Staff Report March 4, 2020Fiscal Year 2020-21 Preliminary Proposed Budget

Analysis

The meeting of the Budget Committee is an opportunity for staff to provide information about initial estimates for Fiscal Year 2020-21 and receive feedback from Committee members on the budget proposal, prior to the Commission’s first public hearing.

As required by state law, each year the Commission conducts two noticed public hearings on its upcoming year’s budget. This year, the first hearing on the Fiscal Year 2020-21 Proposed Budget will take place on April 1, 2020, and the second, on the Final Budget, will occur on June 3, 2020.

The Commission’s expenditures consist of Salaries and Benefits and Services and Supplies, with the former category representing the larger financial portion of the budget.

Revenues consist primarily of apportionments from funding agencies: the County, cities, and independent special districts. Other revenues include interest from invested funds, and application fees, which are tracked during the year but not forecasted in the budget.

The Commission also maintains a Fund Balance, to be used at the Commission’s discretion.

Organization of Report

This report on the preliminary proposed budget for 2020-21 is organized into different sections that focus on:

Organizational Assessment and its impact

• Projected 2019-20 Year-End Expenditures and Revenues
• Fiscal Year 2020-21 Preliminary Proposed Expenditures and Revenues
• Three Scenarios for Funding the FY 2020-21 Budget

Committee members will find three sets of spreadsheets (two pages each) attached to this report. The spreadsheets provide the following information:  

• -Current-year adopted budget,
• -Actuals through the end of the current-year second quarter;
• -FY 2019-20 year-end projected;
• -FY 2020-21 preliminary projections;
• -Amount of change from the FY 2019-20 adopted budget; and
• -Percent change between the preliminary FY 2020-21 projections and the FY 2019-20 adopted budget  

All numbers on Page One of each set – representing expenditures - are the same.

Some amounts on Page Two of each set – representing revenues – vary in that staff is presenting three different “scenarios” for the Committee to consider for funding the projected expenditures. The three scenarios offer increases in agency apportionments of five percent and three percent, as well as a no-change scenario. These are more fully shown near the end of the report in the section on Revenues.

Organizational Assessment

As Committee members are aware, the Commission recently authorized the Executive Officer to initiate a contract with Koff & Associates to conduct an organizational assessment of Sonoma LAFCO, including providing recommendations on appropriate staffing levels.

While staff had hoped that the results of the study would be available prior to the Commission’s consideration of the 2020-21 Final Budget on June 3, at this time, we believe that that projection may be optimistic. Representatives of Koff will kick off the study in a meeting with staff on March 12, and, according to the timeline presented by the firm, 12-14 weeks are anticipated to be needed to complete the work before a report and recommendations are submitted to the Commission.

Given the unknowns about whether a change in the staffing level will be recommended, but to establish a base line for next year, staff is presenting, for the Committee’s consideration, a preliminary budget that projects staffing at the current level of 3.2 Full-Time Equivalent (FTE) positions. Unless the Committee directs staff to amend the Salaries and Benefits section of preliminary budget as presented, it is likely that staff will submit this same staffing level projection for the Commission’s consideration in April.

Staff will be working closely with the organizational consultant and will report on the progress of the study at Commission meetings. Should the consultant recommend changes in staffing levels and should the Commission accept those recommendations or make other determinations, staff will coordinate efforts with the County Administrator’s Office and the Human Resources Department to achieve the desired results.

Projected 2019-20 Year-End Expenditures and Revenues

To better understand recommendations for FY 2020-21, staff believes it will be helpful for the Committee to review projected expenditures and revenues through the end of the current fiscal year. The columns “Year-End Projected” on all of the spreadsheets provide the same information/figures.

Although the numbers are preliminary - with one-third of the fiscal year still remaining, staff is projecting expenditures of $841,355, which is $79,060, or 10.3 percent, beyond the adopted budget of $762,295. The greater-than-budgeted expenditures are explained below.

Year-End Projections: Salaries and Benefits

Overall, salaries and benefits are preliminarily expected to be expended at $647,370, an increase of $34,740, or 5.6 percent, over the budgeted $612,630.

Two accounts stand out especially with projected greater-than-budgeted expenditures.  

• -Account 50101 (Regular Wages) is projected at $380,000 compared to the $354,315 budgeted. The difference reflects anticipated payment of about $25,000 for accumulated vacation hours to the Assistant Executive Officer upon her retirement as well as a cost-of-living increase that was determined by the County after the Commission approved the 2019-20 Final Budget.
 
