HomeMy WebLinkAboutAgenda 12-06-21; 6-b - Approval of an Allocation Framework for the FY2020-21 Financial Results 1
ORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: December 6, 2021
Action Agenda
Item No. 6-b
SUBJECT: Approval of an Allocation Framework for the FY2020-21 Financial Results
DEPARTMENT: County Manager
ATTACHMENT(S): INFORMATION CONTACT:
Update on FY2020-21 Year End Financial
Results Travis Myren, 919-245-2308
Gary Donaldson, 919-245-2453
Rebecca Crawford, 919-245-2152
PURPOSE: To approve an allocation framework for the FY2020-21 financial results which
resulted in a total net positive financial positon of approximately $12 million, with the approved
framework to be codified in a budget amendment for consideration at a future meeting.
BACKGROUND: This abstract provides a high level summary of the attached Update on
FY2020-21 Year End Financial Results report which provides a more detailed discussion of the
sources and proposed uses of the County's positive net financial positon ending on June 30,
2021.
The results of the FY2020-21 financial audit will show positive results in two areas. On an
operating basis, the audit will show a surplus of approximately $8.9 million before transfers. Of
that amount, approximately $8 million is available for a mid-year budget adjustment. In addition,
the fund balance reconciliation contained in the audit will show $4 million in available one time
resources resulting from a decrease in the fund balance appropriation used to balance the
FY2020-21 Budget compared to the smaller amount appropriated to balance the FY2021-22
Budget.
The positive operating results relied on revenue collections that exceeded budgeted expectations
and intentional expenditure restrictions that limited expenditures to below budgeted amounts.
Some of these variances are expected to be recurring or ongoing while others are non-recurring
or one time occurrences.
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Source Amount Recurring vs. Non-Recurring
Property Tax Collection Rate $1,600,000 Recurring
• 98.7% Budgeted
• 99.27% Actual
Motor Vehicle Tax Collection Rate $ 400,000 Recurring
• 99.4% Budgeted
• 103.8% Actual (exceeds 100% due to
payment of delinquent bills)
Sales Tax Collections (Articles 39, 40 and $4,000,000 Recurring
42)
• Budgeted to decrease by 4.5%
• Actual Collections exceed Budget by
17.4%
Medicaid Hold Harmless $2,000,000 Non-Recurring
• Budgeted at $1.75 million
• Actual Payment - $3.75 million
No Use of Fund Balance to Balance $4,000,000 Non-Recurring
Budget
• $8,200,000 Budgeted
• $1,900,000 Assigned to FY2021-22
Budget
• $2,300,000 Allocated to maintain 16%
Unassigned Fund Balance
• $4,000,000 Available for Allocation
TOTAL 000 000
Based on the recurring and non-recurring nature of the variances outlined above, the following
table proposes specific uses for those funds. A more detailed description of the proposed
allocations is contained in the attached Update on FY2020-21 Year End Financial Results report.
Proposed
Employee Wage Adjustment $ (1,883,875) Recurring
• Three percent wage increase
retroactive to July 1, 2021
Schools Opportunity Gap & Mental $ (1,500,000) Recurring
Health Fund
• Allocated by average daily
membership
• Schools to provide spending plan
• Track progress on key indicators
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FEMA Back Stop $ (407,543) Non-Recurring
• Reserved for unreimbursed COVID-
19 emergency expenditures
• May be repurposed if
reimbursement occurs
Ineligible Federal Expenses $ (2,228,629) Non-Recurring
• Sportsplex Deficit
• Visitors Bureau Deficit
• Information Technology Expenses
for County use
• Expenses not eligible under
evolving federal regulations
Outside Agencies $ (1,729,953) Non-Recurring
• Substitute general fund resources
for proposed ARPA funding due to
rigorous reporting requirements for
sub recipients
Crisis Diversion Facility Design $ (250,000) Non-Recurring
• Conceptual design funding for
potential new facility
Transfer to Capital Reserve $ (4,000,000) Non-Recurring
• Reserved to fund existing debt
financed projects or increase capital
funding for priority projects
• A decision on how to allocate this
funding could be made at a later
date
TOTALGRAND 000,000)
FINANCIAL IMPACT: The County ended FY2020-21 with a total net positive financial positon of
approximately$12 million. This framework allocates those funds to a variety of recurring and non-
recurring expenditures.
