January 31, 2008

McHugh looks for economic sustainability focus for 2008

County Supervisor Pete McHugh delivered the 2008 State of the County address focusing on the county’s progress and changes in the government during his tenure.

Addressing a standing-room-only crowd on Tuesday, McHugh told attendees that the “county has demonstrated exceptional organizational resiliency in the face of tremendous financial adversity. We have solved annual budget deficits that have a cumulative total of over $925 million. At the same time we have minimized the impact on critical safety net services.”

The address reflects McHugh’s assessment of county challenges, performance and opportunities while outlining the priorities and direction he intends to advance during the year while he serves as chair of the board. McHugh is in his final term.

He cited two of the county’s long-term accomplishments achieved despite this period of solving significant annual deficits: maintaining the county’s Children’s Health Initiative that covers approximately 11,500 children; and substantial completion of the county’s $541 million bond-funded capital facilities program that the board approved in October 2002 and modified in July 2006.

McHugh pledged that the board would continue to push the congress and the president for funding to preserve and expand the innovative Children’s Health Initiative and its California counterpart, Healthy Families.

Under the bond-funded capital facilities program, the county purchased two buildings on North First Street now called the County Center at Charcot and moved the Probation Department and a number of other county departments from leased space into these buildings. These moves have saved the county’s General Fund $4 million in annual ongoing lease costs.

New buildings
The county this year will open the Morgan Hill Courthouse, the Valley Specialty Center, the Valley Health Centers in Gilroy and Sunnyvale and a crime lab. Seismic retrofits of four courthouse buildings in Los Gatos, San Jose, Palo Alto and Sunnyvale will be completed; and construction of the Valley Health Center is underway in Milpitas and will reach the halfway mark by the end of this year. The center will be open for patients in early 2010.

He talked about the stressors on the county’s health and hospital system, noting that one private hospital has closed and two others no longer accept Medi-Cal insurance, causing the county to take on a larger share of the uninsured and underinsured.

The rising numbers of patients, new state-mandated nurse staffing levels and decreased state and federal financial support for public hospitals have resulted in the county’s increased General Fund grant to Valley Medical Center by almost $100 million to $140 million in 2008 to offset this year’s operating loss of approximately $260 million, McHugh said.

Financial stability
“Our executives, managers and supervisors have provided superb leadership. Our line employees have actively collaborated in developing deficit solutions. They all have made the difference and they will continue to make this county work and work well,” he said speaking of the overall county organization. “With all of our successes, the county has yet to achieve the goal of financial sustainability that I outlined in my 2004 State of the County address.”

The latest General Fund five-year financial forecast has the costs of the current level of services growing an average of slightly over 6 percent annually. Ongoing revenues are estimated to grow at half that average rate. These rates of growth in revenues and spending coupled with planned one-time and ongoing solutions translate into annual deficits ranging from $155 million to $165 million, assuming current economic conditions and a continuation of existing financial relationships with the state and federal government.

Based on current budget forecasts, McHugh said the county will only bring in about 90 percent of the revenue it needs annually and that to close the gap without cutting services drastically and reducing the county’s labor force by 1,700 positions, it must continue to successfully pursue three broad deficit reduction strategies: ask the public to increase support of county services through tax ballot measures; develop the county’s surplus land assets into other uses that generate revenue; and reduce the rate of growth in ongoing costs by making operations more efficient and effective.

He outlined the targets to measure the county’s success in significantly improving its financial sustainability in 2008. He listed 10 measures that are necessary for that stability including:

- Pass a sales tax measure.

- Achieve at least $300,000 in revenue from the first three initiatives of the Corporate Sponsorship and Marketing Plan.

- Achieve at least $27 million in ongoing savings from the Valley Medical Center Transformation 2010 Plan.

- Achieve at least $8 million in savings from the acute psychiatric services study.

“The report card for 2008 I have outlined today and its accountability measures will, when implemented, significantly enhance our financial sustainability without drastic service or staffing reductions,” said McHugh. “We will continue to demonstrate our remarkable capability to cope creatively with our resource challenges. We must all, however, realize the tremendous degree of political will, time and effort that will be required to achieve the goals we have set for 2008.”
Emergency fee
The supervisors on Tuesday also approved establishment of an Emergency Response and Disaster Preparedness Fee in a 4-1 vote, the. The $.20-1.01 fee for residential users, $1.50-7.58 per month for a trunk line user and $4.80-24.24 for high capacity trunk line users, will recover a portion of costs for providing 911 emergency communications and disaster preparedness services for residents in the 15 cities and unincorporated areas within the county.  In response to concerns expressed by the business community, the county will cap the annual amount to be charged to companies at $10,000, regardless of the number of locations.