• -Account 50301 (Health Insurance) is projected at $38,000 compared to the budgeted $29,680. This reflects a staff member’s decision to start receiving County health benefits instead of maintaining a previous waiver of those benefits, adding to the cost.  

Other accounts in the Salaries and Benefits category appear, at this time, to be in line with budget projections.

Year-End Projections: Services and Supplies

The 2019-20 budget for this category is $149,665. Year-end expenditures are anticipated, at this time, to be $193,985 - $44,320, or 29 percent, above budget.

In this category three accounts appear reflect the bulk of the projected overage:  

• -Account 51206 (Auditing Services) reflects an expenditure of $6,570, which covered the majority of the cost of an outside audit for the period July 1, 2016 – June 30, 2018. As indicated in previous quarterly reports to the Committee and the Commission, the audit was initiated near the end of FY 2018-19, and invoicing and payment extended into the current fiscal year.
 
• -Account 51249 (Professional Services) is anticipated to be expended at about $50,000, well beyond the $10,000 budgeted. Typical expenditures in this account cover payments to the State Board of Equalization for its work relating to processing boundary changes. This year, the submittal of boundary changes has included several relating to fire reorganizations whose fees ranged from $3,000 - $5,000 each. The agencies initiating the proposals pay these costs, but, while the revenue is reflected in the Commission’s revenue “Fee for Service” account (# 45061), the actual payment is taken from this expenditure account.  

Additionally by the end of this fiscal year, staff anticipates at least some payments to consultants conducting municipal service reviews (for Timber Cove Water District and the Town of Windsor/Windsor Water District) and the organizational assessment referred to above (Koff & Associates). Final payments will likely also extend into 2020-21. Committee members will recall the understanding that Fund Balance monies would be allocated and available for this purpose. A specific amount for consultant studies was not included in the adopted budget because start dates had not been finalized when the current-year budget was developed.  

• -Account 51301 (Legal Notices) is projected to be expended at $6,000 compared to the budgeted $5,000. This reflects the need to publish 1/8-page notices of hearing in a newspaper of general circulation to meet statutory requirements when more than 1,000 owners and voters are to be notified of an upcoming Commission hearing on the merits of a proposal or a protest. This year, these has been and will continue to be particularly associated with the fire district reorganizations.  

2019-20 Year-End Projections: Use of Fund Balance

At the end of last fiscal year (2018-19), $10,274 of Fund Balance monies were needed to balance that year’s budget (versus the $124,000 that had been originally projected.). As a result, the Commission’s Fund Balance at the end of 2018-19 and into the beginning of FY 2019-20 was $487,684.

When the Commission reviewed and considered the FY 2019-20 budget at hearings last April and June, it agreed with the recommendation of the Budget Committee and staff to use Fund Balance monies to help defray some of what were expected to be expenditure increases. Specifically, the 2019-20 budget anticipated use of $55,000 in Fund Balance monies to balance the budget, allowing a 4.9 percent increase in agency apportionments instead of 13 percent if no Fund Balance monies were used. The Commission also acknowledged that funding for outside consultants to conduct municipal service reviews and/or special studies would come from the Fund Balance.

At this time, based on preliminary numbers, staff projects that, to balance anticipated revenues ($777,295 – from agency apportionments, interest, and processing fees) with projected expenditures of $841,355, just over $64,000 will be needed from the Fund Balance, leaving an available Fund Balance of $423,624.

Because the Auditor’s Office will not allow the total level of expenditures to exceed the level of revenue received, should staff’s projections hold, staff will request the Commission to approve a Budget Adjustment at or near the end of FY 2019-20. This must be formal action of the Commission.

Fiscal Year 2020-21 Preliminary Proposed Budget

At this time, staff is recommending an expenditure budget for 2020-21 of $838,075, which is an increase of $75,780, or 9.94 percent over the current-year budget of $762,295. The amount is a decrease from the 2019-20 projected year-end expenditure of $841,355.

Both Salaries and Benefits and Services and Supplies categories would reflect increases. Specific line-item details are described below.

2020-21 Proposed: Salaries and Benefits

The preliminary budget proposes expenditures of $644,360 for staff salaries and benefits and Commission stipends. This is an increase of $31,730, or about 5.2 percent, over the current-year budget of $612,630.

