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HomeMy WebLinkAbout2013-12-19 Budget Meeting Minutes OverviewDeschutes County Board of Commissioners 1300 NW Wall St., Bend, OR 97701-1960 (541) 388-6570 -Fax (541) 385-3202 -.www.deschutes.org MINUTES OF BUDGET COMMITTEE MEETING DESCHUTES COUNTY BUDGET COMMITTEE THURSDAY, DECEMBER 19, 2013 Allen Room -Administration Building -1300 NW Wall St., Bend Present were Committee Members: Commissioners Tammy Baney, Tony DeBone, and Alan Unger; Bruce Barrett, Clay Higuchi and Mike Maier. Also present were Tom Anderson, County Administrator, and Erik Kropp, Deputy County Administrator, Deschutes County Administrative Services; Wayne Lowry and Teri Maerki, Deschutes County Finance; and Elon Glucklich, Bend Bulletin Reporter. Bruce Barrett, Budget Committee Chair, opened the meeting at 1 :40 p.m. 1. Opening Comments. Bruce Barrett turned the meeting over to Tom Anderson for opening comments. During discussions last May the Budget Committee asked for a mid-year report on how the issues they had wrestled with played out. The Budget Committee has been updated on some of these developments. However, as it is close to midyear and budget season is beginning, staff is combining what has been done in the past with updates on some of those issues. The goal is to provide the Budget Committee with information it needs and if more or less information is needed, the Committee can let staffknow. The County is in a pretty good spot as compared to last year and in years since the recession hit. Things are up almost across the board in terms of assessed valuation. There was good news for the General Fund with the PIL T and Secure Rural Schools money. Room taxes are up in general, but in addition to that the voters passed an increase to the room tax rate for next year which will provide some funding to the Fairgrounds to step up their marketing. Hopefully, this will assist in terms of getting more events and business at the Fairgrounds which will help regionally from an economic development stand point. Permit revenue is up in the Community Development Department. Construction activity is going very well in all three cities and the rural county. There are some big Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 1 of 24 Pages projects going on right now with hotels at Pronghorn and Tetherow. Notice was received last week on the expansion of La Pine's one hotel, and the rest of the projects are mainly residential construction. The County will not be doing the inspections on the hotel expansion. Things are good with two exceptions: (a) thellealth Department, and healtli funaing~ whICh eXlsfin a changing environment, and (b) Justice Court, which was one of the funds with issues discussed last May. A couple of items not necessarily budget related but relevant are the Board's annual retreat and filling of director positions. (l) The retreat where the Board sets the goals and priorities for the coming year will occur on January lOth. These goals and priorities are what the budget is based on. Once those are developed, the departments will be involved in translating those goals to their individual departmental objectives which in tum drives the departments' budget proposals. Two months ago the Commissioners began going to each operating department to have a more focused and engaged discussion on the department's mission, performance measures, how those tie to current year goals and objectives, and what the big issues in the next five years are. These meetings could translate into budget considerations such as operational, staffing, or capital type needs. The Board has been very engaged and departments have appreciated having that additional focus time with them. (2) The County has continued to hire new directors. Wayne Lowry is the County's new Finance Director and Danielle Fegley is the new HR Director. The County is in the middle of several recruitments. The Health Services Director, Scott Johnson, will be leaving after June 30th , 2014. Because this is such an enormously important position, the recruitment was started early to have some overlap there. Legal Counsel, Mark Pilliod, will stay on through the first part of February and it is hoped the new Legal Counsel will be close to being on board by that time. In the next couple of weeks the recruitment for the 9-1-1 Director will be posted. Erik Kropp and Danielle have been busy in getting these positions filled. The Budget Committee is aware of how critical the health care costs have been in trying to set our rates properly, especially with the DOC and the pharmacy. There will be a transition with the resignation of Ronda Connor. As the Benefits Coordinator, she was a key part of setting the health benefits rates. Dave Inbody is transferring from Administrative Services to Health Services as an Operations Manager. Dave will continue to help out through this budget Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 2 of24 Pages process. He can train Wayne Lowry or Teri Maerki on his contribution to the budget document. They will either take over those duties or know enough about them to look at a different way of getting them done. One of the fortunate things in hiring Danielle is her extensive experience with benefits management as HR Director for the City of Anchorage, Alaska. There is reasonable certainty that everything will stay afloat and moving forward with the existing staff. The County is in the process of hiring a consultant to take a full scale look at the benefits package which will include examining what is currently offered, what options might be available, and similar kinds of questions. It is anticipated the information should be available by May, hopefully earlier, to make decisions (setting health benefit rates/plan changes). It will make it trickier than it otherwise would in doing the full review and assessment that is needed to set rates for next year. The County's experience is definitely better this year than it has been in the last couple of years. The costs are well below where the budget projections indicated they would be. Tom clarified that the review is not for all benefits, only the health benefits package. Commissioner Unger stated that the study should answer questions surrounding the Affordable Care Act (ACA), Oregon CCOs, and how these affect the County's benefit plan. The study should address what the challenges are and give recommendations. Tom Anderson explained the end product will be an assessment of the health plan and options of how it might be changed. Mike Maier inquired whether the County's plan will be compared to other organizations and if bargaining information would be part of the study. Tom Anderson pointed out that EBAC has been involved in scoping what the study looks like and they will be involved in analyzing the results as staff continues to keep them involved in this process. He wasn't certain if Mr. Maier's concerns were included in the bid, but expected they were. He discussed the fact that the County is hiring a company based on their experience and expertise in their field; therefore the company is going to put some context around what they will present. Mike Maier recalled there have been good discussions with the Budget Committee in the past and would find it helpful to see a comparison to other organizations' plans and the corresponding cost on each. Commissioner Unger indicated he thinks they will do some of that comparison because the County needs to know