explained what went up the most were personnel services of $7.8 million and the reserves of $17.3 million. He noted that materials and services is $38.4 million and the reserves are $22.6 million. He said the reason the reserves went up was due to a special revenue increase of $4.6 million and an increase of $4.1 million in the road fund.
Garnick said as far as operations, personnel services are up 6.6%, or $7.8 million. He said it did not include a cost-of-living adjustment, except for two bargaining units that have already settled with the Board. He said that 626 and Admin Pro's budgets include a COLA. He added if any additional COLA's were granted, they would have to come out of the various fund reserves in order to cover it.
Garnick noted that salaries are the largest piece of the budget with 57.6% for employee benefits. He said that growth for permanent salaries is only up by $1 million or 1.3%. He said the salaries haven’t grown. He added that extra help and overtime lines are fairly stable and TM and comp time was going down. He said that employee benefits are going up by $8.3 million, or a 21% increase.
With regard to PERS, Garnick explained it continues to grow even though they had the PERS reform and improvement for a few years. He said they thought they were going to have a 4.5% increase, but it turned out it would be 9%. He said what they have done to cover that cost is when the PERS reform went through, they didn’t use all of it to balance their budget, they only used a portion and the rest they were banking in the event the PERS reform litigation ended up being overturned. He said of the portion they have been setting aside, they would apply that rate next year toward the increase to PERS employer. He noted as of June 30, they wouldn’t be setting money aside. He noted it is now up to 20.72% and does not include the employee’s contribution of 6%. He indicated from this year to next year, health care benefits are greater than PERS. He noted that PERS grew by $3.9 million and the health benefits only grew by $3 million.
Garnick indicated for statutory benefits they had to come up with the equivalent of a 6% cost-of-living adjustment, or $4.6 million. He added the negotiated benefits of health, dental and vision costs are going up $2,000 per position. He indicated they are at a 21% increase, or the equivalent of a 10.85% increase. He said the statutory budget is $54.5 million, negotiated is $42.4 million and extra help is $2.2 million. He explained the statutory benefits are the benefits they can’t change because they are mandated. He indicated on a total budget basis the negotiated benefits only make up 43% of the total benefits.
Garnick said the budget direction was a status quo budget and the departments were asked not to dip into the discretionary fund more than a 4.3% growth factor. He noted for the current year, the discretionary general fund use is $52.5 million. He said for FY 06 the discretionary general fund would be $54.8 million. He said everyone kept the same percentage of discretionary money and that was the target they had to get to. He indicated that according to the financial forecasts, the revenue is still projected to grow by three percent annually, but expenses are rising by six percent and there is a structural deficit. He explained that they have a temporary stability by the $1.7 million that was cut last year. He said because of the uncertainty of what would be cut, departments were able to achieve additional lapse due to the funding uncertainty. He said they lapsed more in 03/04 that rolled into 04/05. He thought that money would help stabilize this year and what is left would be able to be carried forward into 06/07.
He indicated they do not have to cut within the next two years, but in 07/08 and 08/09 there will need to be cuts made. He added that is when the Secure Rural Schools could sunset. He commented that even if the money were to continue, they are looking at a $3.7 million reduction for 07/08.
Garnick explained that benefit costs are 22.6% of the total general fund budget. He said they can’t change statutory benefits but the negotiated they can. He added in the general fund it is only 40% of the benefits.
With regard to the discretionary general fund, he noted that taxes and revenue are up 2.9% or $800,000. He added with the federal safety net, the fund could only grow at half inflation and it is up $300,000. He said the biggest area is the cash carry forward He indicated that next year the discretionary revenue is going from 53.2 to 56.6% or $3.4 million. He commented that the Sheriff’s Office has almost 45% of the discretionary revenue. He said for next year they are $7.2 million from where they should be if they would be able to fully budget discretionary revenue to cover all inflation.
Garnick stated they discouraged add packages but there were some to be considered. He said in the Lane County Budget, Animal Regulation is a self-funded add package. He added the Sheriff’s Office put one in for burglary investigation and property recover for $149,700, a general fund request. He indicated that Assessment and Taxation already included in their proposed budget funding for additional positions related to the State Department of Revenue requirements. He said there have been small community requests and the information is in the supplemental material binder under Add Request Summaries.