In accordance with a Memorandum of Understanding between LAFCO and the County, Commission staff are County employees who work only for Sonoma LAFCO. As indicated earlier in this report, at this time, 2020-21 staffing is projected at the same level as in the current year: 3.20 Full-time Equivalent (FTE) positions. These are:  

• -1.0 FTE LAFCO Executive Officer
• -.80 FTE Assistant Executive Officer
• -.90 FTE Analyst I
• -.50 FTE Commission Clerk  

Given this level of staffing, three accounts reflect the bulk of the greater expenditure:  

• -Account 50101 (Regular Wages) is projected at $362,200, an increase of $7,885, over the current-year adopted budget. The County has scheduled a three percent cost-of-living (COLA) increase to take effect in June 2020 and a second increase in June 2021.
 
• -Account 50201-04 (Retirement) is projected to increase by a little more than seven percent, or $10,440, from $141,840 to $152, 280. The projections reflect the County’s analysis of future liabilities, after conferring with the Sonoma County Employees Retirement Association (SCERA) as well as the County’s actuary.  
 
• -Account 50301 (Health Insurance) is projected at $41,590, a 40 percent increase over the current-year $29,680. In its negotiations with bargaining units over the last several years, the County committed to contributing a greater percentage of the cost of health insurance. As a result, the expenditure for health insurance has risen steadily. Additionally, the projected amount anticipates a full year of health insurance benefits for the staff member who recently opted in for coverage.  

2020-21 Proposed: Services and Supplies  

The 2020-21 Preliminary Proposed Budget projects Services and Supplies accounts at $193,715, an increase of $44,050, or 29.4 percent over the current-year budget of $149,665.  

An explanation for those accounts where significant changes from the current-year Adopted Budget are anticipated is provided below:  

• -Account 51206 (Auditing Services) is projected at $9,000 in anticipation of initiation of a bi-annual audit covering the years July 1, 2018 – June 30, 2020. The previous two-year audit - whose costs were paid in both 2018-19 and the current year - cost $8,400.  
• -Account 51207 (Auditor Accounting Services) is projected at $7,000, an increase of $2,000 over the current-year budget of $5,000. This is based on our experience over the last several cycles of audit periods when the Auditor’s Office staff has completed annual financial reports in preparation for the audit.
 
• -Account 51249 (Professional Services) is increased from the current-year $10,000 – primarily expected to be used for payment to the State Board of Equalization for boundary change processing - to $35,000, to cover additional costs associated with consultant work on MSRs and special studies that are being initiated this fiscal year and in anticipation of further studies.
 
• -Account 51421 (Rents & Leases) is projected at $43,000, a slight increase over the current-year $42,000, to cover the incremental increase in monthly rental for leasing office space for the Commission at a privately-owned building in downtown Santa Rosa as well as the cost of a staff member’s garage parking not covered in the lease contract.  

• -Account 51605 (Private Car Expense) is increased to $1,500 from the current-year $1,000. The CALAFCO 2020 Annual Conference will be held in Monterey in this fall, and the 2021 Staff Workshop is expected to be held somewhere in Northern California. Such locations are generally more easily accessed by car, with attendees’ being reimbursed for mileage, in accordance with the Commission’s policy.
 
• -Account 51901/02 (Communications) is projected at $3,100, an increase of $500 over the current-year $2,600, to more accurately reflect the actual number of telephone lines for which the Commission is charged by the County.
 
• -Account 51904 (Information Systems-Data Processing) is increased to $25,000, from the current-year $22,100, to reflect, as above, more accurately, the number of computer connections for which we are charged by the County.
 
• -Account 52091 (Memberships) is budgeted at $8,115 for CALAFCO membership. As staff reported after the CALAFCO Annual Conference in Sacramento last October, the CALAFCO board of directors had reported concerns about the organization’s structural financial deficit and the need to revise the dues structure to better sustain the Association. After much debate and discussion at the Annual Business Meeting, the membership approved a revised dues structure that used a population base of 700,000 and a per capita rate of 0.0138 to achieve a dues amount for each LAFCO. However, in response to complaints from a number of LAFCOs that the methodology negatively impacted more rural and some suburban counties, the board agreed to re-visit the issue and report on further refinements at the 2020 Annual Conference. The amount included in the 2020-21 budget for Sonoma LAFCO derived from CALAFCO calculations.

