San Mateo County officials will begin to hash out the details of a proposed $2.65 billion budget this week as they look to balance local needs with federal and state uncertainties.
From medical services to local park improvements and pension liabilities to jails, the two-year budget cycle is one of the most important responsibilities of the local government
In preparation for the coming week’s hearings with the Board of Supervisors, County Manager John Maltbie and Budget Director Jim Saco fleshed out the details of the spending plan for the next two fiscal years.
The total recommended budget includes a $2.65 billion for Fiscal Year 17-18, and $2.5 billion for FY 18-19. It’s also planning to spend another nearly $500 million on a five-year Capital Improvement Program and Information Technology Plan.
“The county is still in a very strong fiscal position,” Maltbie said, later adding “that enables us to continue to provide essential services to our most vulnerable populations.”
San Mateo County has the lowest unemployment rate in the state, nearly 12 million square feet of new development expected to enhance its already robust property tax roll, and family incomes at an all-time high, Maltbie said.
The county’s budget includes spending more than $1 billion on employment related costs, a $58 million General Fund allocation toward the San Mateo Medical Center, $90 million toward public assistance programs, nearly $170 million toward capital improvements and $177.6 million in General Fund reserves.
They were pleased to note the county’s continued progress on priorities such as reducing homelessness by 2020, increasing high school graduation rates and promoting literacy through The Big Lift initiative.
Planning for uncertainty
But the days of economic prosperity are not guaranteed to continue. Maltbie warned the nation is due for another recession as the recovery following the Great Recession has been one of the longest sustained growth cycles in generations.
With reserves at just 10.7 percent, the lowest in a decade, Maltbie is hoping to increase savings in the coming years to get back up to a 14 percent reserve. It’s particularly important as “the county’s services and finances are really counter cyclical,” Maltbie explained. “When times are bad, our demand for services goes up, but our revenue goes down.”
This could mean the county will again be faced with making hard decisions and tradeoffs. For years, a variety of cities, nonprofits, public projects and the county have benefited from the locally-controlled half-cent sales tax now known as Measure K. But the board’s most recent decision to allocate $43.75 million toward affordable housing over the next two years while making cutbacks to other programs, highlights the delicate balance at hand, Maltbie said.
“It was a zero sum game, that means you have to make hard choices and there were lots of very worthwhile programs competing for the same dollars,” he said. “Government is in the business of making priorities when that happens and, unfortunately when you do that, there’s winners and losers.”
Further clouding the future are changes at the federal and state level.
“There’s probably more uncertainties given the new administration in Washington,” he said.
Blow to health care budget
The county serves as a safety net for the indigent and its Health System is one of the pinnacles of its functions. It is also perhaps the greatest at risk of cuts in federal support.
Should Republicans succeed in dismantling the Affordable Care Act, it could leave the county on the hook to cover increased costs for providing health care to the poor. Compared to last cycle, this two-year budget increased set-asides from Measure K to $10 million in case of potential changes to the ACA, Saco said.
Then there’s the state’s plan to taper off support for the Coordinated Care Initiative, a pilot program related to providing in-home support services to the elderly and disabled. The county could take a $6.9 million hit once the state’s contributions are phased out in five years.
While there are enough reserves to cover these federal and state health care obstacles for at least the next two years, beyond that is uncertain, Saco and Maltbie said.
Plus, “we’re probably one of the oldest counties in the state,” Maltbie said, noting the aging demographics.
Nearly half of the county’s budget goes toward employee-related expenses.
One of the biggest challenges it’s aggressively seeking to tackle is its unfunded liabilities, a total of $897.4 million in retirement and pension obligations. The total retirement and pension obligation is about $4.8 billion.
The county has made hefty ongoing contributions and will make another $27.6 million payment for each of the next six years. Those one-time payments are on top of its annual contributions totaling nearly $246 million. It anticipates having 83 percent of its pension obligations funded by the end of the coming fiscal year, and fully covered by 2023. Paying it down early while reducing the percent the county contributes could result in an annual nearly $100 million savings. Managing its own retirement system separate from the state’s, the county is in better shape than many other jurisdictions, Maltbie noted.
The county has nearly 7,380 employees, 5,508 of which are approved full-time positions. This budget proposes 18 new positions.
Growth leads to revenue, need
A few of those new employees will be dedicated to the Office of Assessor-County Clerk-Recorder to help manage the property tax roll. The past year marked incredible growth with the roll increasing 7.9 percent. That’s expected to continue in the coming years as there’s nearly 12 million square feet of new development being completed within the next three years. Predictions jump to nearly 7 million square feet of annual new commercial space in subsequent years. Whether it’s residential, office or commercial, the influx of construction in the county could translate to another $132 million in taxes, said Saco and Maltbie.
“This county is experiencing an unprecedented boom,” Maltbie said.
Meeting the increased activity will require the county to update the assessor’s current 25-year-old IT system, which they agreed was archaic, particularly as they’re located in the heart of Silicon Valley. Upgrading the systems could cost $40 million, Saco said.
The county is responsible for assessing and collecting the property tax roll, which breaks down to the county receiving 25 percent, 45 percent going to school districts, 18 percent to cities, 10 percent to special districts and 2 percent to former redevelopment agencies.
By department, new expenses and investments
The Health System has the largest recommended departmental budget at $767 million, followed by the Sheriff’s Office at $264 million, Human Services Agency at $245 million and Public Works at $220 million.
New funding demands include $10 million over the next two years toward correctional health to increase its ability to treat mentally ill inmates. This is particularly pertinent as following realignment, inmates are spending more time in county jails instead of state prisons, Maltbie noted.
The budget also allocates $4.4 million over the next two years to meet state regulations regarding stormwater runoff with another $2.8 million in subsequent years.
To help address infrastructure, it’s expected to receive an infusion from the recently approved Senate Bill 1. That statewide law included a gas tax increase from which San Mateo County expects to see about $131 million over the next decade.
Its five-year capital improvement and IT plans will be sent to the board outside of its regular budget hearings next week. The nearly $500 million in expenditures will support a new animal shelter, medical center campus, mental health center, county office building and parking structure, Skylonda Fire Station, Half Moon Bay Library and the repurposing of the old Maguire jail building. It will also help improve parks, repair roads damaged during last winter’s storms, and more, according to the budget.
The Board of Supervisors will meet Monday-Wednesday to discuss the budget. Visit smcgov.org for more information.
(650) 344-5200 ext. 106