OC Budget Workbook FY 2009-10 - ADA

RETURN TO THE PDF DOCUMENT VERSION OF THE 2009-2010 BUDGET WORKBOOK

INTRODUCTION

The County Executive Office (CEO) is pleased to present the FY 2009-10 Recommended Budget. The CEO budget proposal to the Board of Supervisors reflects Orange County's disciplined approach to fiscal management and is consistent with the County's Strategic Financial Planning process. The budget recommendations will be presented at a public budget workshop on May 29, 2009 and discussed at a Public Budget Hearing scheduled to begin on June 9, 2009.

The FY 2009-10 Recommended Budget reflects the impacts of the local, State and National economies, declining revenue growth and the rising cost of doing business. The County's local economy continues to be impacted by the downturn in the housing market, lagging retail sales and growing unemployment. Impacts to County Agencies have been significant in FY 2008-09 and are projected to remain consistent going forward in FY 2009-10. The County's budget proposal reflects the impacts of the State's FY 2009-10 Budget Act and will be updated to reflect the impacts of the Governor's revise budget and the State's final adopted budget as necessary.

This introduction contains a guide to reading the budget document, a brief description of the County's form of government, supervisorial districts, mission statement and the County's strategic planning initiative. This introduction also reviews the state budget and economic factors influencing the County budget, provides summary budget information, and budget highlights in various program areas of the budget.

I. A CITIZEN'S GUIDE TO READING THE BUDGET DOCUMENT

This document includes information that provides readers with a greater understanding of each department's mission, organizational structure, and performance results as a narrative context for the budget amounts. The introduction section of Volume I contains several charts and tables that provide an overview of issues affecting the budget, sources and uses of funds and budgeted positions. Following the introduction are sections that present each department and fund in the County's seven program areas listed below:

1. Public Protection
2. Community Services
3. Infrastructure and Environmental Resources
4. General Government Services
5. Capital Improvements
6. Debt Service
7. Insurance, Reserves and Miscellaneous

The presentation for each department within each program area includes:

An Operational Summary including:

• Mission
• Budget at a Glance
• Strategic Goals
• Key Outcome Indicators (Performance Measures)
• Key Accomplishments of the current year

An Organizational Summary including:

• Organization Chart
• Description of each major activity
• Ten-year staffing trend chart with highlights of staffing changes

A FY 2009-10Budget Summary including:

• Department's plan for support of the County's strategic priorities
• Changes included in the base budget
• Approved budget augmentations and related performance plan
• Recap of the department budget
• Highlights of key budget trends
• A matrix of the budget units under the department's control

Volume II contains additional budget detail. Readers looking for more detailed budget information for a specific department can use the Index at the end of Volume II. Departments are listed in alphabetical order with the page number of that department's budget information.

In addition to the departmental information available in the County budget book, all County departments prepare annual business plans. These plans serve two key purposes:

• Communicate the value that the department brings to the community
• Report how the department is doing using outcome indicators

In FY 2008-09, the County adopted a policy in which Department Business plans would be updated every two years; however, Departments were to update significant performance measures annually. 2008 Business plans and any 2009 updates are published separately by the departments and are available on the County's website. A business plan sets forth long-term goals, discusses operational and budget challenges, identifies strategies for overcoming the challenges and making progress on those goals during the coming year and identifies how success will be measured by using outcome indicators (key performance measures). Occasionally, key performance measures change because of an ongoing review to ensure consistency with the departmental mission and goals. It is the intent that changes to performance measures will be minimized over time so the reader of the business plans and this budget document can consistently observe trends and progress in meeting objectives.

II. ORGANIZATIONAL OVERVIEW

Orange County's FY 2009-10 Recommended Budget presents the County's financial capacity and priorities in providing public safety and health, social services, environmental, and regional planning services for its residents. The County provides the public with a comprehensive array of public services through its departments and through comprehensive community partnerships with public, private and non-profit agencies.

FORM OF GOVERNMENT

The County is a charter county as a result of the March 5, 2002 voter approval of Measure V that provides for an electoral process to fill mid-term vacancies on the Board of Supervisors. Before Measure V, as a general law County, mid-term vacancies would otherwise be filled by gubernatorial appointment. In all other respects, the County is like a general law county. A five-member Board of Supervisors, each of who serve four-year terms and annually elect a Chair and Vice Chair, governs the County. The Supervisors represent districts that are each equal in population.

The members of the Board of Supervisors by district are as follows:

PATRICIA BATES, CHAIR, from the Fifth District, representing the communities of Aliso Viejo, Dana Point, Laguna Beach, Laguna Hills, Laguna Niguel, Laguna Woods, Lake Forest, Mission Viejo, San Clemente, San Juan Capistrano and Rancho Santa Margarita.

JANET NGUYEN, VICE CHAIR, from the First District, representing the communities of Santa Ana, Westminster, and portions of Garden Grove.

JOHN M. W. MOORLACH, from the Second District, representing the communities of Costa Mesa, Cypress, Fountain Valley, Huntington Beach, La Palma, Los Alamitos, Newport Beach, Seal Beach, Stanton, and portions of Garden Grove.