With the continuing challenges, Garnick explained that rising benefit costs will go up by 15% and it would exceed their ability to fund. He added there is still uncertainty about the PERS litigation. He indicated as personnel service costs decline due to reduction of budgets, the PERS employer rate will have to go up to keep generating sufficient dollars needed to make payments on the PERS bond and any unfunded liabilities. He said finding a solution to the structural deficit problem is key and they have a goal to address that. He said they would bring a plan to the Board of Commissioners in late summer to review different funding mechanisms to help address the deficit. He commented that it is not just the general fund anymore, other funds are starting to see the same situation and they are no longer able to cover the kinds of increases they are seeing in health and PERS costs.
Ollie Snowden, Public Works, reported they are in the process of developing five-year financial plans for all the major Public Works funds. The FY 05/06 Road Funds will receive about $41 million, 90% coming from federal timber receipts and the state highway fund transfer. He noted that the Secure Rural Schools legislation runs out at the end of FY06, with the last payment in FY 06/07, but are assuming the legislation would be renewed at its current funding level. He noted that only increases it at one-half the rate of inflation per year. He said the state highway funds transfer comes from ODOT from weight mile tax. He said they are flat going forward. He noted unless they see a significant funding initiative come out of the legislature either this or next session, they won’t see an increase in money from state highway funds to local government roads.
With regard to the County City Road Partnership and the OTIA III revenue sharing terminated in the last year of the Secure Rural Schools payment, Snowden indicated that was consistent with the strategic plan priority that the Board put together that says when the money gets short, operation, maintenance and preservation of the County road system comes first and the Board will re-evaluate revenue sharing programs like County City Road Partnerships. He said they have $40 million in new revenue coming in each year and spending more than that. He said a few years ago they had a fund balance of $50 million and they are drawing it down to the point where they are reaching a critical level in 08/09 assuming that all the trends play out. He added when looking at what is being programmed in the out years of the CIP, they didn’t think they had enough capital projects to support the CIP related staff in the engineering division. He said they are assuming in 06/07 and in the beginning of 07/08, that they would make reductions in CIP related staff to $1 million each year. He noted for their 05/06 budget, their operating budget is 38% less than in 01/02. He added these also assume a 2% COLA. He recalled in the last session they had received OTIA III money for five specific bridges. He said the money is earmarked for the bridges and most of the work will be contracted out and any money Lane County doesn’t use has to go back to ODOT.
With regard to the Solid Waste Fund, Snowden said they were in the process of developing a Fin Plan. He said the revenue is fee generated for FY 05/06 and they expect to get $12 million in new revenue, with 40% from commercial hauler tipping fees. He said they are studying new revenue versus expense . He indicated they are assuming the Solid Waste Fund is going to grow at about the same rate as the overall population growth in Lane County, at 1.5%. He stated if they are going to continue the Short Mountain Landfill for the next 60 years, they have to sequentially expand the cells from where they are now. He said they have to have a reserve fund sufficient to pay for each cell construction. He added they are required to have a closure fund as DEQ says they have to certify there is enough money in the fund to close the landfill if DEQ made them close it. He said they also have a Post Closure Fund that is for monitoring for 30 years after the landfill is closed.
Snowden anticipated that within the next 18 months they would be going before the Board to discuss fee increases. He said they are planning construction of phase 5 in the summer of 2007 to have sufficient reserves in the sub fund to pay for the project. He said the Board has to determine if they want to have a uniform contribution to the sub fund or whether they want to go with a lower tipping fee increase and have another fee in the future. He added they could also bond if they wanted to find ways to fund the additional cell developments. He said they have to take a 20 year look at what their future capital needs are at Short Mountain. He said they want to have an independent auditor come in to look at what the contribution schedule is to see how closely they are meeting the DEQ certification requirements. He noted the difference between the Solid Waste Fund and the Road Fund is with their capital program in roads, if they run short of money they could defer a project or scale one back or not do it at all. He said with the Solid Waste Fund, if they want to keep Short Mountain open, they have no choice but to continue with the capital improvement program and build cells.
Snowden explained that the Land Management Sub Fund is fee generated for certain fees. He added that there are statutory limitations on how the money can be spent, it has to be spent for administration and enforcement of state building code. He said they have an agreement with DEQ on subsurface sanitation and they can only charge as much as it costs him to administer the program.
