FY 2016-17 Recommended Budget - ADA

RETURN TO THE PDF DOCUMENT VERSION OF THE 2016-2017 RECOMMENDED BUDGET

ORANGE COUNTY FY 2016-2017 RECOMMENDED BUDGET

BOARD OF SUPERVISORS

Lisa Bartlett Chairwoman Supervisor, 5th District	Michelle Steel Vice Chair Supervisor, 2nd District

Andrew Do Supervisor, 1st District	Todd Spitzer Supervisor, 3rd District	Shawn Nelson Supervisor, 4th District

TRANSMITTAL LETTER

	County of Orange
May 9, 2016 To: From: Subject	Chairwoman Lisa A. Bartlett, Supervisor, Fifth District Members, Board of Supervisors Frank Kim, County Executive Officer Fiscal Year 2016-17 Recommended Budget

On behalf of the County of Orange Executive Office, I am pleased to present the FY 2016-17 Recommended Budget. The budget reflects the County's disciplined approach to fiscal management and is consistent with the Board's Strategic Plan goals to stabilize the budget, prepare for contingencies and fund agency infrastructure.

Looking toward FY 2016-17, the County is well-positioned to focus on providing the needed resources to strengthen our infrastructure and continue delivering high quality public services that fulfill the County's mission to make Orange County “a safe, healthy, and fulfilling place to live, work, and play.” In FY 2015-16, the County fully paid off the General Fund debt from the 1994 bankruptcy; and the issuer credit rating by Standard and Poor's was upgraded from AA to AA+. Due largely to the County's continued disciplined financial and cash management through the Board's leadership, we will be paying off the bankruptcy bonds in FY 2017-18, as well as building upon efficiencies the County put into place during the recent recessionary years.

The FY 2016-17 Recommended Budget of $6.1 billion is structurally balanced without use of reserves for continuing operating costs or ongoing recommended augmentations. The Recommended FY 2016-17 Budget includes funding for the following key initiatives:

Homeless Initiatives : The County has acquired property for a multi-service center in the City of Anaheim that will serve the homeless on a year-round basis. This is one of many initiatives the County is implementing to assist our homeless residents, which includes providing mental and physical health services and increased coordination of services across County departments.

OC Animal Care : The County is moving forward with the construction of a new animal care center to be built on 10 acres of land at the former Tustin Marine base. The new facility will include a state-of-the-art design with outdoor areas, kennels and a training center.

800 MHz Communications System : The 800 MHz Countywide Coordinated Communications System (CCCS) is an interoperable two-way radio communications system serving the County public safety and public works agencies as well as 34 cities in the County. Efforts are underway for a full system upgrade, new infrastructure, and refresh of 800 MHz radios for County agencies and partners.

Civic Center Master Plan : The Civic Center Master Plan initiative will address the County’s long-term occupancy in the Orange County Civic Center, improve delivery of services to the community, improve space usage and departmental adjacencies, address the aging portfolio of County facilities, and better manage long-term occupancy and maintenance costs.

Central Utility Facility : The Central Utility Facility (CUF), supporting the heating and cooling systems of the Civic Center buildings since 1968, will undergo a major upgrade in FY 2016-17 to replace antiquated equipment and underground piping with the goal of ensuring continued and uninterrupted provision of utilities to critical facilities including the Central Jail and Superior Court. Completion of this project is a crucial component supporting the new Civic Center Master Plan and is expected to result in more energy efficient, reliable and environmentally responsible systems.

Connection to Services for Older Adults and Veterans : The County is addressing the demands of an increasing older adult population by dedicating resources to increase outreach, improve assessments, and engage and connect caregivers and those who would benefit from services. The Veterans Services Offices are helping the 130,000 Orange County veterans and their families receive the benefits earned through their service to our nation and have dedicated resources ensuring the veterans’ needs are met through reduced wait times, increased outreach, and greater assistance with claims and other services.

It is the continued coordinated efforts of the Board of Supervisors and the County employees that make it possible to exercise fiscal stewardship and continue enriching the lives of Orange County residents and the more than 40 million people who visit annually.

