Special Notice / Hearing: None__
Vote Required: Majority
To: Honorable Board of Supervisors
From: Michael P. Callagy, County Executive
Roberto Manchia, County Chief Financial Officer
Subject: Final Budget Changes to the Fiscal Year 2024-25 Approved Recommended Budget
RECOMMENDATION:
title
Recommendation to approve the following actions related to final budget revisions to the Fiscal Year 2024-25 Approved Recommended Budget:
A) Adopt a resolution adopting the revised budget of the County of San Mateo as to expenditures for Fiscal Year 2024-25 and making appropriations therefore; and
B) Adopt a resolution adopting the revised budget of the County of San Mateo as to the means of financing for Fiscal Year 2024-25; and
C) Adopt a resolution establishing the appropriation limit for the County of San Mateo for Fiscal Year 2024-25; and
D) Adopt a resolution authorizing an amendment to Master Salary Resolution No.080517 as per Fiscal Year 2024-25 Adopted budget.
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BACKGROUND:
The County Budget Act (Government Code §§ 29000-29144, 30200, and 53065) requires that the Board of Supervisors adopt the County budget by October 2, 2024.
On June 25, 2024, as part of the two-year budget process, the Board of Supervisors approved the FY 2024-25 Recommended Budget. The purpose of this budget transmittal is to adopt the FY 2024-25 Budget, which has been amended to include FY 2023-24 year-end Fund Balance adjustments; changes to local, state, and federal funding sources; increases in benefits; and other adjustments deemed necessary to ensure the effective delivery of services that contribute to achieving County goals.
DISCUSSION:
The FY 2024-25 Recommended Budget that this Board approved on June 25, 2024 was $4.23 billion with 5,847 authorized positions for all County funds. This year, a number of the ongoing projects that were originally scheduled for completion in FY 2023-24 did not conclude as anticipated for a variety of reasons, thus requiring rollover of more funds than usual. Due to the timing of year-end-close activities taking place after adoption of the Recommended Budget, those changes have been incorporated into this budget, accounting for a large increase relative to prior years. With the completion of the County’s year-end financial closing activities, final Fund Balance adjustments, rollover of unspent Measure K and other funding sources from FY 2023-24, and other budget changes based on updated funding amounts, increases in expenditures of $1.02 billion are proposed in connection with the approval of the FY 2024-25 Adopted Budget.
With these changes, the FY 2024-25 Budget now presented to this Board for adoption totals $5.25 billion with 5,851 authorized positions for all County funds (a net addition of four authorized positions). The budget for the General Fund is $3.67 billion with 4,671 authorized positions. Attachment E contains all September Revisions and Attachment D contains changes to Health Benefit Rate increases.
The following table summarizes Requirements for the September Revisions by County Agency and Non-Departmental Services:
FY 2024-25 Adopted Budget, All Funds (Requirements)
|
County Agencies All Funds |
2024-25 May Rec |
2024-25 September Revisions Adjustments |
2024-25 Adopted |
2024-25 Authorized Positions |
|
General Fund (GF) |
|
Administration/Fiscal* |
208,325,889 |
7,677,071 |
216,002,960 |
624 |
|
Community Services |
229,549,958 |
118,823,928 |
348,373,886 |
564 |
|
Criminal Justice |
556,912,053 |
(77,384) |
556,834,669 |
1,324 |
|
Health Services |
658,938,432 |
38,159,609 |
697,098,041 |
1,295 |
|
Social Services |
349,546,863 |
15,126,407 |
364,673,270 |
864 |
|
Agency Total* |
2,003,273,195 |
179,709,631 |
2,182,982,826 |
4,671 |
|
Non-Departmental Services* |
932,955,609 |
559,248,355 |
1,492,203,964 |
0 |
|
Total GF* |
2,936,228,804 |
738,957,986 |
3,675,186,790 |
4,671 |
|
|
|
County Agencies All Funds |
2024-25 May Rec |
2024-25 September Revisions Adjustments |
2024-25 Adopted |
2024-25 Authorized Positions |
|
Non-General Fund (GF) |
|
Administration/Fiscal |
74,304,436 |
(1,488,264) |
72,816,172 |
0 |
|
Community Services |
568,589,582 |
305,717,227 |
874,306,809 |
137 |
|
Health Services |
654,480,070 |
(17,871,423) |
636,608,647 |
1,043 |
|
Total NGF |
1,297,374,088 |
286,357,540 |
1,583,731,628 |
1,180 |
|
Total GF & NGF |
4,233,602,892 |
1,025,315,526 |
5,258,918,418 |
5,851 |
FY 2024-25 Budget Revisions
In June, the FY 2024-25 Recommended Budget was presented to the Board of Supervisors, emphasizing the need for fiscal responsibility amid uncertain economic conditions. The September Revisions make the necessary modifications with this focus in mind. The revisions include approximately $1.02 billion in adjustments, driven by several key factors:
• Capital Projects, Invoice Payment Timing, and Infrastructure Improvements: Over $450 million has been rolled over for approved capital projects and infrastructure improvements across the County, including the South San Francisco Wellness Center, County Office Building 3, Redwood City Campus Promenade, Medical Center parking and shuttle services, Roads and Bridges projects, San Mateo County Radio System, and vehicle replacements. In addition to funds for ongoing construction projects, this rollover includes funds for invoices that could not be processed before the end of FY 2023-24 due to the timing of year-end closing - these payments will be made in the new fiscal year.