SOCIAL JUSTICE IMPACT: The following Orange County Social Justice Goals are applicable
to this item:
• GOAL: FOSTER A COMMUNITY CULTURE THAT REJECTS OPPRESSION AND
INEQUITY
The fair treatment and meaningful involvement of all people regardless of race or color;
religious or philosophical beliefs; sex, gender or sexual orientation; national origin or ethnic
background; age; military service; disability; and familial, residential or economic status.
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• GOAL: ENSURE ECONOMIC SELF-SUFFICIENCY
The creation and preservation of infrastructure, policies, programs and funding necessary
for residents to provide shelter, food, clothing and medical care for themselves and their
dependents.
ENVIRONMENTAL IMPACT: There is no Orange County Environmental Responsibility Goal
impact associated with adopting an allocation framework.
RECOMMENDATION(S): The Manager recommends that the Board approve an allocation
framework totaling $12 million. A budget amendment will be presented to codify this framework
at a future meeting.
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Update on FY2020-21 Year End Financial Results
Commissioners,
The County's auditors are finalizing the FY2020-21 Financial Audit. The results of this audit will show
positive results in two areas. On an operating basis, the audit will show a surplus of approximately $8.9
million before transfers. Of that amount, approximately $8 million is available for a mid-year budget
adjustment. In addition, the fund balance reconciliation contained in the audit will show $4 million in
available one time resources resulting from a decrease in the fund balance appropriation used to balance
the FY2020-21 Budget compared to the smaller amount appropriated to balance the FY2021-22 Budget.
This memorandum will summarize the primary contributors to this positive financial outcome, outline a
framework for the investment of those funds through a mid-year budget adjustment, and propose a
timeline for the Board's consideration. A more detailed table of budgeted versus actual expenditures and
revenues is attached.
FY2020-21 Budget Results
The FY2020-21 Budget was presented to the Board of Commissioners in May of 2020. At that time, the
State was entering its sixth week of the Governor's Stay at Home order. Unemployment rates in the
County were beginning to increase, and the County's otherwise resilient local economy was suffering.
Under these circumstances,the County Manager's recommended budget included conservative revenue
projections and austere expenditure measures designed to protect the County's financial well-being.
Fortunately, the federal government asserted a variety of economic stimulus initiatives to individuals,
private businesses, and the public sector to avoid widespread economic distress. Those stimulus
measures manifested in positive impacts to the County's primary revenue sources.
Property Tax and Motor Vehicle Collections
The collection rates for property taxes and motor vehicle collections were adjusted down in the FY2020-
21 Budget in anticipation of residents struggling to pay those obligations. Property tax collection rates
were decreased from 99.2% in FY2019-20 to 98.7%in FY2020-21. However,the actual collection rate did
not decrease. Rather, it stayed consistent with the FY2019-20 rate at 99.27% resulting in a positive
property tax revenue variance of over$1.6 million.
The collection rate for Motor Vehicles also performed in excess of expectations. That rate was budgeted
to decrease by 0.5%. However,the actual collection rate exceeded 100% at 103.8% as both current year
and delinquent tax bills were paid. This positive variance amounted to over $400,000 in surplus
collections compared to the budgeted amount. Both of these positive variances are expected to be
recurring, so the funds could be used to support ongoing operating expenses.
Sales Taxes
Sales taxes were budgeted to decrease by 4.5%from the FY2019-20 budgeted amount. Actual sales tax
collections, however, exceeded FY2019-20 collections. This unexpected performance resulted in actual
collections exceeding the FY2020-21 budgeted amount by over $4 million. Although the Department of
Revenue will not disclose the amount of sales tax collected from online sources, online purchases during
and after the stay at home order likely fueled some of this growth, and direct federal stimulus payments
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to individuals and families helped to enhance retail sales. Those direct stimulus payments were
distributed in April of 2020, December of 2020, and March of 2021.
Due to the three month lag in sales tax reporting from the Department of Revenue, the impact of the
December 2020 stimulus was not known until April of 2021, and the impact from the March stimulus
payments were not known until June 2021. The following chart illustrates how those stimulus payments
amplified the seasonal variations in sales tax collections compared to FY2019 and FY2020.