FY 2016-17 RECOMMENDED BUDGET AT A GLANCE

Total County Revenues by Source

FY 2016-17 Total = $6.1 Billion

County Revenue Source
(in Million Dollars)

		FY 2014-2015	FY 2015-2016	FY 2016-2017	Change from FY 2015-2016 Budget
Code	Source Name	Actual	Modified Budget	Recommended Budget	Amount	Percent
A	Intergovernmental Revenues	2,068.7	2,108.7	2,123.0	14.3	0.7%
B	Fund Balance Unassigned (FBU)	245.6	355.2	216.8	(138.4)	-39.0%
C	Charges For Services	743.8	777.5	826.5	49.0	6.3%
D	Taxes	858.5	882.1	924.4	42.3	4.8%
E	Miscellaneous Revenues	401.8	454.3	455.3	1.0	0.2%
F	Other Financing Sources	391.2	817.7	658.4	(159.3)	-19.5%
G	Revenue From Use Of Money & Property	183.7	195.3	205.1	9.8	5.0%
H	Reserve Cancellations	199.5	543.2	574.0	30.8	5.7%
I	Fines & Forfeitures/License & Permits	125.7	87.7	78.1	(9.6)	-10.9%
		5,218.5	6,221.7	6,061.6	(160.1)	-2.6%

Total County Appropriations by Use

FY 2016-17 Total = $6.1 Billion

County Appropriations
(in Million Dollars)

		FY 2014-2015	FY 2015-2016	FY 2016-2017	Change from FY 2015-2016 Budget
Code	Use	Actual	Modified Budget	Recommended Budget	Amount	Percent
A	Salaries & Benefits	1,877.1	2,025.6	2,076.6	51.0	2.5%
B	Services & Supplies	1,168.4	1,679.3	1,595.1	(84.2)	-5.0%
C	Other Charges	1,031.0	1,285.3	1,180.0	(105.3)	-8.2%
D	Capital Assets	66.4	126.7	113.0	(13.7)	-10.8%
E	Land	3.3	27.7	31.6	3.9	14.1%
F	Structures & Improvements	78.3	340.7	395.6	54.9	16.1%
G	Intangible Assets-Amortizable	0.0	2.7	2.6	(0.1)	-3.7%
H	Other Financing Uses	358.4	572.1	613.5	41.4	7.2%
I	Special Items	-	80.5	104.6	24.1	29.9%
J	Contingencies	-	2.7	48.1	45.4	1,681.5%
K	Increases to Reserves	431.6	220.9	71.2	(149.7)	-67.8%
L	Intrafund Transfers*	(122.3)	(151.4)	(170.3)	(18.9)	12.5%
		4,892.2	6,212.8	6,061.6	(151.2)	-2.4%

NOTE: Intrafund transfers represent expenses recovered from one fund budget to another fund budget within the County General Fund and are not included in the pie chart for total County Appropriations by Use.

Total County Appropriations by Program

FY 2016-17 Total = $6.1 Billion

County Program Appropriations
(in Million Dollars)

		FY 2014-2015	FY 2015-2016	FY 2016-2017	Change from FY 2015-2016 Budget
Program	Program Name	Actual	Modified Budget	Recommended Budget	Amount	Percent
I	Public Protection	1,121.6	1,268.5	1,281.8	13.3	1.0%
II	Community Services	2,046.5	2,310.4	2,361.3	50.9	2.2%
III	Infrastructure & Environmental Resources	737.5	1,202.3	1,206.4	4.1	0.3%
IV	General Government Services	162.0	198.4	177.6	(20.8)	-10.5%
V	Capital Improvements	85.2	249.5	205.5	(44.0)	-17.6%
VI	Debt Service	191.6	294.0	207.6	(86.4)	-29.4%
VII	Insurance, Reserves & Miscellaneous	547.8	689.7	621.4	(68.3)	-9.9%
		4,892.2	6,212.8	6,061.6	(151.2)	-2.4%