if the plan is a Cadillac plan as defined in the ACA and it doesn't want to be in that category. Commissioner Unger explained there will be a 40% excise tax imposed on high cost health plans at the beginning of2018. Minutes ofDeschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 3 of24 Pages 2. County Financial Update. Wayne Lowry handed out copies of the PowerPoint slides prior to starting his presentation. Financial Update The financial update through November showed the FY 2013 General Fund ending fund balance to be $870,000 greater than the budgeted or anticipated FY 2014 beginning fund balance. The November projections indicated FY 2014 property tax revenue was higher than anticipated by $500,000 and other revenues were higher than anticipated by $110,000. It is expected that the General Fund will not need to make a transfer to the Sheriffs Office (LED­ District #2) for any portion of the annual payment of$2.65 million. FY 2014 will be the first year the room tax revenue (accounted for in Fund 160) will fully meet this commitment. The FY 2013 (General Fund) payment to the Sheriffs Office (LED-District #2) was only in the range of$150,000. Assessed Values The graph of market value over 2007 through 2014 showed market value stabilized in 2013 and began to rise in 2014. That number went up almost 4.5%­ 5%. Countywide assessed value increased by 4.2% and in FY 2014 the budget was estimated at a 3.5% increase in assessed value. The Sheriffs unincorporated area showed a much slower growth, less than 30/0, because it doesn't have the development the incorporated area does. Wayne clarified changes in values for construction and inflation are combined in the presented data and not shown separately. Property Taxes Property taxes for the General Fund grew until 2010, went flat, and started to grow again reflecting the growth in assessed value. The Sheriffs patrol district rate was decreased by $0 .03 at some point and that is probably why the property tax goes down slightly on the line graph but is growing. LED #2's growth is at a slower rate. Property taxes are back on a growth curve that can be seen in an earlier period. PERS Mr. Lowry presented a graph on System-Wide Base Pension Rates from the actuarial report that went to the PERS Board in August or September. The graph illustrated the projection of rates by biennium starting with the 2011-13 biennium with a rate below 160/0 and proceeded to where the County's rates Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 4 of24 Pages currently are just over 16% for 2013-15. PERS actuaries were projecting based on what they knew at that time and before the two legislative changes occurred. They were expecting rates to climb significantly in 2015-17 with one more major adjustment in 2017-19, and level off all the way through 2033. The rates would slowly decline over time. The graphs contained information calculated before the Senate Bills 822 and 861 were put in place. PERS also made a couple of other changes in their assumptions which changed some of this as well. The next graph took into account the two legislative changes and the most recent work the PERS actuaries presented at the November meeting of the PERS board. It tried to extrapolate what those changes mean to the County rates. The County has four different rates, PERS General Service and PERS Police & Fire, and OPSRP General Service and OPSRP Police & Fire. OPSRP is the newer group or Tier 3 group. The rate shown in the graph is not the rate the County is paying, but is an average of the four different rates calculated by dividing the total PERS cost by salary. The County has been in the 13.5% range and in the current year it is up to about 17.5%. It is expected the rates will be virtually the same for the coming budget year because PERS sets rates every two years, but the rate will actually go down slightly. Departments are contributing about $325,000 to the PERS Reserve in the current year (FY 2014), but the PERS Reserve contribution rate is expected to be eliminated next year (FY 2015). In the 2015-17 biennium, the rates are expected to go up about 2% of payroll which is about a $1.2 million increase to the County. The projection on the first graph was closer to 3.3% and is nearly double what is expected now. The County is getting some relief on the PERS side. Both those senate bills have been challenged and there is a process embedded in those bills that takes them to a council for review in a special court. The review is supposed to be heard starting in January. Both of those challenges have been lumped into one proceeding and the assumption in the graph is everything survives. However, some of it could be thrown out since both of those changes have to do with the cost-of-living on the retiree side. Those are major budget savings changes that were done to PERS, but both of those bills are subject to that adjustment being legal to do to retirees. Mike Maier asked what the investment return assumption was in calculating these projections. With the stock market up 27%, the DOW is the highest it's Minutes of Deschutes County Budget Committee Meeting Thursday, December 19,2013 Page 5 of24 Pages ever been, yet the PERS rates keep going up. Wayne Lowry referred back to first PERS graph explaining the curve was created by the PERS actuary to demonstrate the new adjustments to the collars, the fresh start to the amortization of the loss back in 2008, and that the assumed earnings rate was lowered from 8% to 1.7)%. PERSearned about f2.5% through October on its investments and had a similar year in 2013 and 2012. It has had a couple of good years and those get taken into account when the actuarial valuation is computed every two years. PERS is using a very conservative investment return and got a little more conservative a few months ago when they lowered it from 8%. The reason is the short term rates have been so low for so long that a good share of their portfolio in government securities has been mired in anchored short rates and Fed easing which affects their future projections. Even though the market is doing very well, PERS is only benefitting partially due to the real estate and other diversified portfolio holdings they have. An immediate rate reduction won't be seen yet because of a couple of good years. PERS has not even amortized all of their losses yet. The Oregon PERS fund is 86% funded (14% UAL-Unfunded Actuarial Liability). The first chart was based on a $14­ $16 billion UAL and the second chart assumed a decrease of that liability to $8­ $9 billion. The PERS rates which Oregon public entities have seen have been horrible, but the rates across the country have been worse. Wayne indicated his projections were conservative based on thinking there will be another portion of a rate increase. Yet the latest information from the PERS actuary would insinuate the 2015-17 biennium is the last big increase, and after that rates should stabilized and then decline slowly over time. Part of that could be because of attrition in the Tier lITier 2 group. If you look at the County's OPSRP vs PERS mix, it has crossed and the OPSRP group is gaining while the PERS group is decreasing as time goes on. He suspects that is a system-wide phenomenon. Clay Higuchi expressed his opinion on the difference between a public and a private pension with regards to UAL. He stated the payout to the public retirees does not decrease because ofUAL. If the investment in a private pension goes down, that retiree