Sales Tax Collections by Month
$3,000,000.00
3rd Stimulus-March 2021
2nd Stimulus-December 2020
$2,500,000.00
$2,000,000.00
$1,500,000.00 1st Stimulus-April
2020
$1,000,000.00
$500,000.00
$ Large Refund
& et et et t to n
,�o`P tc0 �C'0
p� Q�e ece >a� �eo \�
$(500,000.00) 5e
2019 2020 2021
Medicaid Hold Harmless
In April of 2020, the Office of the State Treasurer warned counties that, "Based on our expectations, we
urge counties to be very conservative about budgeting how much revenue they budget for the MHH
[Medicaid Hold Harmless] payments in their 2021 budgets." Hold harmless payment are made from the
state to counties because counties exchanged a portion of their local sales and use tax revenue for the
state's agreement to assume responsibility for certain non-administrative Medicaid costs several years
ago.
The FY2020-21 Budget estimated the County would receive a Medicaid Hold Harmless payment of$1.75
million. Since sales tax revenues Statewide did not suffer the expected losses,the County's Medicaid Hold
Harmless payment exceeded the budgeted amount by over$2 million. The audit will reflect this payment
in the sales tax category. Since this revenue is not in the County's control and, therefore, not as
predictable, it should be considered non-recurring revenue available for one time expenditure.
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Unassigned Fund Balance
The FY2020-21 Budget implemented a number of expenditure austerity measures intended to maintain
fiscal flexibility. The Budget included a hiring freeze, did not provide a wage adjustment for employees,
suspended employee performance rewards, and suspended all conference,training, and travel expenses.
These intentional austerity measures, along with other restrained spending in departments, resulted in
actual expenditures that were under the budgeted amounts. This means that the $8.2 million fund
balance appropriation used to balance the FY2020-21 budget was not required. Of that $8.2 million
appropriation,$1.9 million was used to balance the FY2021-22 Budget,$2.3 million was applied to achieve
the sixteen percent unassigned fund balance target based on increased budgeted expenditures, and the
remaining$4 million is available for one time expenditure.
Framework for Investments
Based on the factors cited above,this proposed framework for investment includes a total of$3.38 million
in recurring expenses and $8.61 million in non-recurring expenses.
o Opportunity Gap Reduction and Student Mental Health Support Fund -$1.5 million
Both school districts highlighted two priorities in their expansion budget requests for FY2021-22,
closing the racial and ethnic opportunity gap and addressing the mental health of students. In
response to that request, this proposal creates an Opportunity Gap Reduction and Mental Health
Support fund that would be exclusively dedicated to those priorities.
The resources contained in this fund would be allocated, as required, by average daily membership.
Based on the FY2021-22 allocations, Chapel Hill Carrboro City Schools would receive $905,400, and
Orange County Schools would receive$594,600. This fund would exist outside of the districts'current
expense budgets to emphasize this investment as it relates to the Board's goal of promoting equity
and social justice in the community. The fund is anticipated to be a recurring expense. As proposed,
each District would propose a spending plan each year which could not supplant current spending.
The districts would have the flexibility to determine the amount of funds used to address each priority
area.
The outcomes associated with this investment would also be tracked. The opportunity gap will be
measured by end of grade scores in math and reading. The County will seek input from the districts
about how to best measure the results of mental health support component of the fund. The County
Manager is discussing this proposal with the Superintendents on December 1.
o Employee Wage Adjustment-$1.9 million
Orange County employees have not received an across the board wage adjustment for two years.
Employees did receive a one-time pandemic relief payment of$900 per employee, but this payment
was not applied to base wages. Employees in surrounding jurisdictions received wage increases
between two percent (2%) to five percent (5%) this fiscal year. The second proposed recurring
investment is in Orange County employees with a 3.0% wage adjustment that will be retroactive to
July 1, 2021.
o Outside Agency Base Budget Funding-$1.7 million
The FY2021-22 Budget recommended funding the entire Outside Agency budget using American
Rescue Plan Act (ARPA) funds. However,the new reporting requirements associated with the use of
ARPA funds would require outside agencies of all sizes to track expenses and submit reports on a level
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that they have not been required to do before and many may not have the administrative capacity to
complete.
If one of these sub-recipients were to fail to produce the required documentation,the County's overall
compliance could be jeopardized. Therefore, this plan replaces ARPA funds with general fund
resources. The ARPA funds that were designated for this purpose will be available for other
community needs.
• Ineligible American Rescue Plan Act (ARPA) Expenditures-$2.2 million
As the interim spending rules on ARPA funds continue to evolve, some of the proposed expenditures
contained in the first recommended County allocation are clearly eligible expenditures. For example,
the FY2021-22 Budget applied ARPA funds to deficits in the Visitors Bureau and Sportsplex Funds.