Authorized Positions by Program

FY 2016-17 Total Positions = 18,012

Authorized Program Positions

		FY 2014-2015	FY 2015-2016	FY 2016-2017	Change from FY 2015-2016 Budget
Program	Program Name1	Actual	Modified Budget	Recommended Budget	Amount	Percent
I	Public Protection	6,593	6,522	6,355	(167)	-2.6%
II	Community Services	8,583	8,652	8,643	(9)	-0.1%
III	Infrastructure & Environmental Resources	1,303	1,299	1,299	-	0.0%
IV	General Government Services	1,422	1,434	1,437	3	0.2%
VII	Insurance, Reserves & Miscellaneous	234	281	278	(3)	-1.1%
		18,135	18,188	18,012	(176)	-1.0%

ORANGE COUNTY PROFILE AND ECONOMIC INDICATORS

Key Facts

Founded	August 1, 1889
Size	799 square miles
Coastline	42 miles
Highest Elevation	5,689 feet (Santiago Peak)
Incorporated Cities	34

Population
2012	3,089,343
2013	3,120,180
2014	3,144,961
2015	3,169,776

Source: U.S. Census Bureau

Orange County is the third most populous county in California and the sixth most populous in the United States.

Form of Government

The County functions under a Charter adopted in 2002, including subsequent amendments. A five-member Board of Supervisors governs the County. Each elected member serves a four-year term, and the Board annually elects a Chair and Vice Chair. The supervisors represent districts that are each approximately equal in population.

County Mission

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. Supporting the County's mission 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 businesses and other governmental agencies Stewardship - Seek cost-effective and efficient 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

Economic Indicators

Key factors that influence the local Orange County economy include the unemployment rate, job growth, inflation, incomes, housing market, and taxable sales. External and internal indicators provide information about the state of the Orange County economy. The County routinely monitors: (a) how well the local economy performs relative to surrounding counties, the State and the Nation (External Indicators); and (b) how well the local economy performs relative to its own historical trends (Internal Indicators). In terms of the external indicators, Orange County's economy routinely out-performs local surrounding counties, the State, and National economies. External indicators for 2016 reflect that the local economy is experiencing a moderate recovery, trending more favorable when compared to State and National economies. In terms of internal (historical) trends, current and projected indicators forecast that economic recovery at the local level will continue to be slow and moderate. This section provides trend data for various external and internal indicators that summarize the current and projected outlook of the Orange County economy.

ORANGE COUNTY HISTORICAL EMPLOYMENT STATISTICS

	Total Labor Force	No. of Employed	% Unemployment
2011	1,548,110	1,408,314	9.0%
2012	1,566,066	1,443,350	7.8%
2013	1,566,788	1,464,904	6.5%
2014	1,575,606	1,489,164	5.5%
2015	1,597,100	1,525,600	4.5%

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics, State of California Employment Development Department;
Annual average for the calendar year.

HISTORICAL UNEMPLOYMENT RATES
U.S., CALIFORNIA AND ORANGE COUNTY

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics, State of California Employment Development Department; Annual average for the
calendar year.

COMPARATIVE UNEMPLOYMENT RATES MARCH 2016

	% Unemployment
Riverside County	5.9%
San Bernardino County	5.6%
Los Angeles County	5.0%
Ventura County	5.0%
San Diego County	4.7%
Orange County	4.0

Source: Bureau of Labor Statistics; State of California
Employment Development Department; March 2016 preliminary

ORANGE COUNTY YEAR-OVER-YEAR EMPLOYMENT STATISTICS (February 2015 to February 2016)

Labor Force Sector	Number of Jobs Increase/(Decrease)	Percent Change Year-Over-Year
Non-Farm Employment	42,300	2.8%
Construction	12,500	14.7%
Leisure & Hospitality	8,500	4.3%
Professional & Business Services	7,500	2.7%
Educational & Health Services	5,700	2.9%
Government	4,000	2.5
Financial Activities	1,800	1.6

Source: State of California Employment Development Department,
Labor Market Information Division - March 18, 2016 News Release

ORANGE COUNTY HISTORICAL JOB GROWTH

Year	% Payroll Employment
2011	1.1%
2012	2.7%
2013	2.8%
2014	2.5%
2015 Estimate	3.2%
2016 Forecast	2.5%

Sources: Chapman University Economic & Business Review, December 2015

Orange County's unemployment rate has continually improved since its recent peak in 2010 during the Great Recession. Orange County continues to have one of the lowest unemployment rates in the State, and is below that of all surrounding Southern California counties, the State and Nation. Year-over-year employment trends are positive across almost all industry sectors and job growth is expected to increase moderately by 2.5% in 2016.