BILL CAMPBELL, from the Third District, representing the communities of Brea, Irvine, Orange, Villa Park, Yorba Linda, Tustin and portions of Anaheim.

CHRIS NORBY, from the Fourth District, representing the communities of Buena Park, Fullerton, La Habra, Placentia and portions of Anaheim.

STRATEGIC PLANNING INITIATIVE

In December 2006, as part of its Strategic Planning Initiative, the County adopted a new mission statement to define the spirit, purpose and focus of Orange County government. The County's mission statement is:

Making Orange County a safe, healthy and fulfilling place to live, work and play, today and for generations to come, by providing outstanding, cost-effective regional public services.

The County is committed to providing Orange County residents with the highest quality programs and services as articulated in its mission statement. Supporting this mission statement is a set of vision statements for business and cultural values ( Table A ):

VISION STATEMENT FOR BUSINESS VALUES	VISION STATEMENT FOR CULTURAL VALUES
We strive to be a high quality model governmental agency that delivers services to the community in ways that demonstrate:	We commit to creating a positive, service-oriented culture which:
Excellence - provide responsive and timely services Leadership - leverage available resources as we partner with regional business and other governmental agencies Stewardship - seek cost-effective and effective methods Innovation - use leading-edge, innovative technology	Attracts and retains the best and the brightest Fosters a spirit of collaboration and partnership internally and externally Supports creativity, innovation, and responsiveness Demonstrates a "can-do" attitude in accomplishing timely results Creates a fun, fulfilling and rewarding working environment Models the following core values in everything we do: Respect Integrity Caring Trust Excellence

II. ECONOMIC OUTLOOK FOR FY 2009-10

Key factors that influence the local Orange County economy include the unemployment rate, job growth, inflation, housing market, incomes and taxable sales. Two indicators of the state of the Orange County economy are: how well the local economy performs relative to surrounding counties, the state and the nation (i.e., External Indicators); and how well the local economy performs relative to its own historical trends (i.e., Internal Indicators). In terms of the external indicators, Orange County's economy routinely out-performs local surrounding counties, the state, and national economies (in annual percentage growth), and, in fact, ranks higher (in absolute dollars) than the economies of the majority of the countries in the world. External indicators for 2009, however, show sluggishness in the local economy with respect to certain factors, particularly when compared to the state and national levels. In terms of internal (historical) trends, current and projected indicators show that economic growth at the local level will continue to be slow, and in some cases decline in 2009. This section provides various external and internal indicators that describe the current and projected outlook of the Orange County economy.

Orange County's unemployment rate continues to be one of the lowest in the State, and is below that of all surrounding Southern California counties, the state of California and the nation. In March 2009, unemployment rates for the U.S., California and Orange County were recorded at 9.0%, 11.5% and 8.5%, respectively. By comparison, in March 2009, rates for surrounding counties in Southern California were 11.3% for Los Angeles County, 13.2% for Riverside County, 12.5% for San Bernardino County and 9.3% for San Diego County. Thus far, Orange County's unemployment rates for calendar year 2009 are 7.6% in January, 8.0% in February, and 8.5% in March. The five-year point-in-time unemployment rates for the month of March in Orange County are 3.9% for March 2005, 3.4% for March 2006, 3.5% for March 2007, 4.5% for March 2008 and 8.5% for March 2009. In effect, the County of Orange employment profile is showing signs of decline, despite remaining favorable relative to surrounding counties, the state and the nation.

According to Chapman University, Orange County's job growth is expected to decrease (-0.6%) in 2009 and result in approximately 9,128 less jobs relative to 2008. This compares to slightly smaller percentage decreases at the State of California (-0.5%) and larger decreases at the national level (-0.9%) for the same time period. Historically, job growth in Orange County has been sporadic since the early 2000's. However, during the past three years (2006 to 2008) there is a definite decline in job growth. From 2000 to 2009 job growth in Orange County was 3.2% in 2000, 1.8% in 2001, -0.7% in 2002, 1.8% in 2003, 1.9% in 2004, 2.3% in 2005, 1.9 in 2006, -0.4% in 2007, -1.6% in 2008 and is projected to decline to -0.6% in 2009. Thus, in terms of job growth Orange County levels are declining and are slightly higher relative to state and lower relative to national indicators. This trend represents a change in job growth at the local level relative to prior years when employment growth was consistent with or higher than the state and national levels.

Inflation, as measured by the Consumer Price Index (CPI), is expected to be higher for Orange County relative to the U.S. but equal to the CPI at the state of California level in 2009. Chapman University projects the CPI at the national level to increase by 2.9%, in California by 3.2%, and in Orange County by 3.2% in 2009. Comparisons of Orange County's historical CPI trends from 2000 to 2009 are sporadic at 3.3% in 2000, 3.4% in 2001, 2.8% in 2002, 2.6% in 2003, 3.3% in 2004, 4.5% in 2005, 4.3% in 2006, 3.3% in 2007, 4.1% in 2008 and 3.2% for 2009.