is going to take a hit. He cited a situation where the union had control of the funds and they disappeared leaving the private company responsible for paying the VAL. Wayne offered that many organizations are going to defined contribution plans because of volatility based on market. Minutes of Deschutes County Budget Committee Meeting Thursday, December 19,2013 Page 6 of24 Pages Wayne stated that the blue line on the County PERS Rate Projections slide is his projection of where the County's rates are going and that they start declining overtime. The County has $10 million in the PERS Reserve Fund. Resources from this fund were used 3 years ago and again 2 years ago (the 2011-13 biennium), but the reserve will not be used this year or next year (the 2013-15 biennium). A strategy will be developed on what to do with the reserve. Some alternatives are buying down the County's rate as a side account and letting PERS invest the money since they are earning 12.5% and the County's earning rate is .5%, or applying this reserve over the next four to six years to effectively move the rate for the departments down to the red line on the PERS Costs slide. Tammy Baney asked if the rate on an investment with PERS would get a base of7.75%. Wayne indicated that is what would be expected, but there is no floor guarantee. All jurisdictions, including the County which had side accounts from PERS borrowings (2002 and 2004 Pension Bonds), lost 30% of their capital in those accounts in 2008. He believes the reward is higher, but the risk is higher too. Bruce Barrett mentioned that the County has an investment policy that governs the amount of allowable risk. Wayne explained that PERS would amortize the side account and estimate the earnings to buy the rate down. PERS would amortize it over 20 years instead of the 6 or 8 years that the County could opt to apply it to department rates. The choice is to use it in a shorter period of time or spread it over a longer period with PERS. Present value wise it is probably better to put it with PERS and get greater earnings. Mike Maier indicated that works as long as you know there won't be any large variance in contributions and that the departments will be held harmless. A department should not have to suddenly absorb a 41 % increase. Wayne Lowry stated that whatever is done, a balance should remain in the Reserve Fund. He is certain there will be a need in the next 5 years. There are a lot of considerations to keep in mind with PERS. The good news is the ceiling anticipated just 6 months ago is not going to happen and that puts less pressure on the budget. Erik Kropp added that originally during the FY 2014 budget preparation, it was expected the PERS Reserve would be drawn down. Once the PERS rates were changed, that did not happen. Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 7 of24 Pages Development Revenues The Development Revenues slide graphed the CDD (Community Development Department) revenue 2001 to 2014 for Building, Planning, Electrical and Environmental. The 2014 figures were from the November projections on the financhil reports and were at the 2002~1evel. The graph showed that the revenues were heading in a healthy direction. CDD is not getting any General Fund money other than the long range planning transfer in FY 2014. Mike Maier asked about CDD reimbursing the General Fund for transfers (required for their operations) made in prior years. Tom Anderson acknowledged that there is an expectation those transfers be paid back, but wanting them to build up their own reserves first. Alan Unger stated that some of the CDD rates (fees) are set by the State and some by the County. Tom Anderson indicated that the State sets the per square foot valuation, but the actual permit fee is set by the County. Mike Maier wanted to know where Deschutes County CDD stands in comparison to the rest of the State. Tom indicated a survey is done every year and will be done again this year. CDD's fees are on the low end on building permits, the high end on septic permits, and a little bit above average on land use permits. Tammy Baney added that another factor in the payback (of General Fund transfers) is how much or what percentage, and for what reason. The goal is to get to the point of being able to increase the CDD reserves. Mike Maier wanted to make sure this issue does not get forgotten as CDD's revenues increase, because when things go down again the General Fund will have to step in. He thought it was right for the Budget Committee and the Board to support the department with General Fund to keep a good base when times were hard, but it is taking the development component of the County and subsidizing it with property taxes dollars. He didn't think the budget could be balanced by this, but it could be put it into a reserve knowing there will be another one of these blips and the reserve would be able to help CDD. Clay Higuchi indicated it is going to be an interesting spring. He read that Fannie Mae and Freddie Mac are going get out of the market by charging more for mortgages to try pushing people to private companies. The mortgage rates should be climbing. Tom Anderson stated the residential permit revenue has been increasing too much and too high because the rates are so low currently. What is part of the problem, just as before back in the front part of the Minutes of Deschutes County Budget Committee Meeting Thursday, December 19,2013 Page 8 of24 Pages Development Revenues graph, is there were too many speculators building without any intention of ever living here. A lot of that spec building is currently going on, because people think things are going to rebound here quicker than elsewhere in the country. The same thing is going on in other places like Las Vegas and Southern California. Hopefully, a little increase in the rates is not a bad thing and will bring things back closer to reality. It will never be perfect, but it can slow down a little bit and CDD will still be healthy. Room Tax The Room Tax Revenue graph was another picture of revenue tied to the economy in certain ways. The graph depicted total room tax collected by the County. From about 2008 through about 2012 the revenue declined at various stages, but a healthy increase in the past couple of years can be seen in the graph. It is projected this revenue will surpass $4 million in the current year (FY 2014). This is a level that has never been reached before, and that is before considering the 1 % rate increase (July 2014). Wayne pointed out that $3.4 million was budgeted and $3.6 million was collected last year. By the time this budget (FY 2014) had already been in place at $3.4 million and collections had past that by a few hundred thousand in FY 2013. The Room Tax collections for this year are at about $2.8 million placing it about 14% ahead of budget. Mike Maier commented the additional 1 % is new for FY 2015, plus there will be additional units coming on (Pronghorn, Tetherow) which hasn't been seen in a long time. Wayne Lowry added the Room Tax is turning back in to a good solid revenue source for the County. Federal Forest Receipts The Federal Forest Receipts line graph illustrated the PILT (Payment in Lieu of Taxes) revenue, the Federal Forest receipts which included Secure Rural Schools (SRS), and a line for the two revenues combined from 2008 to 2014. The PIL T funds have already been received at about $1.7 million and about $1.2 million in Forest receipts/SRS is expected in the