CONSUMER PRICE INDEX

Year	Orange County	California	United States
2011	2.7%	2.6%	3.2%
2012	2.0%	2.2%	2.1%
2013	1.1%	1.5%	1.5%
2014	1.3%	1.8%	1.6%
2015	0.9%	1.5%	0.1%
2016 Forecast	2.0%	2.3%	1.7%

Source: Bureau of Labor Statistics

Inflation, as measured by the Consumer Price Index (CPI), was lower for Orange County relative to the state, but higher than the national levels in 2015. While Orange County's CPI is expected to increase from 0.9% in 2015 to 2.0% in 2016, it is still forecasted to be below the state, but higher than the nation.

HOUSING COMPARISON

County	Median Home Price (as of February)			Unit Sales (as of February)			Foreclosure Statistics
	2015	2016	% Change	2015	2016	% Change	March 2016
Orange County	$590,000	$610,000	3.4%	2,119	2,315	9.2%	1 in 1,586
Los Angeles	$467,000	$486,523	4.2%	4,696	5,186	10.4%	1 in 1,300
Riverside	$304,000	$315,000	3.6%	2,406	2,707	12.5%	1 in 661
San Bernardino	$250,000	$275,000	10.0%	1,710	1,894	10.8%	1 in 734
San Diego	$439,750	$455,000	3.5%	2,594	2,648	2.1%	1 in 1,586
Ventura	$463,500	$499,000	7.7%	571	623	9.1%	1 in 1,301

Source: CoreLogic, California Home Sale Activity (Median Home Price and Unit Sales), RealtyTrac, Inc. (Foreclosure Statistics)

The real estate housing market has steadily improved in California with February 2016 sales volume up 6.4% and median sales prices up by 3.8% above those recorded in February 2015. Orange County had the highest median home price in Southern California with unit sales up 9% in February 2016 year-over-year.

MEDIAN HOUSEHOLD INCOME

Source: California Department of Housing and Community Development, Department of Housing and Urban Development,
and the U.S. Census Bureau, 2015.

Orange County's median family income was estimated at $87,200 and is among the highest of all Southern California counties and substantially higher than the State of California and U.S. averages.

According to the December 2015 Chapman University Economic & Business Review, home buyers with a median family income need to spend 37.2% of their gross income to pay for interest, principal and property taxes. This is lower than the 47.3% of gross income needed in 2006, but still higher than the 27.2% needed in 2012.

Foreclosure rates are calculated by dividing total County housing units per the U.S. Census Bureau by the total number of properties that received notices of default (new filings, foreclosure in process, not yet recorded) within the month. RealtyTrac, Inc. forecasts that 1 in 1,586 Orange County homes received a foreclosure filing in March 2016. Among peer counties, Orange County tied for the lowest foreclosure rate in March.

Orange County Taxable Sales in the 2nd Quarter

For the 2nd Quarter/Calendar year	Taxable Sales (Billions)	Percent Change
2016 (f)	$16.7	5.7%
2015	$15.8	4.9%
2014	$15.1	4.7%

Source: Chapman University Economic & Business Review, December 2015

Taxable sales as of the second quarter of the calendar year in Orange County are forecasted by Chapman University to increase by 4.9% in 2015 and 5.7% in 2016. This compares to a projected increase of 5.8% for the State included in the Governor's FY 2016-17 Proposed Budget. The Board of Equalization reports taxable sales two years in arrears.

BUDGET OVERVIEW

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 generally accepted accounting principles, revenues are recognized when they are measurable and available. The County's availability criterion is 60 days after the end of the fiscal year.

Expenses are budgeted at an amount sufficient for 12 months if they are ongoing, and as needed in either partial or full amounts if they are one-time items. In each fund, expenses and increases to obligated fund balances must be balanced with available financing.