According to DataQuick Information Systems the real estate housing market throughout the State of California has taken a substantial hit in 2009. Three indicators are particularly noteworthy; median sales price, number of sales, and foreclosure rates. The median sales price in Orange County was $390,000 in March 2009 compared to $506,000 in March 2008, representing a -22.90% decrease. This compares to decreases of -31.80% in Los Angeles County, -38.90% in Riverside County, -43.40% in San Bernardino County, -27.80% in San Diego County, and 47.4% in California during the same time period. Median home prices in Orange County remained higher relative to surrounding counties and the State; $390,000 for Orange County, $300,000 for Los Angeles County, $187,000 for Riverside County, $150,000 for San Bernardino County, $285,000 for San Diego County, and $223,000 for the State of California.

With respect to sales, 1,663 homes were sold in Orange County in March 2008 compared to 2,413 in March 2009, representing an increase of 45.1%. The counterpart increases in sales for surrounding counties and the State were 40.1% in Los Angeles County, 63.8% in Riverside County, 88.9% in San Bernardino County, 43.3% in San Diego County, and 47.4% in California.

In terms of foreclosures, Orange County experienced a decrease of -3.9%, from 2,333 foreclosures during the first quarter of 2008 (i.e., January, February and March) to 2,146 foreclosures during the same time period in 2009. This compares to changes in foreclosure rates of -2,1% for Los Angeles County, -2.0% for Riverside County, 6.4% for San Bernardino County, -16.2% for San Diego County, and -7.6% for the State of California.

For the future, Chapman University is projecting that while housing appreciation in Orange County will continue to decline, housing affordability (compared to other parts of the country) will continue to remain low.

Median family incomes were adjusted ("Re-benched") in 2003 by the U.S. Department of Housing and Urban Development (HUD) to comply with actual data collected during the 2000 Census. Orange County's adjusted (HUD) median family income is expected to be $86,100 in 2009 (up from $84,100 in 2008). This compares to $62,100 for Los Angeles County, $74,900 for San Diego County, $64,500 for Riverside County, $64,500 for San Bernardino County, $70,400 for the State of California and $64,000 for the U.S during the same time period.

Taxable sales in Orange County are forecast by Chapman University to decrease by -0.6% in 2009. This compares to a decrease of -1.1% for the State of California. Taxable sales in Orange County increased by 10.1% in 2000, by 0.3% in 2001, by 0.6% in 2002, by 5.9% in 2003, by 8.8% in 2004, by 6.5% in 2005, by 3.9% in 2006, by 0.9% in 2007, and decreased by-1.2 in 2008 and are expected to decrease by -0.6% in 2009.

In summary, by some indicators the economic condition of Orange County is better than surrounding counties, the state and the nation, but worse by other indicators. With respect to historical (internal County) trends, the current slow down is widespread and substantial.

STATE LEGISLATION AND BUDGET

The Governor released the FY 2009-10 State Budget Proposal on December 31, 2009, 11 days early, which proposed $41.7 billion in budgetary solutions to close the gap and establish a $2.2 billion reserve. The summary of the proposed budget identified two sources for the extraordinary budget gap. The first was the "massive and unsustainable new spending commitments" the state made in the midst of a revenue surge whose source was capital gains revenues from the dot-com boom. This structural deficit was never fixed, as the state relied instead upon one-time measures -- such as borrowing -- each year. The second source of the state's current shortfall was the decline in revenues that has resulted from the recession.

On January 8, 2009, the State Legislative Analyst's Office (LAO) released an overview of the Governor's budget proposal and concluded that the Governor's budget generally was built upon reasonable numbers. However, there is downside risk from further deterioration of the economy, state revenues and from costs that the State is likely to incur but is not included in the Governor's budget. The Governor and the State Legislature in an extraordinary session crafted on February 19, 2009, a budget for FY 2009-10 and mid-year reductions to deal with the rapid growing deficit.

Budget deficit ($41.6B) is closed with significant borrowing and one-time solutions ( Table B ):

Table B

	FY 08/09	FY 09/10	Total (in millions)
Expense Reductions	$6,725	$8,129	$14,854
Revenue Increases	$1,534	$10,980	$12,514
Federal Stimulus Funding	$2,730	$5,150	$7,880
Borrowing	$268	$5,135	$5,403
Governor's Line Item Vetoes		$957	$957
Increase Reserve		($49)	($49)
Total Solutions (in millions)	$11,257	$30,302	$41,559

Major Revenue Assumptions in the Budget Deal:

• Assumption of at least $10 billion in federal economic stimulus funding. The Department of Finance is required to certify the amount of stimulus funding by April 1, 2009. If the amount falls short of the $10 billion, additional reductions to various state programs would be enacted. These "trigger cuts" include many county administered programs within Health and Human Services, including CalWORKs, Medi-Cal benefits, SSI/SSP, and In-Home Supportive Services.
• Vehicle License Fee (VLF) rate to increase from 0.65% to 1.15%. 0.15% will be dedicated to public safety to fund programs previously supported by State General Funds. County administered programs that are now supported by VLF include Citizens' Option for Public Safety (COPS) grants, Juvenile Probation and Camps Funding (JPCF), Juvenile Justice Crime Prevention Act (JJCPA), and Youthful Offender Block Grant. The remaining 0.35% increase in VLF will be deposited to the State General Fund. The rate increase begins May 19, 2009 and lasts until July 1, 2011. If the spending cap measure passes on May 19th the increase is extended to July 1, 2013.
• Sales and use tax is increased by 1.0% beginning April 1, 2009, and lasting until July 1, 2011. If the spending cap measure passes on May 19th the increase is extended to July 1, 2012.
• Personal income tax is increased 0.25%. If the State receives at least $10 billion in federal stimulus funding, the increase is reduced to 0.125%.
• There is significant risk to the State programs funded by the temporary tax increases or funded by one-time federal stimulus funding. If the ballot measures fail or when the temporary revenues expire, the State will be back in the same budget deficit situation.