• Measure K Rollover: Measure K funding of $89.4 million has been rolled over, mainly for ongoing capital projects. Some of this funding also accounts for invoices that could not be processed before the end of FY 2023-24 due to the timing of year-end-closing.
• Various affordable housing projects: Approximately $115 million has also been rolled over for various affordable housing projects funded by sources such as the American Rescue Plan Act (ARPA, $12.4 million), Mental Health Services Act ($10 million), state and federal sources ($32.8 million) and Measure K ($59.8 million, also included in the overall Measure K rollover noted above). The Department of Housing has been strategic in leveraging all funding sources available to ensure optimal use of funding within expenditure deadlines. As part of this strategy, the department obligated funds early in the development process. Many projects are now awaiting entitlements, permits, or other approvals to commence with construction and the approved funding has been rolled over until such time that these projects are ready to begin. For example, Measure K was obligated for several affordable housing projects two to five years ago. These projects are now in varying phases, from groundbreaking for construction to lease-up for initial occupancy.
• Property Purchases: The County is acquiring several properties totaling $110 million (purchase and renovation costs) utilizing one-time funds. This is part of a long-term financial strategy to own buildings rather than rent, ensuring greater stability and financial security by controlling ongoing expenditures. These properties will be used to increase the number of services and office locations throughout the County as well as provide for permanent supportive housing. Properties in the current budget include: the Ramada Inn in South San Francisco, the La Quinta Inn in Millbrae, and properties located on El Camino in San Mateo and Mitten Road in Burlingame.
• New Grant Funding: Several departments, including the Department of Housing, County Health, and the District Attorney’s Office, received approximately $7.3 million in new grant funding.
• Property Tax Assessment System: $27 million from the General Fund is budgeted to assist the Controller’s Office and Assessor-County Clerk-Recorder Department in replacing the property tax system.
• San Mateo County Resilience Center Project: A total of $13 million, including $4.75 million from the General Fund, is allocated for expanding and improving the San Mateo Event Center and programming to strengthen community resiliency.
• County Support of the Courts: $1.5 million from the General Fund is appropriated to County Support of the Courts, offsetting revenue losses from criminal justice reforms that have restricted the types of fines and fees the Court can collect.
• San Bruno Mountain State and County Park: $1 million from the General Fund is budgeted for the San Bruno Mountain Day Use Improvement Project, which will enhance restroom and day-use areas in the park.
• Benefits Increases: An additional increase of 7.15 percent (Kaiser) and 16.99 percent (Aetna) in health benefits expenses has been added to the FY 2024-25 Adopted Budget, resulting in an overall increase of $5.3 million to account for rising insurance premiums.
• Position Changes:
o This budget includes a net addition of 4 positions from the FY 2024-25 Recommended Budget to the FY 2024-25 Adopted Budget. Positions were added in the following departments:
§ District Attorney’s Office 2
§ County Health 1
§ Department of Housing 1
§ Department of Public Works 5
§ Information Services Department 1
o These additions were offset by the following reductions in positions:
§ Sheriff’s Office (2)
§ County Health (1)
§ Office of Sustainability (2)
§ County Executive’s Office (1)
For further information, a detailed list of position changes is set forth in Attachment A. There is no Net County Cost change associated with these additions.
