County Executive Pete Kutras released the Fiscal Year 2009 Recommended Budget for the County of Santa Clara on Monday, which addresses a $172.4 million general fund deficit with a combination of service reductions and the use of one-time funds. Fiscal year 2009, which begins July 1, is the seventh year for which the county has had to balance a projected deficit. On top of the fiscal year 2009 deficit, deficits are projected at least through 2012 totaling an additional $605.5 million.

"As bad as this fiscal year seems, the future looks worse," Kutras said. "We are providing much needed vital services, but in the years ahead, there's no future funding to continue at this level."

In balancing the 2009 budget, ongoing departmental reductions and identified revenue of $43.7 million are combined with the use of $128.7 million in one-time funds, which will allow the county to continue many services during the year, and to keep from making even more draconian reductions.

These recommendations do not include reductions that may be required once the 2009 state budget is approved in the summer. At the current time, it is anticipated that the impact of state proposals on Santa Clara County could range from $43.8 million to $100 million, if the state deficit has grown to $20.8 billion as indicated recently by Gov. Schwarzenegger. As a result, the county expects to hold two sets of budget hearings, one in June to balance the local budget as required by law, and one in the

"We have been shaving off some here and some there over the past few years while trying to maintain service levels," Kutras said. "With our employees working harder and more efficiently, and by finding creative stop gap measures, we thought we could reach a level of sustainability and avoid drastic service cuts. The current downturn in the economy is precluding any recovery we had previously hoped for."

The county executive is recommending a total county budget of $4 billion, of which the general fund share is $2.2 billion. The $172.4 million deficit applies to the general fund, which supports services which do not have fully dedicated funding, such as the sheriff, district attorney, jails, hospitals and clinics, mental health, and public health to name a few. Funds for operations such as parks and roads and airports are not included in the general fund.

Reductions in expenditures or additional ongoing revenue solutions of $43.7 million are recommended in general fund departments and the Santa Clara Valley Medical Center. Of this amount, $22.8 million of combined savings or revenue proposals at Valley Medical Center are the result of the work of the Transformation 2010 study, approved by the Board of Supervisors in the fall of 2007 and now underway. Additional reductions are recommended in the mental health, public health and community health service areas, as well as in social services and the administrative departments.

The Department of Child Support Services, which is funded only by state and federal resources, also faces a reduction of almost $3.2 million due to a shortage in state funding.

To avoid additional service reductions, the county executive is recommending measures which save costs or reduce expenditures, such as the prepayment of retirement costs upfront, saving an estimated $12.4 million, the use of existing retiree health trust funds to reduce the cost of retiree health care by $15 million, and the generation of revenues from the sale of property in Mountain View previously used by vector control, which will provide a general fund benefit of $7.5 million.

In previous years, the general fund has provided a grant to Santa Clara Valley Medical Center of between $28.5 and $139.3 million. However, in fiscal year 2009, the general fund grant to SCVMC will be reduced to $13.5 million. Liquidating budget and other reserves from the medical center Enterprise Fund allows for the reduction in the general fund grant and provides a one-time source of funds for both fiscal year 2009 budget balancing and covers the cost of one-time needs. The use of these one-time reserves this year creates a larger deficit in fiscal year 2010.

Kutras said the base budget for 2009 was tightened as much as possible through reducing expenditures, and maximizing revenues. A large contributing factor to the deficit is declining revenues due to the effects of the current economic downturn, both at the state and local level. At the state level, collections of sales tax receipts make up the majority of funds distributed to counties for health and social services realignment, public safety sales taxes, and automobile sales receipts. At the local level, the downturn in the housing market has had an impact on secured property tax revenues, and other related revenue sources. As the state suffers from similar impacts, it is not providing adequate reimbursement to local government for mandated services, such as child welfare and employment and benefit services.

In addition to the state deficit impacts, the county faces several challenges in the future, including:

Pending federal regulations which could cut support for health services by more than $30 million

Hospital seismic remediation costs, mandated by the state to be completed by 2030, that could exceed $1 billion in capital costs

Increased costs of goods and services such as pharmaceuticals, health care, and fuel

The future recruitment and retention of staff as "baby boomers" retire.

During the past six years, the county has implemented expenditure reductions and revenue sources totaling $1.03 billion, including eliminating vacant positions, freezing hiring, and offering early retirement to eligible employees and reducing services. When combined with fiscal year 2009 proposed solutions this will total more than $1.2 billion in deficit solutions.

"The level of ongoing reductions needed for FY 2010-FY 2012 will cause service reductions to all who receive county services or depend on county funds to provide services, whether they are individuals, cities, community-based organizations or others," Kutras said. "We will likely be required to make decisions that move away from discretionary prevention services. Ultimately this will result in a higher level of acute service demands in our health and hospital system, public safety and justice programs, and social services."

State and federal funding aggravates the county's deficit even further. State support as part of the general fund has been shrinking since fiscal year 2003, dropping from 41.2 percent down to a predicted 32 percent for fiscal year 2009. State support for health and human services has dropped over the past six years, particularly in the areas of county Medicaid reimbursement for hospital-related services, and for the cost to provide human services. Federal support is also beginning to decline, from 22.2 percent in fiscal year 2006 to 19 percent in fiscal year 2009 due to federal budget reductions in domestic spending.

The county executive's Fiscal Year 2009 Recommended Budget is located at www.sccgov.org under Hot Items.