OC Annual Budget FY 2009-10 - ADA

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

INTRODUCTION

The County Executive Office (CEO) is pleased to provide you with the FY 2009-10 Adopted 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 County Board of Supervisors adopted this budget on June 23, 2009.

The FY 2009-10 Adopted 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. Any County budget impacts of the Governor's revise budget and the State's final adopted budget will be adjusted during the fiscal year, as the impacts become known.

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 2009-10 Budget 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

III. 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 continued 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 and the state of California. In August 2009, Orange County's unemployment rates was 9.6%, and compares to 12.1% for the State and 9.6% for U.S. In contrast, rates for surrounding counties in Southern California were 12.6% for Los Angeles County, 15.0% for Riverside County, 13.9% for San Bernardino County and 10.4% for San Diego County for the same time period. Thus far, Orange County's unemployment rates for calendar year 2009 are 7.6% in January, 8.0% in February, and 8.6% in March, 8.4% in April, 8.8% in May, 9.3% in June, 9.6% in July, and 9.6% in August. The five-year point-in-time unemployment rates for the month of August in Orange County are 3.8% for August 2005, 3.6% for August 2006, 4.2% for August 2007, 5.8% for August 2008 and 9.6% for August 2009. In effect, the County of Orange employment profile is showing signs of decline, despite remaining favorable relative to surrounding counties, and the state of California.

According to Chapman University, Orange County's job growth is expected to decrease (-3.1%) in 2009 and result in approximately 45,740 less jobs relative to 2008. This compares to slightly smaller percentage decreases at the State of California (-2.9%) and slightly larger decreases at the national level (-3.2%) 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 2009) 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, -0.2% in 2007, -2.0% in 2008 and is projected to decline to -3.1% in 2009. Thus, in terms of job growth Orange County levels are declining and are slightly higher relative to state and slightly 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 both the state and national levels.

Inflation, as measured by the Consumer Price Index (CPI), is expected to be slightly lower for Orange County relative to the State of California and equal to the CPI at the national level in 2009. Chapman University projects the CPI at the national level to increase by 1.0%, in California by 1.1%, and in Orange County by 1.0% in 2009. Comparisons of Orange County's historical CPI trends from 2000 to 2009 are sporadic at 3.3% for 2000, 3.4% for 2001, 2.8% 2002, 2.6% for 2003, 3.3% for 2004, 4.5% for 2005, 4.3% for 2006, 3.3 2007, 3.5 in 2008 and 1.0% 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 $427,750 in August 2009 compared to $440,000 in August 2008, representing a -2.80% decrease. This compares to decreases of -13.30% in Los Angeles County, -23.20% in Riverside County, -32.60% in San Bernardino County, -7.10% in San Diego County, and 4.8% in California during the same time period (August 2009 compared to August 2008). Median home prices in August 2009, in Orange County remained higher relative to surrounding counties and the State; $427,750,000 for Orange County, $329,500 for Los Angeles County, $190,000 for Riverside County, $145,000 for San Bernardino County, $325,000 for San Diego County, and $248,927 for the State of California.

With respect to sales, 2,713 homes were sold in Orange County in August 2008 compared to 2,790 in August 2009, representing an increase of 2.8%. The counterpart increases in sales for surrounding counties and the State were 17.1% in Los Angeles County, 1.6% in Riverside County, 34.3% in San Bernardino County, 5.0% in San Diego County, and 4.8% in California.

In terms of foreclosures, relative to the first quarter of 2009 (January, February and March) Orange County experienced a decrease in foreclosures during the second quarter of 2009 (April, May and June) of -11.18%, from 2,146 during the first quarter to 1,906 during the second quarter of 2009. This compares to counterpart changes in foreclosure rates of -2,91% for Los Angeles County, -10.36% for Riverside County, -0.93% for San Bernardino County, +14.48% for San Diego County, and +4.69% for the State of California. In effect, during 2009 Orange County foreclosures have decreased substantially, relative to all surrounding Counties and the State. Similarly, with respect to decreases in foreclosures during the second quarter of 2009 relative to the same period (second quarter) in 2008, Orange County again shows substantial decreases relative to all surrounding Counties and the State; -41.21% for Orange County, -30.21% for LA County, -35.04% for Riverside County, -23.71% for San Bernardino County, -26.82% for San Diego County, and -27.87% 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 -3.1% in 2009. This compares to a decrease of -4.7% 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 0.2% in 2007, and decreased by -3.0% in 2008 and are expected to decrease by -3.1% 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 Fiscal Year (FY) 2009-10 State Budget Proposal on December 31, 2008, 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 assumptions. However, there are downside risks from further deterioration of the economy and from costs that the state is likely to incur but are not included in the Governor's budget proposal. On February 19, 2009, the Governor and the State Legislature crafted a budget for FY 2009-10 with mid-year reductions to address the rapidly growing budget deficit. Due to further deterioration in revenues from February to June, the Legislature passed a revised budget which was signed by the Governor on July 29, 2009.