spring. Although the County received an estimate of what this payment is going to be, it has not been appropriated at the Federal level yet. Looking forward to next year, PILT has not been re-authorized for 2015. If it were, expectations are it would be about the same as this year ($1.7 million). The SRS is anticipated to decline by about 5%, but that is not a sure thing. The County might receive $350,000 ifPILT and SRS are not re-authorized, or it could be almost $3 million. Mike Maier commented that the PILT is discretionary and years ago it was under $500,000. Tom Anderson stated that was true up until this year. Alan Unger explained his Minutes of Deschutes County Budget Committee Meeting Thu~day,December19,2013 Page 9 of24 Pages understanding was that the Federal government sends a certain cap of money to the County, some of it is PILT and some is Secure Rural Schools. IfSRS goes down, PIL T goes up. Mike Maier commented there was money from mineral leases and oil leases and other types of revenue that they generated and those revenues deteriDinedthe amount. Alan Unger explained there are Oitterent formulas used to calculate the payments. If the County takes the SRS money, the PILT goes to the floor which is $500,000, and that is the reason only $500,000 was received because more was going to SRS. Wayne Lowry added there are two calculations for the PIL T. One is a basic calculation on acres and the other one takes in to consideration other revenues the County receives. Mike Maier stated some of the PILT revenue was left in the Road Department, but it could go to the any department. Wayne Lowry agreed the PIL T revenue went up when SRS went down and the excess of that difference went to the Road Department. The Board made the decision this year, with input from the Budget Committee lay members, the PIL T money would be treated like the SRS money and be sent to the Road Department for capital projects, not operations, and also allocated 15 % for forestry and noxious weed programs. Solid Waste Loan Funds of about $3.1 million were borrowed from Solid Waste from 2008 to 2010 for the Jail Project. Between 2009 and 2012 there were borrowings totaling $1.445 million for the Humane Society (Redmond). The County has been looking at putting a repayment plan in place for the Jail Project loan. (The Solid Waste Loan slide showed unpaid balances of$616,039 for the Humane Society and $3,249,366 for the Jail Project.) The Humane Society, essentially secured through a two trusts, has made some payments. The County should be receiving another payment of $100,000 to $150,000 from COCC in the next month from the sale of land next to Brightside to be used for the college's veterinary school. The land was given to the Humane Society by the County, but the County has retained the title to the land as collateral. As of June 30, 2013, no repayments had been made to Solid Waste on the Jail Project borrowing. A three year repayment plan was discussed with the Board and has been put in place for the Jail Project borrowing. Fiscal Year 2014 is the first year of repayment in this plan. Of the $870,000 budget to actual variance in the General Fund's Beginning Net Working Capital, $500,000 will be used as a repayment on this borrowing. Also, since CDD did better in FY 2013 than expected, resulting in a bigger beginning balance in FY 2014, the budgeted Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 10 of24 Pages General Fund transfer to CDD of $465,000 will be diverted to pay down this debt. In FY 2015, it is anticipated that Room Tax collections will cover the entire $2.65 million annual payment to the Sheriffs Office, freeing up General Fund resources of $400,000 to pay towards the Jail Project debt. In addition, another $500,000 in General Fund resources, previously allocated in prior years as a transfer to CDD for operations, can be used to pay back Solid Waste. There could also be additional ending fund balance to use as repayment on this loan. Wayne stated it is important to pay this debt before doing anything else. The third and final year would require a payment of about $1.4 million. Tom Anderson added repaying this debt would help mitigate any rate increases that might have to otherwise occur. Timm Schimke, Solid Waste Director, has plans to use these funds in a couple of years for closing cells and opening new ones, making it important to get this paid. Alan Unger pointed out the tipping fee was previously raised $5 to help with road construction. Half of the tipping fee was left in Solid Waste's budget because it was needed. With the PIL T money going to Road, it is anticipated the transfer from Solid Waste to Road will not need to occur. Health Benefit Trust The Health Benefits Trust slide shows a condensed version of the November statement. FY 2013 was a particularly bad year when comparing revenues to expenditures. The ending fund balance dropped $2.5 million. This occurred somewhat on purpose because of the rate setting in the prior two years. A decision was made that reserves were too high. Wayne pointed out the current year projection column showed a loss of about $300,000 while the budget estimated a loss about $1.4 million. Last year appeared to be a really bad experience year and not necessarily a new trend. It is too early to be certain about that as the claims can be quite volatile, but the projections received from Dave Inbody used twelve month rolling average. Wayne stated that the weekly list of claims have been tracking, until recently, a lot lower than expected and he estimated the trust was in good shape. Tom Anderson added there could be more than one reason for this. The experience is down which means the big ticket claims are down compared to where they have been in the last couple of years. In addition, health risk assessments have been done the last few years, making people think more about their health and changing their behaviors. There is evidence, both in our plan Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 11 of 24 Pages and in the industry, that this does have a positive effect on people's healthcare costs. The AdminJWellness and the Pharmacy expenditures appear to be declining and total expenditures looks better than anticipated. The County Health Benefits Trust slide showed the history of revenues, expenditures and ending balance for 2006 t020 15. The ending fund balance was up to about $18 million in 2009. The expenditure curve is steady except for a jump in 2013, and the revenue curve shows a dip in 2010 when the rate was decreased. At the point where those two lines cross a reduction in fund balance would be expected. The question is where this line should end up at, and the answer to that will set the rates over time. Tom Anderson pointed out there were some lengthy discussions last May around how many months to keep in the ending fund balance for the claim run out. This is one of the questions included in the RFP for the consultant to help with. Wayne Lowry believes there is an industry standard for a system this size. It would incorporate the County's demographics and the type of plan that X amount should be in the reserve. It would establish how much of the reserve is for volatility, for a suggested number of months of run out, for pharmacy run out and it would add up to some reasonable number. It seems like 6 months is the number being used. Mike Maier explained that part of the thought behind the 6 months was to ease charges to the departments in bad