1. 1 County of Contra Costa FISCAL OUTLOOK (Auditor-Controllers Perspective) December 5, 2005 County of Contra Costa FISCAL OUTLOOK (Auditor-Controllers Perspective) December 5, 2005 Presentation to the Board of Supervisors Finance Committee by Stephen J. Ybarra, Contra Costa County Auditor-Controller

2. 2 Fiscal Outlook 1. The Countys Budget 1. Unreserved Fund Balance 1. The Great GASBY (43 & 45)

3. 3 The Budget General fund expenditures have exceeded revenues since FY 2002-03. The budget gap has primarily been filled by spending available fund balance. Fiscal Year Spent Fund Balance 2002-03$20,399,000 2003-04$11,827,000 2002-03$20,399,000 2003-04$11,827,000 2004-05$19,687,000 2005-06*$20,003,000 *projected

4. 4 Recent General Fund Budgets

5. 5 Structural Deficit – How did we get here? The structural deficit largely is attributed to the following: 1. Increased costs for retirement, salaries, and health care. 2. CCCERA retiree health care and COLA subventions to the general fund stopped mid FY 2002-03.

6. 6 Effect of CCCERA Subventions on General Fund Unreserved Fund Balance

7. 7 Unreserved Fund Balance The Government Finance Officers Association (GFOA) formally recommends that the minimum level of unreserved fund balance in the general fund be no less than 5 to 15 percent of general fund revenue. The County is consuming fund balance at a rate of $20 million per year. At this rate, the general fund balance will be zero by the end of FY 2007-08. The Countys amount of unreserved fund balance in the general fund should be large enough to serve as a cushion against unanticipated budgetary shortfalls, disasters, and other contingencies. The Bond Rating agencies recommend adopting a formal minimum level of unreserved fund balance in the general fund.

8. 8 The Importance of Unreserved Fund Balance It is a mistake to place undue emphasis on the level of unreserved fund balance at any given moment. What is really important is the pattern of unreserved fund balance over time (e.g., ten years). Is fund balance normally in excess of minimum levels? How rapidly has unreserved fund balance been replenished in the wake of events requiring its use?

9. 9 County General Fund Unreserved Fund Balance

10. 10 GASB 43 & 45 GASB 43 & 45 – Other Post Employment Benefits (effective FY 2007-08) Requires that the annual retiree health care costs beyond pay as you go be recorded as a long-term liability in the Comprehensive Annual Financial Report (CAFR). An agency may choose to fund (i.e., set aside assets) or not to fund this liability. GASB does not require funding, but not funding could impact the Countys credit rating. Will have no impact on the on-going budget if the County chooses not to fund; however, rising health care costs will continue to impact the budget if no changes are made.

11. 11 Recommendations 1. Adopt a budget that is BALANCED Expenditures = Revenues 2. Adopt the Office of the County Administrators proposed policy for a formal minimum level of unreserved fund balance. 3. Adopt the recommendations provided by the County Administrator, Treasurer, Auditor-Controller, and outside consultant(s) regarding the implementation of GASB 43 & 45.