Budget Process

The County's budget process begins in December with careful planning by the County Budget Office. The budget unit prepares budget policies and detailed budget instructions for County departments including a budget calendar establishing completion dates for key events in the budget process.

County departments then prepare budget requests and submit them in early March to the County Budget Office. The submittal may include formal presentations by the department head or financial manager to the County Executive Officer (CEO) and key Budget Office staff.

The County Budget Office reviews and analyzes the department's budget requests and makes recommendations to the CEO. The Budget Office will also, in coordination with the County Auditor-Controller's office, establish the level of non-departmental, County-wide revenues that are projected to be available to the County. The budget is compiled, balanced and reviewed with the Chief Financial Officer and CEO. After this review, a Recommended Budget is published.

The County Budget Office plans and conducts briefing sessions for the County Board of Supervisors' staff members and study sessions for the Board members themselves. Finally, the CEO presents the budget during Board hearings and the Board takes formal action to adopt the budget.

Budget Calendar

December	County 5-Year Strategic Financial Plan is issued and establishes the Budget framework
Early January	Budget policies, instructions and calendar are provided to the County Departments
Early March	County Departments submit Budget and Augmentation requests to the County Budget Office
Mid-March	Budget review sessions are held with County Departments and the County Budget Office
April	Budget documents are issued to the Board and Public
May	Recommended Budget released and briefing sessions are held with Board of Supervisors' staff
Early June	Public Budget Hearings are held
Late June	Board Adopts Final Budget

The adopted budget becomes the spending plan and spending limit for the County departments. Actual revenues and expenses are monitored during the year and reported to the Board quarterly. The budget may be modified during the quarterly budget report process to reflect new assumptions or events.

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 2016-17 Budget Summary including:

• Department’s plan for support of the County’s strategic priorities
• Changes included in the base budget
• Budget augmentations and related performance plans
• 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.

Department business plan information is incorporated into this document. 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).

Long-Term Financial Policies

STABILIZE BUDGET

The County shall adopt a balanced budget, which is defined as a budget where planned expenses do not exceed the amount of revenue or funding available in accordance with state law. The budget will realistically reflect the funds available to County departments and programs and how those funds will be spent.

PREPARE FOR CONTINGENCIES

The County shall prepare a budget with enough reserves to cover unanticipated and severe economic downturns, major emergencies, or catastrophes that cannot be covered with existing appropriations.

FUND AGENCY INFRASTRUCTURE

The County shall prepare a budget that provides the proper funding for agency infrastructure to ensure that high quality services are delivered to the community. The budget will assess the best use of County General Funds and County special funds (e.g. OC Road, OC Flood, OC Parks, etc.) in developing capital assets while maintaining long term financial stability.

State Legislation and Budget

The Governor released the FY 2016-17 State Budget Proposal on January 7, 2016, which provides increased funding for education, health care and state infrastructure; increases state reserves; and pays down $5.4 billion in budgetary debts. The budget outlines $170.7 billion in expenditures and proposes a $10.2 billion reserve by the end of FY 2016-17. Overall General Fund spending is projected to grow by 5.6% with the majority of the increased spending in education, health and human services and government operations.

The Governor, in the budget introduction, stresses that despite the strengthening state economy pushing revenues higher and allowing for restoration of previous budget cuts and expansion of services, the state must begin planning for the next recession by building up the state's Rainy Day Fund, which was a result of a budget reserve and debt payment measure (Proposition 2) that was approved by the voters in November 2015 and altered how the State saves money in its budget reserves and pays down existing debts and unfunded liabilities. The budget proposes a supplemental $2 billion transfer from the General Fund to the Budget Stabilization Account which would bring the balance of the Rainy Day Fund from the estimated 37 percent of its constitutional target to 65 percent in FY 2016-17.

In January 2016, the State Legislative Analyst's Office (LAO) released an overview of the Governor's budget proposal and concluded that the Governor's priorities are generally prudent. The Governor and the LAO acknowledge that the budget potentially is at risk for economic downturns that could develop with little warning and that increasing budget reserves and repaying State debts remain important objectives.

The County continues to monitor State fiscal policy on an ongoing basis for possible funding impacts.

