Budget bell set to toll

SAN JOSE
– Although county officials nervously cross their fingers and
await the outcome of pending state budget proposals that will
almost certainly mean bad news for them, locally the headaches have
already begun.
County officials have already projected a roughly $74 million
shortfall they will have to sew up in the 2003-04 fiscal year
budget that begins this summer
– and that’s on top of millions more in impacts that are
expected to come down to the county and other local governments
from the state’s $30-plus billion shortfall.
SAN JOSE – Although county officials nervously cross their fingers and await the outcome of pending state budget proposals that will almost certainly mean bad news for them, locally the headaches have already begun.

County officials have already projected a roughly $74 million shortfall they will have to sew up in the 2003-04 fiscal year budget that begins this summer – and that’s on top of millions more in impacts that are expected to come down to the county and other local governments from the state’s $30-plus billion shortfall.

The result is a grim outlook for county decision-makers, programs and employees. So far, officials say unlike last year’s scenario, more severe and direct service cuts – and layoffs – will both be likely probabilities as they work through the budgetary morass expected in the upcoming months.

“It’s going to get pretty ugly,” said District 1 County Supervisor Don Gage.

The $70 million local shortfall is blamed largely on a combination of stagnant revenues and increases in costs for employee retirement plans and health care premiums, expenses that county officials say many other municipal governments face.

“It’s mostly the economy,” said Gary Graves, a county budget analyst. “It’s very slow growth in our discretionary revenues and also some expenditure increases.”

For example, when times were good, the county expected to have to kick in little – or nothing – in certain retirement funding. But with investments performing poorly with the downturn in the economy, that has changed. Meanwhile, health care premiums are up over 20 percent again this year, Graves said.

“Everyone’s facing the same problems in terms of health care and retirement,” he said.

County officials downplayed impacts after they bridged an $85 million shortfall last summer, saying they were able to avoid heavy damage to direct services. Strategies employed at that time included tapping reserves, cutting a subsidy to the county’s hospital system, starting a hiring freeze and slashing vacant positions and trimming non-essential spending. For example, employees in occupied positions that were cut during the budget process were generally either going to retire anyway or were moved to different positions, officials said.

However, they say there are few apparent easy solutions left for this year.

“We did all of those things and trimmed all of the fat,” Gage has said. “Now we’re at the point where we cut direct services – and if we cut services, we cut personnel. And there are no other places for those people to go.”

And complicating things immensely is that officials expect to have to face millions more in new cuts due to the state’s financial situation.

So far, county officials said an initial round of $10 billion in mid-year cuts laid out by Gov. Gray Davis last month appeared to target mostly fixed programs – such as childcare funding for mothers coming off welfare-to-work programs.

While the county has traditionally looked at backfilling such gaps in funding with discretionary money from its General Fund or other sources, the money available to take such measures will now be scarce, officials say.

“In the past when we cut certain areas, we went back and added dollars through the General Fund or reserves,” Gage said. “But since we won’t have those, we won’t be able to backfill.

“It will be a matter of prioritizing what our biggest needs are and working backwards.”

Supervisors will be outlining their own general financial strategies this week, and county analysts expect to submit a series of strategies and policy alternatives to the board for consideration on Jan. 14.

However, although Davis is expected to release his proposed budget for next fiscal year within about a week’s time, supervisors don’t expect to know much about specific impacts from the state until the end of the month.

In general terms, Gage said protecting public safety will be a top priority for him.

“We have to have sheriff’s deputies out there to protect the county,” he said. “We are a safety net, but we’re just going to have to get back to the basics for basic services – look at each category, see if it’s operating effectively, what the impact is if we don’t do (it) and make decisions from there.”

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