years. Wayne indicated there should be a target and a time to reach that target should be established, possibly over a three or five year period, instead of reacting year to year. The fact that the revenues and expenditures lines have converged after being so far apart for that many years is good, and has to do mostly with the lower than expected experience. The 2015 projection used a 60/0 increase in department rates, assumed the DOC increases 3 % per contract, personnel goes up 4%, and the remaining expenditures that are claim related go up 6%. It levels off the ending fund balance at just under $12 million. If 6% was used for the next three years, the ending fund balance would end up at a level equal to 6 months of claims. The questions are that need to be answered are: (1) What the rate should be, (2) What the target reserve balance should be, (3) Changes to the benefit side, and (4) Changes to the co-pay side Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 12 of24 Pages Budget Assumptions The cost of living increases in almost all of the County's contracts have a 1.5% floor and a 3.5% ceiling and are based on the CPI-U January to January. November's month to month CPI was 1.2%. The change in the health rate is estimated at an increase of 6%, and that rate will be refined over the next couple of weeks. PERS rates are going to be just slightly lower than the current year with the elimination of the PERS Reserve component. The assessed value increase is estimated at a 3.5% minimum. Wayne Lowry will be working with Scot Langton, County Assessor, more on this estimate as January approaches. Internal Service Funds aSF) Strategies Wayne indicated the budget calendar has been lengthened to increase the budget process time for the ISF departments. The additional time gave the ISF Directors a chance to meet with the departments to talk about their services and make sure there is adequate communication between their ISF department and other County departments during the budget process. The ISF Directors have been given instructions to limit increases, and it has been discussed whether to charge all or part of BOCC (Board of County Commissioners) to the General Fund. There are a series of reasons to make that change and it would lessen the internal service fund charges to departments. The idea would be to take the political piece of BOCC and charge it to the General Fund instead of the departments. Mike Maier asked if there is a pattern to how other counties that have ISFs handle their Board expenses. Tom Anderson affirmed there was a pattern and explained that based on a study by David Givans most, but not all, entities charged out their Board's expenses. Turning the BOCC into an internal service fund occurred after Mike Maier retired and was done as a cost savings to the General Fund. Tom Anderson indicated he was on the other side of this change as a department head and stated it wasn't marketed very well and the change didn't sit very well with departments. It wasn't a cost savings to the County just a savings to the GF. A decision hadn't been made on the BOCC ISF charge allocations, but any input from the budget committee would be appreciated and different options were still being considered. Mike Maier pointed out that internal service charges never make anybody happy but one of Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 13 of24 Pages the reasons the allocations were put in place was to obtain the true cost of doing business and, in addition, some grants reimburse for these costs. Wayne Lowry explained that a federally approved A-87 cost allocation plan allows internal charges to be charged to grants. Many counties prepare two cost allocation plans. One is the A -87meth()d thafaIIows ffie -ftiternaT charges to be reimbursed by grants, the other is an internal allocation used to charge the departments for the cost of the internal service funds. Some internal service funds had built up sizable ending fund balances, and the County's financial policies state there should be one month of operating expense. The ISF departments have been instructed to justify balances larger than the policy requirements. Hopefully, there will be some reduction in charges because of this directive. In the FY 2015 budget process the Internal Service Funds will be charging each other before they allocate out to the other departments. It won't change the internal service fund charges as a whole, but it will slightly change the way it is allocated. All ISF will charge each other and a second round of allocations will charge out to departments. Tom Ar.:terson commented that this will give each ISF department a true cost of their operations. Bruce Barrett agreed that the closer you can get to the true cost the better it will be. Tom indicated that he is thinking about doing an actual cost plan next year. Some organizations have a cost plan and it shows what the budget is, the allocation, and what the methodology is. Currently Finance, Admin and BOCC charges are allocated based on budget. If Finance underspends their budget, that doesn't change the charges to the departments. There are going to be two iterations of the cost allocation. One will be prior to the kickoff meeting and the second will be after the requested budgets from the departments are submitted. Finance will wait until the end of the fiscal year to true up charges to actual expenditures on each of the ISF funds. 3. Status of Budget Issues raised at May 2013 Budget Meetings. Tom Anderson explained the idea for this part of the meeting was to update the Budget Committee on issues that came up last May and any budgetary issues that have come up this year. The tax fairy promotion was a smashing success for the Assessor's Office. The amount of complaints received by the Assessor's Office and the Tax Office was dramatically less then it could have been given the increase in people's tax bills. As previously discussed, the valuation for the current year came in almost a point higher than expected. Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 14 of24 Pages Recordings in the Clerk's Office are not up as much as anticipated given the increase in the real estate market. It could be a good portion had to do with the decline in foreclosures. The Clerk's Office is bringing in more than enough money to pay for itself. The DA's Office was allowed to set up their own IT function and convert a contract position to a full time position. Their figures, in terms of total cost, were almost a push when compared to the County's IT Department and their projections for the cost through the private sector. It is something that will continue to be monitored. There will be an impact from this change, because the County IT costs won't go down. Some of the license costs and storage costs will be reduced, but it will affect the indirects to the rest of the County departments. The DA now has two IT people with separate hardware, software, licenses, etc. The figures estimated by the DA's Office indicated it would be better, but our analysis indicated it would be neutral at best. By the time the budget meetings commence in the spring, better comparison figures should be available. Mike Maier would like to be able to see that the new case management system the County purchased, Justware, enables the DA's staff to do their job better, doing more with the same amount of staff. Bruce Barrett indicated he recalled the DA's argument was that the County was out of compliance with