Snowden indicated that Land Management does not have a current prudent person reserve and they are hoping to build it up. He said they have matched expenses with revenues in the recent past. He commented that going forward without additional fee increases may not generate enough permit volume growth to be able to sustain their current level of service. He said expenses are increasing faster than revenue growth. He said if the Board wanted to continue with the same level of service in the Land Management Division, they would have to look at some permit fee increases.
Snowden said the next steps are to build up the prudent person reserve and meeting with the Board about the structural deficit and expenses that are rising faster than the revenue stream.
V. EMPLOYEE BENEFITS
Karen Artiaco, Management Services, reported they have to examine the cost of employee benefits. She said they are looking at costs over $30,000 per year for the average Lane County employee, with average earnings of $46,000. She said two-thirds of every dollar of salary needs to be devoted to employee benefits. She noted the PERS legislative changes saved the County 6.5% on its PERS rate, but the 2003 legislative changes were overturned. She reported they now have an 8.88% increase facing them for their PERS employer rate as of July 1, 2005. She said there was the possibility of another 6% increase on July 1, 2007. She said that would be 26% of payroll as the PERS employer rate. She reported that Lane County employees contribute 6% of their pay to the pension system and the employer has the choice of whether to pick up the 6% or have the employees pick that up.
With regard to health care costs, Artiaco explained there is an increased cost and use of prescription drugs, caused by direct advertising. She added there is an aging population and health care costs are increasing due to age related causes. She explained that health care in Lane County is estimated to cost 15% more than Salem, Portland, Seattle or San Francisco. She said there are large physician groups and few hospitals so there is less competition at the price level.
Artiaco recalled in the past seven years there has been a threefold increase. She noted that Lane County has six bargaining units and they vary from bargaining unit to bargaining unit. She said the annual deductible per person ranges from $50 to $100 for each employee and their dependents. She said the maximum out-of-pocket expense ranges from $500 to $1,500. For prescription drugs, she said there is either a 20% co-payment up to a maximum $500 per year or a three tiered drug program. She added the County provides individual and family coverage for employees who work from 20 to 30 hours per week or more. She noted that only the Lane County Police Officer’s Association contributes to the cost of benefits through payroll deduction.
Artiaco said they need to consider the cost of pension benefits and health insurance benefits along with salary as part of the employee’s total compensation. She said that Lane County does not offer bonuses, 401K plans or any other type of pay incentives to employees like those in private industry. She commented that Lane County is as much as 30% below market in supervisory and management positions. She added if they are to retain the best and the brightest in the areas to guide Lane County, the fact they have a benefit package that might be better than other public and private employers helps them to compete for the applicants where they could not compete on salary alone. She said they either have to reduce the health insurance benefits, give up cost-of-living adjustments, or lay off staff. She noted that Lane County and its bargaining groups will continue to explore ways to control employee benefit costs, but for Lane County there is no easy way.
VI. PROPERTY TAX
Jim Gangle, Assessment and Taxation, said that property taxes are 50% of the discretionary general fund and eight percent of their total budget for the County. He said that Lane County provides a service for the other districts in the County, indicating in 2004 Lane County collected $316 million, but turned it over to the different districts. He said the increases have been in value and the citizens have passed several new tax measures.
Gangle noted that Measure 47 and 50 gave Lane County a rate based district. He said the state established a permanent rate for Lane County that is about $1.27 per thousand. He said they now have a fixed rate and for Lane County to have any increases in revenue, they have to have an increase in value. He recalled in the 80’s they were looking at a collection rate of about 84%. He said that compression has been a serious topic. He indicated that currently compression is not a serious issue for Lane County. He said if they move a rate for a public safety district, they begin to increase the amount of compression that Lane County would be experiencing. He noted for 2005, they are expecting significant increases in the real market value on property. He said for residential properties they are expecting about an 11% increase, commercial 16%, industrial 14% and multi-family 11%. He added if most property assessed value goes up at about three percent, with the increases in the real market value, there will be a gap opening up.
VII. PUBLIC HEARING ON THE FY 2005-06 PROPOSED BUDGET
Chair David Crowell opened the Public Hearing. There being no one signed up to speak, he closed the Public Hearing.
VIII. NEXT MEETING
Garnick passed out information for Thursday’s meeting.
Chair Crowell adjourned the meeting at 8:25 p.m.