Special Election Scheduled for May 19, 2009

The Legislature appropriated $10 million to the Secretary of State for the purposes of a special election, which can go up by another $5 million if necessary to cover costs. The Legislature did not address reimbursement of counties for holding the election, and they did not authorize any additional counties to conduct this election by mail-only ballots.

The Legislature specified that the following measures will appear on the May 19, 2009, ballot:

• Proposition 1A - Implements a State spending cap based on rate of growth from the last ten years. If approved, many of the taxes approved by the Legislature would be extended.
• Proposition 1B - Supplemental payments to local school districts and community colleges to address recent budget cuts.
• Proposition 1C - Lottery modernization and allows $5 billion in borrowing against future revenues to help balance the State budget.
• Proposition 1D - Proposition 10 modification to redirect Proposition 10 funds to State Health and Human Services programs.
• Proposition 1E - Proposition 63 modification to redirect Proposition 63 funds to support Early and Periodic Screening, Diagnosis and Treatment (EPSDT) programs.
• Proposition 1F - Prevents elected Member of the Legislature and statewide constitutional officers from receiving pay raises in years when the state is running a deficit.

Impacts to Orange County:

• Borrowing from Counties - The budget plan includes some deferrals of payments to counties for social services and transportation. The Orange County impact is estimated at $38 million for July and August 2009 administration and assistance claims from the State Department of Social Services. Additionally, transportation deferrals of $4.5 million are estimated for February to April 2009 for fuel excise allocations to OC Public Works.
• Juvenile Justice Crime Prevention Act (JJCPA) - Funding is transitioned from State General Fund to the 0.15% increase in Vehicle License Fees. Funding, which was reduced 19% or $1.7 million in FY 2008-09, is restored to the full amount in FY 2009-10.
• Juvenile Probation and Camps Funding (JPCF) - Funding is transitioned from State General Fund to the 0.15% increase in Vehicle License Fees. Funding, which was reduced 19% or $2.9 million in FY 2008-09, is restored to the full amount in FY 2009-10.
• Juvenile Probation Funding - Funding is transitioned from State General Fund to the 0.15% increase in Vehicle License Fees. The funding level is consistent with anticipated amount for FY 2009-10.
• Mental Health Services Act (Prop. 63) - The State budget assumes redirecting $227 million of Prop. 63 funds to Early and Periodic Screening, Diagnosis and Treatment (EPSDT) programs. County impacts may be minimal as the redirected funds may come from diverting MHSA funds that have not yet been allocated to counties and dedicated to specific programs and projects.
• California Children and Families Commission (Proposition 10) - The budget includes redirection of $268 million in Prop. 10 funds to create a "Prop. 10 Health and Human Services Fund." Orange County HCA has several services funded by Proposition 10 revenue, including Public Health Nursing and Children and Youth Services. Additionally, HCA provides administrative support to leverage Proposition 10 funding and draw down matching federal funds. Funding impacts to HCA could be up to $2.4 million in County services and up to $2.2 million in federal funded services.
• CalWORKs - The budget makes a number of changes to assistance payments of the CalWORKs program in order to create savings for the State. For the Safety Net Program, assistance will be eliminated for children whose parents do no meet federal work participation requirement. The budget will also suspend the COLA and Pay for Performance incentive program. Additionally, the assistance payments will be reduced by 4% effective July 1, 2009. The Orange County impact is a reduction in state revenue and cost by $4.8 million and a reduction in Net County Cost by $178,615.
• Foster Care and Adoption Assistance Federal Medical Assistance Percentages (FMAP) Increase - The FMAP is used to determine the amount of federal participation for Title IV-E Foster Care and Adoption Assistance payments. This percentage has increased from 50% to 56.2%. The Orange County impact is an estimated $1.8 million increase in federal revenue and $1.03 million decrease in state revenues with a Net County Cost reduction of $768,089 based on existing service levels.
• In-Home Supportive Services Federal Medical Assistance Percentages (FMAP) Increase - The FMAP used to determine the amount of federal participation for IHSS has been increased from 50% to 61.59%. The Orange County impact is an estimated $4.1 million reduction to Net County Cost based on existing service levels.
• In-Home Supportive Services Provider Wages - The budget includes a federal stimulus funding trigger proposal that could cap State participation in provider wages at $9.50 per hour plus $0.60 per hour health benefits. This should have no impact on Orange County as our rate is $9.30 per hour plus $0.60 benefits.
• Medi-Cal - The State budget proposes to maintain the Medi-Cal base funding at the current level by restoring the statewide $41.1 million current year base cut. This should restore the $3.3 million in base reduction for Orange County. This restoration should mitigate the loss of cost of doing business increases.
• American Recovery & Reinvestment Act (ARRA) - The ARRA of 2009 will provide $7.6 million in additional Workforce Investment Act (WIA) funding for Orange County Community Services. No impact on Net County Cost.
• State Emergency Housing Assistance Program Funding (EHAP) - The State budget eliminates funding for EHAP, which provides state grants for local agency-operated homeless shelters. This impacts Orange County's Armory Emergency Shelter Program that has received an average of $209,000 per year in EHAP funds to operate the program.
• Election Reimbursements - The budget does not specifically include provisions to reimburse counties for the May Special Election. However, the Governor has publicly stated that he supports reimbursements to counties. Orange County's cost estimate is $4.5 million.

