American Society forPublic Administration

State and Local Fiscal Challenges

April 12, 2010Santa Clara County, California

Nationwide - Counties Have SufferedFrom the Recession 2009 NACo Survey – 138 counties in 34 states

56% starting FY with at least a $10 million shortfall Revenues the problem

Property Taxes – 52% Reductions in state/federal funding – 50% Sales taxes – 46%

Counties respond by cutting Delay purchases/repairs – 60% Salary/pay freeze for employees – 59% Delay capital investments – 54% Hiring freeze – 49% Use of reserves – 44%

82% anticipate shortfalls in the next year

National Impacts Significant

National Center for the Study of Counties Balancing the budget in 2009 was more difficult – 59%

Montgomery County, MD Mecklenburg County, NC States continue to erode local revenues

Maryland Montana New Mexico Florida Nevada

California – the REAL Horror StoryProperty Tax Revenue Slump

Percent Growth in Property Tax Revenues

Source: Beacon Economics

California – the REAL Horror Story 58 Counties

Alpine (1,201) – Los Angeles (10 million) 38 million people served $55.6 billion in expenditures

Los Angeles County > 36 states San Diego County > 12 states Orange County > 11 states Riverside County > 7 states Kern County > 3 states Severe cuts

5,500 lay offs 29% furlough employees 29% reduce new employee benefits 5% reduce existing employee benefits

Sacramento County, CA

Population nearly 1.5 million Total budget $2.5 billion County employees – about 9,000

2009-10 Property taxes down 6% Sales Taxes down 14% Cut $256 million from General Fund laid off 835 employees

2010-11 Facing $118 million shortfall ($2b Gen Fund) Looking at 630 layoffs and cutting 170 vacant positions Reduction of Public Health nurses nearly 60% since 2007 Reduction in Probation 43% since 2008

California – the REAL Horror Story State-Local Relationship Dysfunctional

1910 Separation of Sources Act Counties would tax property

Govt that imposed tax determined use 1930s – Counties take over safety net programs 1978 – Proposition 13

Billons in property tax reductions, state back fills State Legislature responsible for allocating property taxes

1980s – fiscal roller coaster, counties get indigent health programs 1991 – Program Realignment

$2 billion in health, mental health & social service programs 1992/93 – ERAF – $1 billion, 1993/94 – ERAF $3 billion

Prop 1A (2004) stopped the hemorrhaging but did not solve the problem

Fiscal Reforms needed – Constitutional Convention?

California – the REAL Horror Story

State Government Dysfunction 2008-09 budget adopted on Sept 23, 2008 Budget stalemate lasted 44 days On Nov 6, 2008, Gov declares fiscal emergency – budget $10

billion in red Legislature failed to act, expired on Nov 30 New Legislature formed Dec 1, Gov calls another emergency

session Combined 2008-09 and 2009-10 deficit totaled $45.3 billion

Special Session combines cuts ($14.9 billion) and new revenues ($12.6 billion) – adopts 2009-10 budget

Relies upon special election ballot measures to balance budget Ballot measures all FAIL miserably

July 2009 – Legislature makes series of cuts, borrows $2 billion in local property tax dollars – Proposition 1A (2004)

California – the REAL Horror Story

2010-11 Budget Proposed Jan 2010 $20.6 billion deficit

$6.6 billion in current year $14 billion in budget year

Gov proposes to shift significant burden to counties Social services program cuts Prison inmate reductions

Relies on $7 billion of new funds from feds Calls another Special Session (#8)

Special Session #8 Legislature send Gov $4 billion in cuts; signs almost $2 billion

Guts gas tax and replaces it with excise tax (short cuts constitutional protection)

Hoping on revenue improvement before new fiscal year

California – the REAL Horror Story

Physical Infrastructure failing Water system Freeways Streets and Highways County facilities

Social Infrastructure failing as well Overcrowded jails/prisons Education failing Social services stretched beyond capacity University system in disarray

Cuts & Revenue Decline Come at a Time of Increasing Demand

0%5%

10%15%20%25%30%35%40%

Percentage Increasesin Caseloads and Applications

September 2007 - September 2008California Statewide

Caseload Applications

California – the REAL Horror Story No light at the end of the tunnel

Unemployment statewide 12.5% Colusa and Imperial County 27.4% Trinity County 25.8% Central Valley – 50%

Los Angeles County – 636,000 unemployed Only 4 cities in CA with higher population

Foreclosures still high San Joaquin, Riverside, San Bernardino, Contra

Costa