Budget Development and Policies

The Strategic Financial Plan (SFP) is presented to the Board of Supervisors in December of each year and provides the framework for aligning available resources with operating requirements, implementing new programs and facilities, and serving 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.

On December 8, 2015, the Board of Supervisors adopted the County's 2015 Strategic Financial Plan. The Strategic Financial Plan included an assumption of zero General Fund Unassigned Fund Balance and modest General Purpose Revenue growth. The spending side included assumptions of 1% growth in departmental Net County Cost (NCC) limits for FY 2016-17 through FY 2020-21. After factoring in the NCC limit growth, departments still identified a 5-year cumulative budget gap of $85 million, or $142 million when partial reserve replenishment is taken into consideration. The $85 million cumulative gap includes $19.4 million in reductions that would be required to meet the FY 2016-17 NCC limits. Actual proposed reductions in the FY 2016-17 Budget to meet NCC limits are $36.4 million. The plan emphasizes that the County must ensure that resources and programs are aligned to countywide strategic priorities and values.

The following budget development policies and guidelines are used by all County departments as a starting point for 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 2015 Strategic Financial Plan and the 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 the County's budget system, Performance Budgeting (PB), sets the regular salary and employee benefits base budgets. Salary and employee benefits are reduced to account for vacant positions based on the average number of vacant positions during calendar year 2015 (through pay period 27).

Budgeted extra-help positions must comply with Memorandum of Understanding 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.

Program 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 such as start-up costs, program or reserve stabilization, and capital expenses.

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

N et County Cost (NCC) : NCC limits are based on the current budget, adjusted for one-time items and annualization of current year approved ongoing augmentations. The FY 2016-17 budget policy includes 1% growth in the limits consistent with the 2015 SFP.

Obligated Fund Balances, Net Position and Contingencies : The County General Fund currently contains obligated fund balances (reserves) and appropriations for contingencies. The purpose of these obligated fund balances is to protect County mandated 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 obligated fund balances, or net position (similar to retained earnings), 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 balanced to Available Financing without General Fund subsidy unless previously approved by the Board or CEO. Available Financing shall be determined by realistic estimates of budget year revenues and any planned changes to obligated fund balances.

Augmentations (requests for new or restored resources) : All augmentation requests require outcome indicators (performance measures) that outline the department's intended outcome(s) resulting from the additional resources. Department heads have certified that all potential alternatives for redirecting existing resources have been examined and that lower priority items have been reduced or eliminated in order to free up existing resources.

Previously approved augmentations undergo an outcome indicator review for two subsequent years as a condition for continued funding. Departments report on outcome indicator results of the performance expectations. Prior year augmentations are 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, and 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 prepared current year projections of expenses and revenues and requests for the next fiscal year. The County Budget Office reviewed the requests, met and discussed the requests with the department, and prepared final recommendations for the Board. These recommendations are presented to the Board of Supervisors and public during public budget hearings. Operating and capital budgets are prepared in this single process and presented together in this budget book.

FY 2016-17 RECOMMENDED BUDGET
HIGHLIGHTS AND ASSUMPTIONS

Budget Highlights

• Balanced budget including 1% growth ($6M) in Net County Cost for General Fund departments
• Total County base budget is $6.1 billion, of which $3.2 billion is the General Fund budget
• General Purpose Revenues are $742.2 million, $40.1 million more than the current year-end estimate of $702.1 million due to $23.2 million projected increase in property tax revenues, $11 million one -time Teeter funding, and one-time transfers in of $7.3 million excess bond proceeds offset by a projected decrease of $1.4 million of miscellaneous revenue.
• Revenue assumptions are consistent with economists’ forecasts and reflect moderate levels of growth including 4% growth in secured property tax revenues over the current year-end estimated revenue.
• The one-half cent Public Safety Sales Tax (Proposition 172) revenue increase of 3.5% ($10.7M) over the current year-end estimated revenue based on State and economists’ projections and trend data; total FY 2016-17 budget is $317 million (80% Sheriff - $253.6M; and 20% District Attorney - $63.4M)
• The Statewide allocation of AB109 (2012 Public Safety Realignment) revenue is budgeted with an increase of approximately $6.8 million combined in base and growth revenue for Orange County, a 9% increase
• General Fund reserve balance is estimated to increase by approximately $32 million by June 30, 2017 after use of $2 million in fund balance for one-time capital expenditures, and automatic booking of an estimated $34 million in FY 2015-16 fund balance to reserves at year-end per Board policy.