MAJOR REVENUE AND EXPENSE ASSUMPTIONS

The County budget includes a wide variety of funding sources. The budget recommendations are based on the following revenue assumptions:

• State and Federal funding sources are estimated by departments based on established funding allocation formulas, caseload projections and the latest State budget information.
• Total property assessed valuations are projected to decrease by 0.5%.
• State legislation authored by Senator Correa (SB 8) and adopted with the State's FY 2009-10 Budget Act, increases the County's annual property tax allocation by $35 million per year starting in FY 2009-10 and grows to $50 million per year starting in FY 2011-12. With SB 8, total property tax revenue will increase by 6.8% in FY 2009-10.
• Total sales and other taxes to the General Fund are projected to increase by 0.7% based on trend data and estimates by California State University Fullerton forecasts; Hinderliter, De Llamas & Associates (sales tax consultant to the County) and the State Board of Equalization.
• Vehicle license fees are projected to increase by 2.0% based on State projections, California State University Fullerton forecasts and trend data.
• Health & Welfare Realignment revenue from the State allocated to Health, Mental Health, Social Services and Probation is projected to decrease 9.2% from prior year budget.
• The one-half cent Public Safety Sales Tax (Proposition 172) funds are allocated 80% to the Sheriff's Department and 20% to the District Attorney by Board policy. The amount for FY 2009-10 is projected to decrease 1.0% from the prior fiscal year, consistent with the current decline in retail sales.
• The interest rate on cash balances in the County Investment Pool administered by the County Treasurer is expected to decrease to 1.35%, continuing the decline experienced over the past 12 months.

Assumptions for various categories of expenses include:

• Labor costs are centrally calculated based on approved positions and historical vacancy factors. One to two step merit increases are assumed for employees who are eligible. Actual merit awards are based on the employee's performance evaluation. No base building wage increase appropriations are built into the departmental budgets as these are subject to negotiations and approval by the Board of Supervisors. As negotiated agreements are completed, current budget status will be reviewed and the need for budget adjustments will be determined. No Performance Incentive Program (PIP) appropriations are built into the departmental budgets as this program is currently a time-off award only. A 2.5% Management Pay for Performance Program increase is budgeted as approved by the Board of Supervisors on April 22, 2008.
• Retirement costs are expected to decrease slightly this year and remain fairly stable in the next fiscal year. Retirement rates are anticipated to increase significantly in years thereafter due to the 21% investment portfolio loss in 2008. The County did not issue a short-term pension obligation bond in January 2008 or January 2009 as in past years. Pension obligation bonds continue to be a considered strategy for savings when the appropriate factors are present.
• Employee health insurance costs are expected to increase by approximately 9.5%.
• Retiree medical cost for most bargaining units is budgeted at 2.5% of payroll. This rate reflects the modified plan approved by the Board in the fall of 2006. The proposed budget plan fully funds the annual required contribution.
• Inflation on other services and supplies is generally allowed at 3.2% with higher rates for fuel and medical supplies.

DECEMBER 2008 STRATEGIC FINANCIAL PLAN

The Strategic Financial Plan (SFP) process provides the framework for balancing available resources with operating requirements, implementing new programs and facilities and serves as the foundation for the annual budget. This framework enables the Board to make annual funding decisions within the context of a comprehensive, long-term perspective. Since 1998, the Strategic Financial Plan has been updated annually to review revenue and expense forecasts. New priorities are identified and considered as part of a comprehensive update of the plan.

The Strategic Financial Plan contains five elements:

• Economic Forecast
• General Purpose Revenue and Fund Balance Available Forecast
• Program Cost Forecast
• Strategic Priorities
• General Fund Reserves Policy

On December 16, 2008, the Board of Supervisors adopted the County's 2008 Strategic Financial Plan. Due to the current economic situation and the declining cash balance in the General Fund, no new strategic priorities were built into the plan. The Strategic Financial Plan included an assumption of a gradual decline and leveling of General Fund Balance Available, modest general purpose revenue growth and continuation of the State's 15 year repayment of past mandated cost claims. The spending side included assumptions of 0% growth in departmental Net County Cost limits for FY 2009-10, 1% in FY 2010-11, 2% in FY 2011-12 through FY 2012-13, and 3% growth in FY 2013-14. The plan identified funding shortfalls beginning in FY 2009-10 and growing each year to FY 2013-14. To bring the financial plan into balance, each department was tasked with developing reduction scenarios for each of the five years. Subsequent to adoption of the Strategic Financial Plan and due to the progression of the recession, Net County Cost budgeted limits were reduced 2% for FY 2008-09 and a 3% reduction was implemented for the FY 2009-10 budget year. The annual update of this plan is scheduled to begin in September of 2009.