McHugh did not support the proposed fee. “Emergency preparedness services are a part of the basic compact between the county and residents,” he said.  “I would support this if the Board placed the proposal before the voters for approval.”
“The Emergency Response and Disaster Preparedness Fee is designed to recover costs for services used by residents in Santa Clara County. This is not a tax. It is a fee determined by careful analysis of services,” said County Executive Pete Kutras. “More and more, local counties are being called upon by federal and state government to be self sufficient in disasters and be prepared for disasters. There is a limit to the services we can provide without additional funds.”

The proposed fee applies to an estimated 2.3 million telephone lines in the county, including land lines, wireless numbers, trunk lines and voice over internet protocol (VOIP) access. Approximately 250,000 lines are exempt, including low income “Lifeline” telephone service customers; pay phones; non profit, tax-exempt hospitals; non profit, tax-exempt schools; government agencies; and service suppliers.

The ordinance adds approximately $1.56 million for fiscal year 2008 (May-June) and $9.3 million in revenue annually, approximately 25 percent of the county’s anticipated expenditures to provide emergency communications and disaster preparedness services.  

Revenues from the Emergency Response and Disaster Preparedness Fee Ordinance will recover costs directly associated with services provided by County Communications, the Office of Emergency Services (OES), and Public Health services. OES is responsible for coordinating with county departments, cities and special districts to mitigate against, prepare for, respond to and recover from disasters. This responsibility includes maintaining county and city Emergency Operations Centers in a state of readiness, evaluating training and simulated disaster exercises. As part of its responsibility to coordinate all emergency medical activities in Santa Clara County, the Public Health oversees disaster-medical health planning and response, including multiple-patient management, emergency public health operations and medical-health mutual aid coordination.

Opposition to Governor
At the Tuesday meeting, the supervisors voted to oppose changes/reductions in six areas of the governor’s current year recommended budget reductions: deferred payments to counties; elimination of Medi-Cal Optional Services; reduction of Medi-Cal Managed Care Rates; cuts to Early Periodic Screening and Diagnosis Treatment in mental health services for children; reduction in the rates to Community Treatment Facilities; and reductions in Foster Care Rates.

The loss of such preventive services could lead to the need for a higher and more costly level of health care in the future. Such reductions also are contradictory to the state’s efforts to increase access to health care in California.
The county also opposes the governor’s proposal to defer payments to counties. That action would have an $18.9 million adverse impact on the General Fund programs and cash flow and a $6 million adverse cash flow impact on the Roads Fund.

“Many of these proposals are draconian,” said Supervisor Liz Kniss, chair of the board’s Health and Hospital Committee and Legislative Committee, the area where most of the proposed reductions are concentrated. “We are already trying to cope with the closure of a private hospital and the decisions of two other private hospitals to no longer serve clients with Medi-Cal insurance. The governor’s proposed budget would compound the problem.”

“We’re really caught between a rock and a hard place,” said Supervisor Don Gage. “While we understand the state’s need to cut its budget, it has to understand how these proposals will affect the county’s ability to deliver services.”

The county also opposes the proposed reduction in the supplemental rate to Community Treatment Facilities that serve severely emotionally disturbed youth from the foster care and probation systems. A $97,000 reduction in 2008 would grow to $289,705 in 2009 and seriously impact the county’s ability to maintain its Starlight facility.

The governor also proposes taking back the 5 percent increase in foster care rates effective this month and to reduce the payments to foster families by 10 percent. County licensed foster care providers in Santa Clara County on average receive $535 per month to care for a child. That money is expected to cover the cost of housing, transportation, childcare, food and utilities. The loss would total $416,000 to foster care providers as a group in Santa Clara County.

“For more than five years, foster care provider rates remained unchanged, while the cost of living over that same period grew by 21 percent,” said Supervisor Ken Yeager, chair of the board’s Children, Seniors and Families Committee. “Establishing a fair and viable foster care rate is important to the county’s efforts to provide quality foster care programs.”

Mortgage credit
The state approved allocation of $12 million to provide Mortgage Credit Certificates (MCC) to the county’s qualified first-time homebuyers. Its Affordable Housing Office has started to accept Mortgage Credit Certificate applications.

“Housing is one of the biggest issues facing working families in Santa Clara County,” said McHugh. “Through the Mortgage Credit Certificate Program, residents can increase their buying power by reducing the amount of federal taxes taken out of their wages.”

A person borrowing $400,000 at a 6 percent interest rate will pay $24,000 in interest. Take the interest and multiply by 15 percent and the savings under the mortgage credit will be $3,600 dollars a year.