some law because of IT's accessibility to their files and emails. Tom Anderson stated that the DA said more than once this was going to save money. The decision was made to get away from legacy systems while Mike Dugan was still at the County. Civil commitments seem to be going very well in the DA's Office. Behavioral Health reported the process has been very efficient and effective. During the May 2013 budget meetings, some budget authority was added in the temporary help line to help the DA's Office with this responsiblity, but to Tom Anderson's knowledge it has not been utilized so far. It is his understanding the DA may ask for an additional attorney as part of the coming budget process to help offset the impact of the civil commitments and some other things he would like to do. Bruce Barrett inquired as to whether this would be for the same position they asked for last year. That request was related to the child support enforcement program that still resides with the State. Tom Anderson added that Minutes of Deschutes County Budget Committee Meeting Thursday, December 19,2013 Page 15 of 24 Pages the DA also mentioned adding a Veterans' Court, although that would have an impact on the Circuit Court's budget as well as the County's. Parole and Probation has a new wrinkle with the Justice Reinvestment Program. The Board has not yet made final decisions on howfhat money will be used, but the biggest portion will likely be for parole and probation. Part of the Governor's budget was to keep state prison costs the same or reduce them. The key to this goal is maintaining or reducing the prisoner population at the state level. Through legislation that was passed at the end of the session, money was made available to counties to assist in keeping people out of prisons. Parole and probation has proposed a step up both downward departure, meaning that people who would otherwise go to prison stay local based on a risk assessment and have additional local incarceration or probation monitoring, as well as early departures from prison with the same kind of risk assessments, monitoring, probation, and so forth. It could have a positive effect on Parole and Probation. However, part of the request is to add two positions to their budget in the current year with a cost of $225,000, which would roll into next year's budget. The question there is sustainability and will that program be continued into the future. Although there is no reason to believe it won't, and there has been a lot of discussion about that, there is no guarantee. It has been authorized this year and next year, but would have to be reauthorized budgetarily for the following biennium. The allocation for the first biennium is by formula based on population similar to SB 1145 and will be at 100%. Beginning in next biennium an application will have to be submitted and go to a state review committee, that Chief Sale is on, and they would have to make a decision whether our local program is approved. Rules are still being written on precisely how it is going to work. Part of that money is supposed to go for Family Drug Court and 10% for community non-profit victims assistance programs (not for the DA's Victims' Assistance program). Tammy Baney assured Mike Maier his concern that these programs begin as 1000/0 funded and the State subsequently reduces the funding over time, was raised. The other wild card is that the County's utilization of the State system is already low. Juvenile is one of the biggest draws of General Fund resources. Their population of kids has been stable. They reduced to one pod this year and there have not been any problems of pushing past that capacity. There is a backup plan where extra people could be brought in short term if there was a need to open another pod. The Juvenile Crime Prevention money, which was somewhat Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 16 of24 Pages in limbo as part of the legislative process last year, came through. It looks like those discussions are ongoing as far as beyond this year, so it is yet to be determined how much is available in the next budget cycle. Mike Maier asked if any thought had been given to future growth and when to open a second pod. Tammy Baney indicated they are managing it by doing a lot more outreach. The Commissioners had a coordinated discussion with them about their five year performance projections. She was anticipating much more angst about the decisions they had made, but felt the department was able to adjust accordingly. Mike Maier asked if the Commissioners were getting negative feedback from law enforcement or the courts and Tammy Baney responded that she had not heard one comment back on the change. Erik Kropp added that the staff (full time with benefits) was reduced through attrition and now if there is a need they have enough on-call staff to satisfy it. Revenues are stable and increasing in the Sheriffs Fund and the jail expansion is out of the ground. The cold snap slowed the project down a little, but there have been no major change orders so far. One change 9rder had to do with plumbing and being able to control toilet flushing. The completion date is scheduled for July. Tom Anderson and Erik Kropp will be coming to the Board soon with a request to add positions in Deschutes County 9-1-1. It may be one or two positions, but they are trying to wait until the new director is hired and give that individual the opportunity to do their own assessment and determine what that number should be. There is a range of factors there, but the training period is so long and it is a high stress job that many cannot handle. They still have not been able to be fully staffed. They need to be fully staffed, with perhaps a couple more people, to accommodate the conversion to a ten hour schedule. The ten hour schedule will eliminate the need for scheduled overtime. Their call volume has continued to increase steadily. The staff had been moved to ten hour schedules, but there were problems with it and they had to be moved back to twelve hour schedules. The other need for the positions is that the supervisors are taking far too many calls, taking them away from their supervisory time. There are series of things these new positions will address. Currently, there is only one fire dispatcher during peak hours, the police dispatchers are handling the police calls and the 9-1-1 calls, and the police dispatcher for Redmond is also covering Black Butte and Sunriver. Tony DeB one felt the recruiting should be opened up a little more and not be quite so narrow that it eliminates many viable candidates. Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 17 of 24 Pages The new 9-1-1 Director will report directly to the County Administrator and this was reaffirmed as part of the work done with the Board of County Commissioners and the 9-1-1 E Board. The large turnover in 9-1-1 Directors may have been partially related to the pressure from the E Board. The E Board, -much to its credit,has agreed to-change its role and fake ilserf out ofthe day-to day operations focusing just on the high level issues. A list of do's and don'ts has been incorporated into the new management agreement that the Board of County Commissioners and the E Board have approved. These changes will be highlighted in the recruitment of the new Director. Justice Court was one of the topics of discussion in last year's budget meetings. Revenues improved the first few months of the fiscal year because City of Redmond hired some new police officers that were writing traffic tickets. Those have tapered off a little, but it looks like it may just be a seasonal variation of how tickets flow. The Justice Court's finances are still not where they need to be. The Sheriffs citations into Justice Court, although fairly stable, have dropped off dramatically over the years. Wayne Lowry has produced an initial report that will be used to develop some possible options, but Justice Court will be another topic of discussion this budget process. Some options will be presented as far as including the Sheriff, both in terms of the revenue he gets and his participation in this, and hopefully be able to show him the benefit. There was also a law change at the State level at the end of last year that partially changed back the allocation the State was taking. The State originally decided to take their cut out of citations up front which decreased revenue at the local level. The State reduced their amount from $60 to $44, but it still did not put it all the way back to where it was. Justice Court will probably continue another year, but with some additions that will need to be monitored very closely and a final assessment made. Mike Maier would like the Sheriff and the Justice of the Peace to work out the options and present them to the Budget Committee. The changing nature of Health funding at both the state and national level is in flux right now. There will be 10,000 additional people on OHP next year and an increase in the revenue for that area, but there will also be those people who were previously indigent. The money previously received for this group came from the State's General Fund, and it doesn't appear the two revenue streams are going to match up. That will likely cause some need to be creative in balancing the Health Department's budget. They have some fund balance to work with and that has already discussed with them. Minutes ofDeschutes County Budget Committee Meeting Thursday, December 19,2013 Page 18 of 24 Pages School based health centers were another issue discussed last year. The Health Department has made a lot of head way in bringing them closer to sustainability by gaining new private sector sponsors for those clinics. St. Charles Medical Center has recently stepped up to help with that funding model. The City of Sisters was in the paper recently regarding their clinic. The Board discussed this clinic last week in terms of what is needed because of delays in developments that were going to pave the way for some infrastructure. The County will have to kick in a little bit more funding to make that one happen, but the bottom line is the Health Department has made substantial progress. Chris Doty has continued his effort to stream line the Road Department. While no new roads are being developed, the quality of existing roads is being maintained. Tom Anderson indicated there needs to be an overhaul of the gas tax. Tammy Baney added there needs to be a new source of funding as we move away from gas to alternative fuels. In regards to the Solid Waste Department, the Board has agreed to move forward with negotiating a waste to energy contract and hoped to have that done next month. It is a very complicated contract with financial and environmental protections that need to be built in to it and that the other party will agree to before it is finalized. Conceptually both parties agree, but the County wants the details to be acceptable. The construction won't start until it warms up. As the volume of work starts ramping up in Community Development, they are going to need to restore some people. CDD has done just a little bit of that so far. Nick Lelack, CDD Director, has been appropriately conservative in making sure this is sustainable. The last thing the County wants to do is start laying off people again, so Nick has made good use of temporary and on-call help. Tom Anderson received a request from Nick for an initial phase one staffing increase. It is likely some staffing increase will be authorized this year, but Nick has been asked to only request increases that are necessary this fiscal year. As far as the future plan, that will come to management and the Budget Committee as part of the request for next budget cycle. Things at the Fair & Expo Center are looking good and room tax was discussed earlier. There will be an enormous increase in their marketing budget next fiscal year. There are no other staffing changes. The solar panels were received and Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 19 of24 Pages they are moving forward on that. Bank of the Cascades is the new sponsor for the event center. IT is continuing to move away from the in-house (legacy) systems to off-the­ snelfsoftware. The ex.pectation is that over the next few years their programming staff will drop through attrition. There is nothing to report for Building Services or the Board of County Commissioners. Administrative Services had a change with Dave Inbody, previously Assistant to the County Administrator, going to the Health Department. Administrative Services is not going to fill this position and see if they can do without it. It will necessitate shifting some responsibilities to other staff. Dave wasn't idle during his time in Administrative Services, but a large part of his time was spent providing assistance to the Health Department. He was doing a lot work with the clinic, the pharmacy and benefits which ought to be absorbed in the Personnel Department. Our grants administrator, Judith Ure, has already assumed many of his other duties. Wayne Lowry's goals for Finance in the coming year include looking at new software. The Personnel Department has a new director, Danielle Fegley, and she has hit the ground running. Erik Kropp gave her some things to work on immediately and also longer term goals, such as looking at how payroll is done, payroll systems, and determining other processes that can be automated. She has a lot ideas and keeps bringing them to him. The County is in the process of hiring a new County Counsel for the Legal Department, and will hopefully have the individual on board before the budget meetings in May. With the transfer of Civil Commitments, their work load is a bit steadier. Erik Kropp met with Deschutes Public Library to discuss the possibility of contracting with them to provide Law Library services and things look promising. Work will be done over the next couple of months to put together a proposal. This could be a very good link because they are much better at providing library services than Deschutes County. There is a Law Library Advisory Committee that meets every year or two mainly to discuss the subscription provider of the law books. The amount of support the Law Library Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 20 of 24 Pages provides to the local Bar has diminished substantially because of automation. This is a required service and is self-supporting. The forestry program and the noxious weed program were combined when Dan Sherwin retired earlier this calendar year. Ed Keith did a terrific job in assuring the Weed Board members their programs would not be de-emphasized. He spent a lot time to satisfy them and has struck a nice balance in his work with both programs. Fortunately there weren't a lot of major fires this year that utilized a lot of Ed's time. It certainly helped that the BOCC made a commitment to use some of the PILT and SRS money for these two programs. Ed