IV. OVERVIEW OF THE FY 2009-10 RECOMMENDED COUNTY BUDGET

BASIS OF BUDGETING

The County's budget and its accounting system are based on the modified accrual system. The fiscal year begins on July 1. Revenues are budgeted as they are expected to be received or as they are applicable to the fiscal year. Consistent with the Governmental Accounting Standards Board (GASB) ruling 33, typically only revenues expected to be received within 60 days of the end of the fiscal year are included. Fund Balance Available (FBA) is estimated and adjusted for increases or decreases to reserves. Revenues plus FBA equals total available financing.

Expenses are budgeted at an amount sufficient for 12 months if they are ongoing and in their full amount if they are one-time items. In each fund, expenses and increases to reserves must be balanced with available financing.

BUDGET DEVELOPMENT

In late December 2008, the CEO issued the following budget development policies and guidelines to all County departments as a starting point for the budget development:

Consistency with Strategic Financial Plan and Business Plan Concepts: Base operating budget requests shall be consistent with the priorities and operational plans contained in the December 2008 Strategic Financial Plan and the approved departmental business plans as resources are available. Department heads are responsible for using these planning processes along with program outcome indicators to evaluate existing programs and redirect existing resources as needed for greater efficiency, to reduce cost and minimize the requests for additional resources. A certification regarding the evaluation of existing resources is required as part of the budget request submittal.

Salaries & Employee Benefits: The Salary and Benefits Forecasting System (SBFS) in BRASS (the County's budget system) will set the regular salary and employee benefits base budgets. The vacancy factor will be set at the historical actual calendar year 2008 vacancy rates.

Budgeted extra-help positions must comply with the MOU provisions. Those that do not are to be deleted with a corresponding reduction in the extra-help account.

Services & Supplies: Services and supplies shall be budgeted at the same level as actual use during last fiscal year and current year projections to the extent they are necessary to support business plan and Strategic Financial Plan goals.

Fees and Charges for Services: Departments are responsible for identifying total cost for programs with fees and to set fees at full cost recovery for the entire fiscal year. Full cost recovery includes direct and indirect costs, overhead and depreciation for the period during which the fee will be in effect. If fees are set at less than full cost recovery, the reason for subsidy should be given. Fees that are set by State law shall be implemented in accordance with those laws.

Revenue and Grants: Program revenues (e.g. State and Federal programs revenues) are to be used to offset the department's proportional share of operating costs to the full extent of the program regulations. Local matching funds should normally be at the legal minimum so that the General Fund subsidy (backfill) is minimized. Program revenues are to be used for caseload growth.

One-time revenues shall be limited for use on non-recurring items including start-up costs, program or reserve stabilization, capital expenses and early debt retirement.

New revenue sources pending legislation or grant approval should not be included in the base budget request. They should be considered during the quarterly budget report process (i.e. when legislation is passed or grants awarded).

Net County Cost (NCC): NCC limits for the next five years are based on the current budget, adjusted for one-time items and annualization of current year approved ongoing augmentations. Due to the slowing economy, the limits were reduced from the 2008 SFP planned zero growth to a reduction of -3%. There is a continued need to carefully manage the growth in the use of General Purpose Revenues.

Departments shall submit budget requests at or below the NCC limits. The CEO/Budget Office is authorized to automatically reduce, if necessary, the appropriation requests of any budget that exceeds the established NCC limit.

Reserves and Contingencies: The County General Fund currently contains formal reserves, appropriations for contingencies, appropriated reserve-type funds and reserves held by others. The purpose of these reserves is to protect community programs and services from temporary revenue shortfalls and provide for unpredicted, sudden and unavoidable one-time expenditures. Certain departments and non-General Funds have other reserves dedicated to specific programs and uses.

Balanced Budget: The General Fund requirements will be balanced to available resources. Budgets for funds outside the General Fund are to be balanced to Available Financing without General Fund subsidy unless previously approved by the Board or CEO. Available Financing shall be determined by an accurate projection on June 30 Fund Balance Available (FBA) and realistic estimates of budget year revenues and any planned decreases to reserves. If available financing exceeds requirements, the difference should be put into reserves for future use.

Augmentations (requests for new or restored resources): All augmentation requests must include outcome indicators that clearly outline the department's intended outcome(s) resulting from the additional resources. They must be ranked in order of the department's priority for approval. The department head must certify that all potential alternatives for redirecting existing resources have been examined and that there are no lower priority items that can be reduced or eliminated in order to free up existing resources. This certification will be contained in the budget cover letter from the department head to the CEO.