Fiscal Stewardship
While the County continues to make investments for the future, the concerns brought before the Board regarding revenues coupled with increasing expenditures continues to pose a challenge. Several departments, particularly those dependent on fees-such as Environmental Services and Planning and Building-are facing revenue levels that are not keeping pace with costs. While there is recognition of the community benefits of keeping fees affordable, it is important to note that current fee structures do not fully cover the costs of providing these essential services. This places the County in a difficult position, requiring a delicate balance between affordability for residents and the financial viability of certain fee-based departmental services.
The County continues monitoring uncertainty around the Vehicle License Fee Adjustment Amount (VLFAA) reimbursement and potential impacts to County services as a result. After extensive efforts by the County and its legislative delegation, payment for the countywide FY 2022-23 VLFAA shortfall of $70 million (of which the County’s share was approximately $41 million) was included in the State budget (as well as the County’s FY 2024-25 Adopted Budget) and was distributed to the County and the cities on August 26, 2024.
For FY 2023-24, the VLFAA due to the County was approximately $159 million. However, based on current estimates and implementation of applicable property tax laws, there was only $91 million available in Educational Revenue Augmentation Fund and property taxes from non-basic aid school districts to fund the County’s VLFAA. Due to this shortage, there were insufficient funds to cover the County’s share of the VLFAA, resulting in an estimated $68 million VLFAA shortfall for the County. As in the past, the County has requested reimbursement from the State to cover the FY 2023-24 VLFAA shortfall amount and will request that it is included in the State FY 2025-26 budget. Because the amount of any annual VLFAA shortfall is dependent on school funding data that is not available until mid-way through the fiscal year, future shortfalls are difficult to estimate accurately. Nonetheless, based on the latest available information, annual countywide VLFAA shortfall amounts are projected to range from $50 million to $191 million per year over the next three years.
The County is also facing rising expenditures related to employee salaries and benefits which are not included in this current budget. As noted above, the revised FY 2024-25 budget includes increases in Health Benefit Rates, with a 7.15 percent increase for Kaiser and a 16.99 percent increase for Aetna. Concurrently, the County is negotiating with key labor groups that represent 73 percent of the County’s workforce, including American Federation of State, County, and Municipal Employees (AFSCME), Service Employees International Union (SEIU), Management, Confidential, and Attorneys. Negotiations with the Organization of Sheriff’s Sergeants are also scheduled to commence shortly. These negotiations, while necessary and important, are anticipated to add pressure to the General Fund. Future budget planning must account for these additional expenses while maintaining fiscal responsibility.
Fund Balance and Reserves
Final Fund Balance adjustments included herein comply with the County’s Fund Balance Policy and Reserves Policy guidelines. Following FY 2024-25 year-end closing activities, final Fund Balance adjustments of $698.5 million for All County funds are included in the budget. Of this total, $638.7 million are in the General Fund and $59.8 million are in Other County funds. These adjustments are mainly due to unanticipated rollover of funding for capital projects as described above and the addition of Contingencies and Reserves as shown below. A summary of these changes can be found in Attachment B.
This FY 2024-25 Adopted Budget includes an increase of $98.2 million in General Fund Contingencies and Reserves from the FY 2024-25 Recommended Budget, for a total of $507.4 million. Overall, the County All Funds has Contingencies and Reserve of $736.9 million which is an increase of $71.2 million from the FY 2024-25 Recommended Budget.
|
Contingencies and Reserves |
FY 2024-25 May Rec |
FY 2024-25 Adopted |
Change |
Percent of Net Approps |
|
All Funds |
$665.7 M |
$736.9 M |
$71.2 M |
15.4% |
|
General Fund |
$417.2 M |
$507.4 M |
$98.2 M |
16.0% |
To best serve County residents and prepare the County for any significant changes in the County’s overall financial position, the County Executive and the Chief Financial Officer have submitted changes to the County’s long term financial policies to this Board for consideration in a separate Resolution. The goal of these changes is to protect discretionary revenue sources and successfully carry out this Board’s fiduciary duty to County residents. The long-term goal is to ensure financial stability of the County for many years to come.