is also doing a great job maintaining the relationship between the Forest Service and the collaborative movement to support active management of the forest. Last May the Budget Committee agreed to an additional .25 FTE for an Assistant Veterans' Officer bringing their total FTE to 3.0 for the current fiscal year. A large part of the reason the Budget Committee approved the additional FTE was based on the results of an audit last year that showed a two month backlog. The backlog has decreased to about three weeks. Last week the Board of County Commissioners approved a grant request for additional funds from the State Veterans' Office. The State Legislature approved about $600,000 for County Veterans' Officers to increase marketing and outreach. Keith MacNamara is working with the County's Grant Coordinator on a grant proposal of $30,000 that would be received over a two year period and be used on advertising and not on-going operations. There were no issues on any of the County Service Districts to discuss. The big capital projects include the jail expansion and court remodel which were discussed earlier. There were no issues on funding for these projects. Tom Anderson would like to be able to dedicate funding to road projects in the future. Elon Glucklich, Bend Bulletin reporter, did a nice article on those recently. Changes may be incorporated in the format of next year's capital budget both in the presentation in the May meeting and in the budget document. The goal is to feature it more prominently. It deserves more exposure, not necessarily scrutiny, but more emphasis in our budget document and better linkage back to the departments that sponsor capital projects. Mike Maier asked if the County's physical plant issues, providing adequate space for County operations, will be at a satisfactory level once these two big projects are Minutes of Deschutes County Budget Committee Meeting Thursday, December 19,2013 Page 21 of24 Pages completed. Alan Unger indicated Health would still want some space in Redmond, but it's not a crisis. The possibility of a north county campus has been explored, but all the changes occurring for health and mental health services in the state seem to lend themselves to more of a co-located space than a County starid-alone bui1ding.~Tammy Baney added tharthe discussion would be if the County were to build a facility, would it be in coordination with someone else, or would the County integrate with a St. Charles or Bend Memorial Clinic. Mike Maier said he knows the HealthlMental Health building is full, but if there is any growth it will be in La Pine or Sisters. The County/State building seems to be adequate for providing current services. It doesn't look as though the State is adding any judges, so the court facilities seem good. Erik Kropp interjected that services change and the longer capital construction can be deferred the better. Mike Maier felt the County is good shape and that hopefully some of the money not needed for capital projects can be used to payoff loans. When the loans are paid off, the County is going to have some needs. There is another major remodel going on in the Annex Building. It will be used primarily for the Access Team (Behavioral Health) for interaction with new clients. The staff will be able to get them plugged in to the services they need and also it will allow for integration of public and behavioral health. 4. Departmental Presentations. Wayne Lowry requested input from the Budget Committee on the type of information and style of presentation they are looking for at the May budget meetings. He explained there are two types of information that have been presented. One addresses just the budget issues and the other goes into depth about the services provided. Mike Maier thought the departments did a great job last year, but would like some time left at the end for questions and answers. Departments are given little time for their presentations and have so much to say, but at least half of the time should be allotted for questions especially for bigger departments like Health Services and the Sheriff s Office. This Budget Committee is a veteran group and doesn't need to know the basics of each department. Tony DeBone indicated he would love to give them time to share their story, but questioned if there was value in it for this group. Bruce Barrett added the highlight in today's presentation was Tom Anderson reviewing issues discussed last year and what was done or the current status of them. Mike Maier added they should discuss what problems they are encountering, or situations they see developing that may become issues. Bruce Barrett agreed the Budget Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 22 of 24 Pages Committee is beyond the story telling and the departments should tell us their goals and how the goals were met. That part continues to be refined, but he still has not seen good goals that are measurable. Last year there was a big discussion regarding the District Attorney and more time is needed with him this year. Clay Higuchi suggested having one of the big departments in during a lunch for extended discussions. It would give them an opportunity to talk about their accomplishments and more time to answer questions. Tony DeB one agreed one or two of the departments should be given that opportunity, but not everyone. Tammy Baney explained they have started to look outside of the one year funding. The visioning piece the departments are doing is really helpful when thinking of the budget and determining where the County is headed. Conversations that would be beneficial, as an example, are if there is an 18 month program that is important to the department in the current year, their three year projection should include additional funding sources they will need to seek out to sustain this program. Mike Maier suggested asking departments what they would like to get out of their presentation, if anything is missing in their presentation, or if there is something they would like to see the Budget Committee involved in. Tom Anderson indicated he surveyed them last year and the feedback was all over the place. Some department heads want time to tell their story and some want to dive right in to the high level issues. There is definitely not a single theme across all departments. Tammy Baney asked that an extra 15-20 minutes be allotted for a presentation by the Health Department around ELC (Early Learning Council) or the transition. Children and Families Commission is essentially running out of budget this year and there is a request to continue funding. 5. Budget Calendar. May meeting dates were reviewed. The schedule for the May meetings is currently set for Tuesday through Friday on the last week of the month. The election will be done the week before. The committee members collectively indicated there were no conflicts with their schedules. Bruce Barrett, Budget Committee Chair, adjourned the meeting at 4:35 p.m., Thursday, December 19 th • Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 23 of24 Pages DATED this 19 tb Day of December 2013 for the Deschutes County Budget Committee. Respectfull y submitted, Teri Maerki, Deschutes County Finance Department ~ DATED this Of.--Dayef ~2014. BOARD OF COUNTY CO MISSIONERS OFDESC UTES COUNTY, OREGON Y, Chair ANTHONY DEBONE, Vice Chair AL~i!t:C:foner ~~7/9/1 Recording Secretary Minutes of Deschutes County Budget Committee Meeting Thursday, December 19, 2013 Page 24 of 24 Pages