Approved augmentations will undergo an outcome indicator review for two subsequent years as a condition of continued funding. Departments will report on outcome indicator results (to the extent data is available by budget submittal due date) of the performance expectations in a format that will be provided as a separate package. Augmentations will be funded if the CEO and department agree that:

• They meet the performance expectations
• They merit continuation
• They are still relevant to the department's business plan
• Sufficient funding exists

Program Budgets outside the General Fund: It is the department head's responsibility to ensure that the proposed use of program funds is consistent with the available financing and legal restrictions on funds, the department's business plan, the County's strategic priorities and has been coordinated with the appropriate stakeholder groups external to the County.

In context of these policies and guidelines, departments prepare current year projections of expenses and revenues and requests for the next fiscal year. The CEO/County Budget Office reviews the requests, meets and discusses the requests with the department and prepares final recommendations for the Board. These recommendations are presented to the public via a budget workshop and then to the Board of Supervisors during public budget hearings. Operating and capital budgets are prepared in this single process and presented together in this budget book.

Preceding the budget program sections, the following charts and schedules are provided as an overview of the budget:

1. Total County Revenue Budget
2. Total County Financing
3. Total County Revenues by Source
4. Total County Appropriations by Program
5. General Fund Sources & Uses of Funds
6. General Fund Appropriations by Program
7. General Purpose Revenue
8. General Fund Net County Cost by Program
9. Public Safety Sales Tax
10. Health & Welfare Realignment
11. Total County Budget Comparison by Agency/Department
12. Provision for Reserves Summary
13. Position Summary
14. Summary of Net County Costs
15. County of Orange Organization Chart

HIGHLIGHTS OF THE FY 2009-10 RECOMMENDED BUDGET

Total Budget:

• Total County Budget is $5.5 billion, a decrease of 18% from the prior year modified budget.
• Total budgeted positions are 17,480 in the base budget, a decrease of 1,188 positions or 6% from the prior year budget. Approval of recommended augmentation requests would increase the total position count by 412.
• Total General Fund Budget is $2.8 billion, a decrease of 13% from the prior year adopted budget.
• General Purpose Revenues (excluding General Fund Balance Available and changes to reserves) are $696.8 million, an increase of 3.9% over current year projected General Purpose Revenues.
• General Fund Balance Available (FBA) originally budgeted at $50 million is now projected to decrease to $24.8 million by the end of the current year as shown in the following table (Table C):

Table C

(Millions)	FY 2007-08 Actual	FY 2008-09 Actual	FY 2009-10 Projected
Changes in Encumbrances	$ 13.2	$ 14.5	$ 15.0
Fund Level Revenues (GPR Variance)	26.4	14.1	(15.0)
Departmental NCC Savings	90.0	33.8	5.0
Other Additional Savings	-	-	19.8
Ending FBA June 30	$ 129.6	$ 62.4	$ 24.8*

*Note: Other additional savings result from mid-year actions and unanticipated events including additional funding from the revised Teeter Program, sale of property, project deferrals and cancellations, and freeze on expenditures for services and supplies.

Specific Program Highlights:

This section provides highlights of the base budgets and approved augmentations for the County budget programs and departments. Due to the continuing decline in County-wide revenues and trending down of programs, many Departments have proposed significant cuts in the current year proposed budget. Departments have worked diligently maintain programs and minimize impacts on services.

Public Protection

District Attorney

• In order to maintain a balanced budget, the District Attorney submitted potential cuts of $28.7 million. All programs within the District Attorney's office will be impacted at some level by the proposed cuts with a maximum potential of 232 positions to be reduced of which $18.6 million and 149 positions are being recommended for restoration. The restorations are targeted to support core staffing that is required to provide effective prosecution services. Additional detail of service impacts are provided in the Budget Augmentation Book.

Probation

• Due to reduced revenues and County funding limitations, the Probation Department submitted $8.8 million in proposed reductions with a maximum potential of 108 positions to be reduced of which $2.3 million and 23 positions are being recommended for restoration.
• $711,346 proposed funding would be used to establish a Youth Reporting Center that will utilize evidence-based practices to successfully manage youthful offenders in the community.
• $924,748 proposed funding would be used to establish an Adult Day Reporting Center that will utilize evidence-based practices to successfully manage adult offenders in the community.

Public Defender

• Public Defender submitted $4.5 million in proposed reductions with a maximum potential of 47 positions to be reduced of which $2.9 million and 30 positions are being recommended for restoration.

Sheriff-Coroner

• Due to the decline in Proposition 172 revenue and County funding limitations, the Sheriff-Coroner submitted $53.2 million in proposed reductions with a maximum potential of 388 positions to be reduced of which $25.3 million and 188 positions are being recommended for restoration. The restorations are targeted to support jail operations, patrol operations, and investigation services. Additional detail of service impacts are provided in the Budget Augmentation Book.

Community Services

• Significant Community Service impacts were realized in FY 2008-09 due to State funding shortfalls. In FY 2009-10, the Social Services Agency is proposing additional reductions of approximately $1 million and 20 vacant positions at Orangewood to balance the budget.