 Budget deficit ($24 billion as of July 2009) is closed with significant borrowing and one-time solutions (Table B ):

 Table B

	FY 08-09	FY 09-10	Total (in millions)
Expense Reductions (RDA shift)	$3,708	$12,417	$16,125
Revenue Increases		3,492	3,492
Fund Shifts	6	999	1,005
Borrowing (Proposition 1A)		2,182	2,182
Other		1,355	1,355
Total Solutions (in millions)	$3,714	$20,445	$24,150

Shortly, after completing the July revised budget, the Department of Finance announced that an initial deficit of $7 to $8 billion is expected for the FY 2010-11 Budget. The deficit could be greater if the economy does not rebound in the 4th Quarter as assumed in the July budget revision.

The following is a list of Line-Item vetoes affecting counties (State General Fund reductions):

• $80 million to counties for child abuse
• $60 million to Medi-Cal administration (eligibility service reduction)
• $50 million to Healthy Families program (low cost health care for children in families that don't qualify for Medi-Cal)
• $52 million to AIDS prevention program (HCA contracts)
• $28 million from Williamson Act program (open space funding)
• $6 million from State parks (some parks will close)

Impacts to Orange County from State budget reductions are estimated at $100 million:

Borrowing from local government - The budget plan includes $2 billion in Proposition 1A borrowing from local government to be repaid with interest by June 30, 2013. The budget package includes several elements that make it securitization friendly:

• Authorizes securitization through Joint Powers Authority (JPA)
• State pay cost of issuance, including credit enhancement, COI, and interest capped at 8 percent
• Repayment is priority behind education and General Obligation debt payments

The Orange County impact is estimated at $65 million

• General Fund impact at $38 million
• OC Parks impact at $4 million
• OC Libraries impact at $3 million
• Flood Control District at $5 million
• Structural Fire Fund at $15 million

Transfer from local government - The budget plan includes $2 billion in shifts from redevelopment agencies (RDA) ($1.7 billion in FY 09-10 and $350 million in FY 10-11).

• Local Auditor-Controller calculate proportional amount of transfer and shift funds to schools within project area, then reduce property taxes to those schools by equal amount (language is an attempt to address issues raised during lawsuit on unsuccessful RDA transfer attempt during FY 08-09)
• RDAs is not required to allocate funds to low-mod housing fund and must repay by June 30, 2015

The OC Development Agency impact is estimated at $10.6 million

• FY 2009-10 impact of $8.8 million
• FY 2010-11 impact of $1.8 million

Health and Human Services

Overall the state budget includes cuts and policy changes that result in reduction in eligibility and/or reduced service levels for health and social programs.

CalWORKs - Statewide savings of $375 million by reducing county administration funding as well as direct welfare to work services and child care. Also reduces number of consecutive months an adult may receive a cash grant and gradually increases sanctions for cases that do not meet program requirements. The estimated funding reduction to Orange County is $12,742,145 to SSA, $967,378 to HCA for public health nurses serving CalWORKs clients, $925,480 for Cal Learn cuts, and $3,966,962 for mental health and substance abuse services.

CalWORKs and SSI/SSP - Eliminates automatic cost of living adjustments.

CalWINN Consortium - Reduced Orange County funding for maintenance and operation of the CalWINN system by an estimated $236,882.

In-Home Supportive Services (IHSS) - State budget eliminates all IHSS services for recipients with functional index (FI) below 2 and eliminates all domestic services. The budget also reduces the IHSS Public Authority Administration funding to $10 million statewide. Orange County impacts related to change in eligibility are difficult to estimate. The reduction in authorized hours for domestic services will potentially reduce provider wages. However, it is anticipated that clients will appeal these cuts by appealing their functional ranking. While the appeal is pending, the client will continue to receive benefits. Orange County's Public Authority funding reduction is estimated at $578,397. Orange County will receive an estimated $210,000 in revenue with $90,000 County match requirement for fraud investigation.

Child Welfare Services - Funding is reduced to counties by 10 percent or $80 million statewide. Funding reduction will impact staffing levels and contract services. The estimated funding reduction to Orange County is $5,000,000.

Foster Care Assistance - State budget includes reduction in the basic rate by 10 percent or $27 million statewide. Reduced rates could promote the closure of some placements and limit services. The estimated funding reduction to Orange County is $1,476,294.