Unfunded Liability

At the Commission’s December 2019 meeting, staff reported that, as part of its review of the County’s Fiscal Year 2019-20 budget, the County Board of Supervisors adopted a new financial policy related to cost recovery. Under that policy, the County expects full cost recovery for any portion of services provided by the County, including recovery of full future retirement costs of County employees who act as employees for outside entities, such as LAFCO, which has Memorandum of Understanding with the County.

Staff had been notified that “supplemental unfunded liability” payments would be initially assessed in FY 2020-21, with the amount designated for that year at $7,935. As of the writing of this report, staff has not been able to confirm the amount or how the County will assess the amount (as a lump sum in a separate line-item or as a regular charge in each payroll period). Staff hopes to have more information for the Committee’s meeting.

If the liability payment is charged beginning in FY 2020-21, the projected proposed budget of $838,075, as presented at this time, will increase by the designated amount. In turn, this will impact how much money will need to be found to balance projected expenditures and revenues. 

Revenues and Fund Balance

As the Committee is aware, funding of the Commission’s operations comes primarily from the County, the cities, and the independent special districts, in accordance with the Cortese-Knox-Hertzberg Act. The County portion is 40 percent; the cities, as a whole, pay 40 percent; and the independent special districts, as a whole, pay 20 percent. (An individual agency’s apportionment is based on the annual revenue reported to the State Controller’s Office, so agency apportionments may vary annually even if the overall category apportionment remains the same.)

Revenue also accrues through interest from the County’s investment of Commission funds. For 2020-21, staff is conservatively projecting interest revenue at $10,000 although acknowledging that actual interest payments have exceeded that in the last several years (due to the accumulated level of Fund Balance.)

Finally, those who seek LAFCO action pay application fees. Fee revenue is tracked during the year but is not budgeted due to the difficulty in projecting the number and types of applications that will be submitted. At year-end, fee revenue rolls over into the Fund Balance.

The Commission’s unreserved, undesignated Fund Balance can be allocated to projected expenditures, reducing apportionment increases, or maintained for emergency or unique situations, at the Commission’s discretion.

As indicated above, the 2020-21 expenditures are projected, at this time, at $838,075, an increase of $75,780 over the adopted budget of $762,295, or 9.94 percent.

At this time, staff is seeking guidance from the Committee regarding how to pay for the level of expenditures, as projected; whether or not Fund Balance monies should be used to help balance the 2020-21 budget and, if so, at what level.

Three Scenarios

Staff proposes three options for the Committee’s consideration at this time for funding the upcoming year’s budget:  

• A five percent increase in agency apportionments
• A three percent increase in agency apportionments
• No increase in agency apportionments  

The options focus on agency apportionments because no other budgeted revenue sources generate sufficient income so as to offer sufficient flexibility. An alternative not offered, but certainly available to the Committee to consider, would be reducing expenditures. Staff is not proposing this, in that such action would, we believe, negatively impact accomplishment of the Commission’s goals and work plan.

The table below displays relevant information regarding the proposed options for funding the expenditure budget. These can also be found on Page Two of the three spreadsheet sets provided in the Committee’s packet.  

Staff notes that, if, as a result of the organizational assessment recommendations, the Commission determines to adjust staffing levels with a greater salaries and benefits cost, that is likely to occur after adoption of the 2020-21 Final Budget in June. Thus, funds to cover the cost for at least that year would not be included in the adopted budget amount, although charges would accrue to salary/benefit amounts during the year; any overage to the Commission’s bottom-line expenditures would need to be offset through a Budget Adjustment taking funds from the Fund Balance.  

Staff can provide information to the Committee about other options for funding the expenditure budget as presented, if the Committee desires.  

Recommendation 

Staff recommends that the Committee review the preliminary Fiscal Year 2020-21 budget as prepared by staff, direct any questions to staff at the Committee meeting, and make any desired changes.  

Staff further requests that the Committee consider the proposed revenue scenarios to fund the expenditure budget and provide guidance that staff will use in preparing the Proposed Budget to be presented to the Commission at the April 1, 2020, meeting.

Attachments 

1.            Fiscal Year 2020-21 Preliminary Proposed Budget:

• +5 Percent Apportionment Scenario
• +3 Percent Apportionment Scenario
• No Change in Apportionment Scenario