Infrastructure and Environmental Resources

Resources & Development Management Department (RDMD)

• Approved augmentations include deletion of $1.9 million in General Funds and 19 positions to reflect the completion in FY 2009-10 of the Court Facility transfer under Senate Bill 1732. The County will be responsible to make a $4 million County Facility Payment (CFP) to the state which will be reflected in Program I, Agency 081.

John Wayne Airport

• The Airport continues to work closely with the Transportation Security Administration (TSA), Federal Aviation Administration (FAA), and Airport Police Services (Orange County Sheriff-Coroner Department) to ensure the continued implementation of federally mandated security regulations.
• The Airport is implementing the Common Use Terminal Equipment (CUTE), a critical system involving processing and boarding of passengers. The system will replace proprietary systems at gates and ticket counters with a common, shared system so that any airline will be able to operate at any gate or ticketing position; thereby increasing the operational flexibility of the Airport and airlines.

General Government

County Accounting & Payroll System (CAPS)

• The proposed budget includes $9.9 million in appropriations offset by revenue from financing proceeds for the implementation of the CAPS Human Resources/Payroll System upgrade. This augmentation also includes the debt service payment of $2.0 million drawn from the General Fund to cover financing costs.

Capital Improvements

Capital Projects

• The base budget includes $2.8 million for new maintenance and repair plan projects for various County facilities, $2.4 million in new departmental capital projects and re-budgeted projects of $9.9 million. The base budget includes $1.9 million reimbursement revenue from the Central Utilities Facility Cogeneration project bond proceeds and $1.7 million reimbursement from Sheriff's 800 MHz Fund 15L.

Data Systems Development Projects

• This budget includes debt financing to fund continuing costs of ongoing projects including $4.1 million for the development of the new Assessment Tax System (ATS) and $3.6 million for the development of the new Property Tax Management System (PTMS). This augmentation also includes the debt service payment of $1.3 million drawn from the General Fund to cover the financing costs.

Debt

The proposed budget funds all debt obligation payments. Budgets displayed in Program VI include amounts for annual payments on the County's refunded debt financing of the Juvenile Justice Center, Manchester parking facilities, and debt financing of infrastructure improvements in the County's Assessment Districts, Community Facilities Districts and the Orange County Development Agency. Although the County's former Pension Obligation Bonds were economically defeased, this budget reflects the payments made by the trustee from escrow. This program also includes the debt associated with the County's Teeter program. Debt related to specific operations such as John Wayne Airport and Integrated Waste Management is included in Program III where the operational budgets for those operations are also found. Based on the County's Strategic Financial Plan and at current funding levels, the County is able to fulfill these debt obligations and sustain current and future services and operations.

Cash Flow Management

On September 16, 2008, the County of Orange issued $100 million in Tax and Revenue Anticipation Notes (TRANs) to finance seasonal cash flow requirements during Fiscal Year 2008-09. The proceeds from the TRANs cover anticipated cash deficits resulting from the uneven flow of revenues. County General Fund expenditures occur in relatively level amounts throughout the year, while receipts follow an uneven pattern. Secured property tax installments, which represent the largest component of general purpose revenues, are primarily received in December and April of each year. Additionally, the late adoption of the final State budget resulted in significant delays to the reimbursement of many health and human service programs administered by the County. The County fully repaid the TRANs borrowing on April 30, 2009 from available cash balances within the General Fund. For FY 2009-10, the County anticipates issuing TRANs in an amount not to exceed $150 million.

V. SUMMARY

This budget serves as a realistic plan of resources available to carry out the County's core businesses and priorities. It is consistent with the County's mission statement, the Strategic Financial Plan and departmental business plans. It follows the CEO budget policy guidelines, meets some of the departmental augmentation requests, incorporates impacts of the state budget proposals as known at this time, addresses important capital needs and provides adequate reserves.

VI. NEXT STEPS

A Public Workshop on this recommended budget is planned for May 29, 2009. The Board of Supervisors will hold public hearings regarding this budget starting June 9, 2009. Results of those hearings will be incorporated into this budget and will be returned to the Board for adoption on June 23, 2009. The new fiscal year begins on July 1, 2009. During the fiscal year, the CEO will present the Board with quarterly budget status reports and recommend appropriate changes as needed, including changes which may arise from final County fund balances, final state budget impacts, new legislation, new grants awards, and other circumstances or conditions that may affect the budget.

Contacts regarding information in this report: COUNTY EXECUTIVE OFFICE:

Thomas G. Mauk, County Executive Officer 714.834.6200

Robert Franz, Chief Financial Officer 714.834.4304

COUNTY BUDGET OFFICE:

Frank Kim, County Budget Director 714.834.3530

Budget Planning and Coordination

• Mitch Tevlin, Manager 714.834.6748
• Margaret Cady
• Gina Angcaco
• Darlene Schnoor
• Craig Fowler
• Mar Taloma

Financial Planning

• Margaret Cady 714.834.3646

Public Protection & Community Services

• Michelle Aguirre, Manager 714.834.4104
• Kathleen Long
• Theresa Stanberry

Infrastructure and Environmental Resources, General Government, Capital Projects, Debt Service

• Anil Kukreja, Manager 714.834.4146
• Sheri Vukelich
• Michelle Zink