County stands at edge of budget chasm

 

Santa Barbara County is staring at a $15 million budget gap this year that will explode into a $75.2 million chasm in just five years, according to the county’s own predictions.

In the past three weeks, county officials have also been apprised of a potential $900 million hole in their retirement fund and a significant drop in the county’s discretionary revenue.

The only move the Board of Supervisors has made so far to address the fiscal crisis is to request a meeting with the retirement board to discuss liability payment options. No date has been scheduled.

But on Tuesday, the supervisors will hear how 10 percent across-the-board cuts — totaling $18 million — will affect nearly all of the county departments.

“They’re big cuts,” said Jason Stilwell, assistant CEO. “There will definitely be some impacts.”

The potential effects of the reduction, including staff and service level cuts, will depend on how much a given department relies on the general fund, Stilwell said. But at least five departments are looking at a reduction of more than

$1 million.

Although the harsh cuts would close the gap for the 2009-10 fiscal year and even leave a

$3 million cushion, the next budget period will still be brutal.

Retirement costs are smoothed over five years, which means that Santa Barbara County will not feel the full effect of the major decline in the stock market on its investments until the 2010-11 budget.

However, this next year, the county will owe $2.3 billion in pension obligations and there will only be $1.35 billion in the retirement fund, according to the county’s actuarial report.

The county contributed approximately 23 percent of payroll — $65 million — to the retirement fund in 2008-09.

Projections show that the costs will increase to 35 percent or

50 percent — $93 to 150 million — in 2010-11 depending on the stock market’s volatility.

“It won’t be anywhere near that amount,” said an optimistic Tom Ford, the interim administrator for the county retirement system. “It’ll probably be under $90 million max.”

The Board of Supervisors and the Retirement Board could choose to take the loss and spread it over more than five years so the initial pain is lessened, Ford said.

Or they could stretch the unpaid liability payments from a 15-year plan to a 20 or 30-year plan.

The hope is that the investment returns bounce back and make up for the past year’s loss; otherwise, the county’s budget is on the hook for any funding shortfall in its defined-benefit retirement program.

“We have no more control over the market than anyone else,” Ford said. “We try to react the best we can. We’re in recovery mode.”

The proposed 302-bed North County jail is also a factor in the projected five-year budget gap. The county would have to start debt service payments of

$2.4 million beginning in the 2010-11 fiscal year to cover the construction of the facility. And in 2013-14, Santa Barbara County would begin to incur jail operating costs of $17.4 million annually.

From the 2008-09 fiscal year to the 2009-10 fiscal year, discretionary revenues will decrease by $1 million, according to county staff.

Workshops over the past month have been in anticipation of annual budget hearings scheduled in June. The general fund makes up approximately one-quarter of the county’s $800 million budget.

February 19, 2009