Transitional Housing Program Plus - State budget includes funding reduction of $5 million statewide. The reduction will affect our ability to help establish permanency and independence among former foster youth who have emancipated. The estimated funding reduction to Orange County is $313,877.

Medi-Cal Administration - State budget includes $60 million in reduction from county administration which will result in an additional $60 million reduction in federal funds.

Healthy Families Program - The budget includes reduction in funding statewide by $173 million resulting in a cap on enrollment effective July 17, 2009. All new applicants will be placed on a waiting list for enrollment. Also eliminates up to $60 to contractors for helping individuals enroll and remain in Medi-Cal and Health Families programs. The estimated funding reduction to Orange County is $1,806,145.

Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) - State budget reduces funding statewide by $14.6 million. The estimated funding reduction to Orange County is $470,066.

Children's Dental Disease Prevention - The State budget suspends the program and eliminates all funding. Orange County's estimated funding reduction is $240,219.

Adolescent Family Life Program - The State budget reduces funding for case management services to pregnant and parenting teens. The estimated funding reduction to Orange County is $550,762.

AIDS/HIV Program - The budget reduces $77 million in funding for AIDS education, prevention, testing, therapeutic monitoring, and counseling programs. The estimated funding reduction to Orange County is $2,246,383.

Mental Health Managed Care - The budget reduces funding by $113 million statewide. The funding supports access to specialty mental health services when medical necessity criteria are met. The estimated funding reduction to Orange County is $4,313,800. Prop. 63 funding is available to support the State cut.

Privatizing Eligibility - The State will consider development of a comprehensive plan to privatize eligibility for CalWORKs, Medi-Cal, and Food Stamp programs.

Proposition 36 - Eliminates all funding for Prop. 36 and reduces Offender Treatment Program to $63 million. Orange County's estimated funding reduction is $4,300,309 to HCA, $328,483 to District Attorney, $328,483 to Public Defender, and $1.1 million to Probation.

Administration of Justice

The largest reduction within the Administration of Justice program is the unspecified $631 million cut that the State will address when the Legislature return in August. The Governor has indicated that these reductions will target cost savings from reduced prison and parole populations.

Judicial Branch - The budget includes $169 million reductions to trial courts resulting in one day per month court closure and increases to certain fees.

Other Programs

Proposition 42/Highway User Tax Account - State budget defers the first two quarterly payments of Proposition 42 until May 2010 and defers six monthly payments of HUTA to be repaid sometime after January 2010. The estimated Orange County impact is a deferral of $8.5 million for Prop. 42 and $9 million for HUTA.

Proposition 1B Local Streets and Roads Account - The State budget appropriates $700 million in Prop. 1B funds with $442 million for counties. The budget allows counties to temporarily borrow from Prop. 1B funds to backfill the Prop. 42 deferrals. The estimated Orange County allocation is $27.3 million with disbursement expected in FY 09-10.

Election Reimbursements - The budget does not specifically include provisions to reimburse counties for the May Special Election. 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 and 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.
• Retirement costs are expected 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 ADOPTED BUDGET

Total Budget:

• Total County Budget is $5.5 billion, a decrease of 18% from the prior year adopted budget.
• Total budgeted positions are 17,895, a decrease of 476 positions or a 2.6% decrease from the current modified budget.
• 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 $644 million, an increase of 6% over current year projected General Purpose Revenues.
• General Fund Balance Available (FBA) originally budgeted at $50 million is now projected to decrease to $25 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	-	-	20.0
Ending FBA June 30	$ 129.6	$ 62.4	$ 25.0*

 * 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 reduced appropriations and funding by $9.5 million and deleted 58 positions. All programs within the District Attorney's office will be impacted at some level by the proposed cuts. The adopted budget included maintenance of support core staffing that is required to provide effective prosecution services. Detail of service impacts is included in the Budget Augmentation Book.

Probation

• Due to reduced revenues and County funding limitations, the Probation Department adopted budget included $8.6 million in net reductions and deletion of 85 positions, offset by the addition of 19 positions for reporting center augmentations as discussed below.
• $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's adopted budget included deletion of 17 vacant positions.

Sheriff-Coroner

• Due to the decline in Proposition 172 revenue and County funding limitations, the Sheriff-Coroner adopted budget included $31.8 million in reductions with deletion of 199 positions. to be reduced of which $25.3 million and 188 positions are being recommended for restoration. Net County Cost restorations made were targeted to support jail operations, patrol operations, and investigation services. Detail of service impacts is included 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 final budget included 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 adopted 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 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 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, 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.

IV. 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.

V. NEXT STEPS

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 Dulong
• 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 and Debt Service

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

Links in this section relate to Body