When compared to the FY 2015-16 adopted budget, the FY 2016-17 recommended base budget reflects an increase of $264.3 million (4.6%) and a net decrease of 136 positions. The budget increase is primarily associated with increased human services costs offset by categorical revenues, appropriations for transfer of funds from OC Waste & Recycling for temporary borrowing associated with the OC Animal Care Center, Musick Jail Expansion, and Property Tax System projects, and appropriations for increases in other various programs and infrastructure projects. The decrease in positions is due primarily to department proposed position reductions required to meet NCC limits. All proposed position reductions are recommended for restoration. Board approval of the CEO's position recommendations would result in a net 120 position increase from the current FY 2015-16 position count (as of FY 2015-16 Second Quarter Budget Report) of 18,188 to 18,308.

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 and Federal budget information.
• The 2015-16 Assessed Roll of Values was up by 5.89%. The change in assessed values for FY 2016-17 is conservatively projected at 4.0%.
• 1991 Health & Welfare Realignment revenue from the State allocated to Health, Mental Health, Social Services, and Probation is projected at $196.8 million based upon current program and revenue trends.
• The current gross interest yield year-to-date for fiscal year 2015-2016 is 0.61% for the Orange County Investment Pool. The current net yield for fiscal year 2015-16 is 0.54%. The forecasted gross yield for the fiscal year 2015-16 for the Orange County Investment Pool is expected to be 0.70% and the forecasted net yield is expected to be 0.63%. (March 2016 Treasurer’s Monthly Investment Report).

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 increases in appropriations for wages are built into departmental budgets. Salary increases are subject to negotiations and approval by the Board of Supervisors.
• Overall retirement costs are decreasing this year by approximately .85% when compared to costs included in the FY 2015-16 Adopted Budget. The decline in retirement costs is mainly attributable to lower retirement rates resulting from the OCERS’ December 31, 2014 actuarial valuation. Base rates, depending on bargaining group, range from a decrease of -3.67% to an increase of 2.37%. Base rate growth has slowed as a result of the collective effects of: favorable investment returns (after smoothing); lower than expected COLA increases; lower than expected salary increases, as well as changes in actuarial assumptions which included a net increase in mortality rates.
• Health insurance rates are expected to increase by 3.5% to 9.4% above FY 2015-16 projected rates depending on health plan type. FY 2016-17 budgeted health insurance costs are expected to increase from the FY 2015-16 budget by an average of approximately 1.2% due to health plan changes implemented in FY 2014-15 that have mitigated the increase of year-over-year budgeted costs.
• Retiree medical cost is budgeted at 0.4% to 7.1% of payroll depending on bargaining group. Retiree medical rates are based on a bi-annual valuation. FY 2016-17 Recommended Budget retiree medical rates are based on the June 30, 2015 valuation.
• 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.

Specific Program Highlights

This section provides highlights of the base budgets and recommended augmentations for the County budget programs and departments. Due to increases in costs which continue to outpace growth in sources, some Departments have proposed reductions included in the recommended budget and which are recommended for full or partial restoration. Departments have worked diligently to manage their budgets to consistently maintain programs and minimize impacts on services.

PUBLIC PROTECTION

• District Attorney
  The District Attorney submitted $9.1 million in proposed reductions with a maximum potential of 67 positions to be reduced. The recommended restoration of $7.5 million and all positions is required to support core staffing for effective prosecution services. The District Attorney and County Executive Office will work closely throughout the fiscal year to manage the funding gap to ensure no impacts on public safety or staffing.

In addition, District Attorney requested expand augmentations of $3.0 million and 35 positions to address increased complexity of cases and administrative services functions. Recommended for approval is funding of $2.0 million and the addition of 29 positions.

