1. 0 2011 King County Budget Status Presentation to King County Unions Dwight Dively September 14, 2010

2. 1 2011 General Fund Budget Outlook The early July forecast showed a gap in 2011 of about $60 million between the cost of providing existing General Fund services and expected General Fund revenues. Much of the gap is caused by the use of non-sustainable sources to balance the 2010 budget. Another significant budget driver is the rapid increase in health care and pension costs. The July forecast for 2010-2011 General Fund sales tax revenue was $3 million less than the March forecast, reflecting continued economic weakness. The September forecast for 2010-2011 General Fund sales tax revenue was $3.5 million less than the July forecast.

3. 2 2011 Other Funds Budget Outlook The Roads Fund will need to reduce planned 2011 spending by at least $11 million (about 9%) due to the effects of annexations and declining assessed values. Several other funds face 2011 budget challenges due to annexations and cuts in state and federal funding. Transit faces major challenges in 2012-2013 due to lower sales tax revenue. The latest transit sales tax forecast for 2011 is $50 million less than was actually received in 2008 ($383.2 million vs. $432.9 million). Declining assessed property value has raised the possibility of “levy suppression,” which occurs when combined local tax rates exceed $5.90 per $1,000 of assessed value. This could significantly reduce revenue for the Flood Control District. This effect will likely be greater in 2012 than in 2011.

4. 3 Longer-Term Budget Challenges Annexations will continue to reduce revenues for some County funds, notably the General Fund, Roads Fund, Development and Environmental Services Fund, and Surface Water Management Fund. Retirement contribution rates will increase dramatically. Current forecasts by the State Actuary show the employer’s contribution rate to PERS will need to increase from the current 5.31% to nearly 14% by 2017. This is due to chronic underfunding of Plan 1. Employee contribution rates will also increase, though not as dramatically. Health care costs are expected to continue to increase faster than general inflation. Fund balances have been drawn down to minimum levels. At the end of 2010, the General Fund will only have the 6% unreserved fund balance (approximately $36 million) and the “rainy day” or emergency reserve (approximately $15 million). Similarly, Transit will have drawn down its reserves to minimum levels by the end of 2011. Some programs, such as parks, veterans, and human services, depend on renewal of voter-approved levies.

5. 4 2011 Budget Approach All County agencies were asked to develop budgets with 3% efficiency targets (except DOT, which has a biennial budget). General Fund departments and some internal service agencies were asked to identify additional cuts of at least 9%. At the Executive’s request, the Sheriff, Presiding Judges, and Prosecutor have outlined the potential effect of 2011 budget cuts for the public and Council. On July 19, the Council placed a 0.2% sales tax increase on the November ballot to preserve critical criminal justice programs. This would raise about $34 million in 2011. Even if approved by voters, about $30 million of additional revenues or expenditure reductions will be needed to balance the General Fund for 2011. The Executive’s proposed budget (to be presented on September 27) cannot assume passage of a sales tax measure and thus will be balanced using substantial program cuts.

6. 5 2011 Budget Results Most General Fund agencies will have budget reductions of 8-12% from the cost of continuing 2010 service and staffing levels. The Executive Office’s budget will be cut by 12%. As of September 13, about 460 positions will be eliminated in the 2011 Proposed Budget. Most, though not all, are in General Fund agencies. This figure does not include position reductions in Council agencies (these will be determined by the Council) or in the Roads Division, whose mid-biennium budget adjustment will be submitted in mid-October. With these included, over 500 positions are likely to be eliminated. Virtually all of the public safety positions would be restored if the sales tax measure passes in November. Most position reductions in other agencies would still be needed. OMB is still working with departments to identify which positions are filled or vacant. Unions will be provided with lists of affected positions on September 23 and employees at risk of layoff will be notified on September 24. A few agencies, particularly those with separately elected officials, may announce position reductions earlier, with notice to unions and employees.