Measure K Update
The Notice of Funding Opportunity (NOFO) process has been finalized with Board approval on all recommended items for negotiation or solicitation. Through this budget, funding that was temporarily held under Non-Departmental Services for these items is transferred to the responsible departments. Departments are currently negotiating contracts, finalizing agreements, and preparing for solicitations. Contractors will be engaged to evaluate each priority area, ensuring programs and services meet community goals. The Requests for Proposals are finalized for Housing and Homelessness and Emergency Preparedness, with those for Children, Families, and Seniors forthcoming.
Capital Projects
The FY 2024-25 Adopted Budget includes total appropriations for capital projects of $771.7 million. This includes all projects throughout the County including Roads, Information Technology Infrastructure, and the entire 5-year Capital Improvement Plan. The FY 2024-25 Adopted Budget includes changes of $329.0 million from the FY 2024-25 Recommended Budget, a 42.6 percent increase. This increase is mainly due to a substantial rollover of project funding from FY 2023-24, caused by timing constraints with the State-mandated year-end closing process, which prevented prior year invoices from being processed before the FY 2023-24 close.
Capital projects that have been or will be completed in FY 2024-25 include: Cordilleras Health Campus, County Office Building 3 (COB3), East Palo Alto City Hall Improvements, Middlefield Road Improvement Project, phases of the San Mateo Medical Center improvements Project, Reimagine Flood Park (Phase 1), Santa Cruz and Alameda de las Pulgas Improvements Project, and Tunitas Creek Beach.
Additional projects resulting from recent winter storm damages that have been or will be completed in FY 2024-25 include the Old La Honda Road Slip-out Repair and the 2180 Higgins Canyon Road Slip-out Repair. Work will also begin on the Entrada Way Culvert and Slip-Out Repair and Bank Stabilization at 1780 Higgins Canyon Road. Several retaining wall projects are also expected to be completed in FY 2024-25 including the Ticonderoga Retaining Wall Improvement Project and the Lerida Court and Gabarda Way Retaining Wall Improvement Project.
The Department of Public Works and the Project Development Unit have made significant progress on deferred maintenance projects throughout the County, as well as countywide elevator projects. In addition, East Palo Alto Family Health Services Department Renovations, the South San Francisco Wellness Center, Pescadero Fire Station, 8th Avenue and 16th Avenue Reconstruction Project, and 455 County Center projects are fully funded in the FY 2024-25 Adopted Budget.
The capital projects from the 5-year Capital Improvement Plan for FY 2024-25 are listed in Attachment F. The FY 2024-25 Adopted Budget totals represent the portion of the project budget that is appropriated in this specific budget. These amounts are distinct from full project costs (total project budget), not all of which may be appropriated during this budget cycle.
Conclusion
This proposed Adopted Budget aims to address the community's immediate needs while implementing a forward-looking strategy to ensure the County's long-term fiscal stability amid ongoing economic changes. While responding to current demands is essential, the County must also plan for the future. The investments and policy changes made now will position the County for success by managing rising expenditures and revenue challenges. As we enter the upcoming fiscal cycle, it is crucial to focus on what is necessary to sustain key services while also operating with the future in mind.
The County Attorney has reviewed and approved the resolutions as to form.
EQUITY IMPACT:
The FY 2024-25 Recommended Budget allocates resources to essential services such as healthcare, education, and social welfare, ensuring equitable access for all residents regardless of socioeconomic status. Investments in infrastructure and capital projects focus on serving vulnerable populations and public input has been sought in key decisions.
FISCAL IMPACT:
The impact on the revised budget of all September changes on Total Requirements for all County funds is an increase of $1.02 billion in FY 2024-25 (compared to the FY 2024-25 Recommended Budget). Fund Balance has increased by $698.5 million for all County funds ($638.7 million in the General Fund and $59.8 million in other County funds). General Fund Reserves now total $507.4 million, which represents 16.0 percent of Net Appropriations.
ATTACHMENTS:
Attachment A - Position Changes Summary
Attachment B - Final Fund Balance Adjustments
Attachment C - Measure K Allocations Summary
Attachment D - Health Benefit Increases Summary
Attachment E - September Revisions
Attachment F - Capital Projects Summary
Cc: Iliana Rodriguez, Assistant County Executive
Justin Mates, Deputy County Executive
Adam Ely, Deputy County Executive