• District Attorney-Public Administrator
  District Attorney-Public Administrator submitted $573 thousand in proposed reductions with a maximum impact of 4 position reductions. The recommended restoration of $573 thousand ($366 thousand ongoing and $207 thousand one-time) and all positions is required to ensure adequate staffing to sustain core mandated functions.
• Sheriff's Department
  Due to increases in expenditures and County funding limitations, the Sheriff's Department (Sheriff) submitted $15.5 million in proposed reductions with a potential maximum impact on 97 positions. All positions and $14.8 million in funding are recommended for restoration. The Sheriff and County Executive Office will work closely throughout the fiscal year to manage the $1.5 million funding gap to ensure no impacts on public safety or staffing.

In addition, Sheriff requested $3.1 million in expand augmentations to add four positions for expanded service to County unincorporated areas; two positions for cyber-crime investigations; and funding for the Closed-Circuit Television System (CCTV) upgrade and expansion. The $946 thousand ongoing and $2.1 million one-time funding recommended for approval funds the additional positions and equipment replacement and upgrades.

COMMUNITY SERVICES

• OC Community Resources
  OC Parks requested an expand augmentation of $1.4 million and 26 positions to provide resources and address increased demand for events and programs at park facilities. No Net County Cost is requested.
• Social Services Agency (SSA)
  The recommended budget includes a request of $6.9 million for the General Relief and In-Home Supportive Services programs, which is not recommended at this time. Caseloads will be monitored throughout the fiscal year to determine if a mid-year adjustment for funding is required.

In addition, SSA requested the addition of 50 positions for Medi-Cal (20 positions) and CalFresh (30 positions) program caseload growth. Addition of all positions and $4.4 million appropriations ($1.8 million for Medi-Cal and $2.6 million for CalFresh) is recommended with deferral of Net County Cost pending mid-year review of caseloads and funding.

INFRASTRUCTURE AND ENVIRONMENTAL RESOURCES

• OC Public Works
  OC Public Works submitted $970 thousand in proposed reductions related to OC Facilities Operations. The recommended restoration of $970 thousand is required to ensure adequate funding for maintenance of safe and functional facilities.
• OC Waste & Recycling (OCWR)
  The recommended budget includes the ability to borrow up to $36.6 million from OCWR to fund costs associated with the OC Animal Care Center ($22 million), James A. Musick jail expansion ($10.3 million), and Property Tax System projects. All borrowed funds will be repaid within three years from various funding sources.

GENERAL GOVERNMENT

• Assessor
  Assessor submitted $1.1 million in proposed reductions. The recommended restoration of $1.1 million ongoing is required to sustain core mandated assessment and valuation functions.
• County Counsel
  County Counsel is requesting an additional $3.5 million, which is recommended for approval to cover the cost of outside legal services.

CAPITAL PROJECTS

• Funding of $2.9 million is requested for the following projects: Sheriff - Air Handler Unit replacement at various facilities ($1.4 million); and replacement and updates of County-owned facility assets to ensure health and safety ($1.5 million). Funding for both requests is recommended for approval.

DEBT

• The adopted 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 and Community Facilities Districts. Although the County's former 1996 and 1997 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. The 2005 Refunding Recovery Bonds were retired on June 1, 2015, therefore appropriations are no longer budgeted for the debt service related to those bonds. The 2005 Lease Revenue Refunding Bonds will be paid off in July of 2017 with funds deposited with the Trustee during FY 2016-17. Debt related to the specific operations of John Wayne Airport is included in Program III where the operational budgets for that department 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

• The County issued short term taxable Pension Obligation Bonds to prepay, at a discount, a portion of the County's FY 2016-17 pension obligation. The bonds were issued on January 13, 2016 in the amount of $334.3 million at rates ranging from 0.753% to 1.208%.

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, and the 2015 Strategic Financial Plan. It follows the CEO budget policy guidelines, meets most of the departmental augmentation requests, incorporates impacts of the State budget proposals known at this time, addresses important capital needs and provides adequate reserves.

This County budget document is also available on-line at:
http://ocgov.com/gov/ceo/deputy/finance

The County also invites you "Inside OC Financials" to explore additional financial information including the OpenOC data tool, Strategic Financial Plan, and quarterly budget reports.
http://ocgov.com/about/openoc/