Given the federal eligibility framework that was in place at the time, covering revenue shortfalls
appeared to be an eligible use of funds. However, as the guidance has evolved, the measurement
that is being used to determine a revenue shortfall is on an organization wide basis, not an individual
fund basis. As a result, $1.35 million proposed to cover the deficits in the Visitors Bureau and
Sportsplex funds are ineligible uses.
Likewise, prior federal guidance on information technology related expenditures cast a wide net of
eligible uses. However, the ARPA guidance restricts the use of funds for technology to those related
to the direct COVID-19 response or supporting residents negatively impacted by the pandemic, not to
other organizational expenses related to transitioning to remote work. As a result, $878,629 in
information technology software and equipment that would have been eligible under prior federal
COVID-19 programs is not eligible under the ARPA rules.
• Federal Emergency Management Agency Reimbursement Backstop-$407,543
The County expended a total of approximately$2,840,015 on non-congregate housing for individuals
experiencing homelessness during the height of the pandemic. To date,the County has only received
$638,956 in reimbursements for that housing,despite the many assurances provided by the State that
reimbursement was certain. As the County continues its reimbursement claim for the balance of
funds, this proposal recommends setting aside $407,543 in an Emergency Recovery Fund for the
purposes of offsetting unrealized reimbursements. In the event that reimbursement is received,
these funds would be available for repurposing.
• Crisis Diversion Facility Design Funds-$250,000
The Behavioral Health Task Force has outlined the business case for a Crisis Diversion Facility that
would offer a therapeutic alternative to either the Detention Center or the Emergency Room for
residents experiencing a behavioral health crisis. The team has defined programming needs through
a variety of stakeholder engagements and will be in a position to proceed with conceptual design in
2022. This proposal recommends allocating$250,000 to support that conceptual design.Any funding
remaining from the conceptual design phase could be applied to architectural work later in the project
if it proceeds or could be repurposed for other capital needs if it does not proceed.
• Transfer Funds to Capital Reserve-$4 million
Finally, this proposal recommends transferring the one-time unassigned fund balance surplus to a
capital reserve fund for uses to be determined at a later date. For example,these funds could be used
to substitute cash for future borrowing thereby reducing pressure on the County's debt service costs.
If all $4 million were applied to next year's Capital Budget in this way, it would eliminate the need for
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a projected tax increase until 2024. Alternatively, the Board could authorize additional, one-time
capital spending for school or County capital needs without incurring additional debt service expense
in the future.
• Summary Table of Proposed Uses of Funds
Recurring
Employee Wage Adjustment $ (1,883,875)
Schools Opportunity Gap& Mental Health Fund $ (1,500,000)
TOTAL Recurring $ (3,383,875)
Non- Recurring
FEMA Backstop $ (407,543)
Ineligible Federal Expenses-S-Plex, VB, IT $ (2,228,629)
Outside Agencies $ (1,729,953)
Crisis Diversion Facility Design $ (250,000)
Transfer to Capital Reserve $ (4,000,000)
TOTAL Non-Recurring $ (8,616,125)
GRAND TOTAL $ (12,000,000)
Next Steps and Timeline for Consideration
The financial audit must be submitted to the Local Government Commission by December 1,2021. When
that occurs,the audit officially becomes a public document.
County management is prepared to present these preliminary spending recommendations on December
6. Following the Board's deliberation on these recommendations, a final budget amendment reflecting
the Board's action on December 6 would be prepared for the December 14 meeting. This amendment
will include an action to change the salary schedule since the Board adopts this schedule as part of the
budget ordinance. The change would reflect the amount approved by the Board.
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DRAFT-FY 2020-21 GENERAL FUND SUMMARY RESULTS
Both the Income Statement and Balance Sheet provided the$12 million to fund the Budget Amendment
as illustrated below.
INCOME STATEMENT The bolded column below represents the net income impact
REVENUES Revised Budget Actual Amounts Variance NOTES
Positive variance due primarily to higher tax collection rate than budgeted;budgeted 98.7%for
real and personal and actual collection rate was 99.3%. Motor Vehicle collections had additional
Property taxes $ 167,234,047 $ 169,609,395 $ 2,375,348 $403,268.
Federal Stimulus offset management's forecast of projected lower revenues due to pandemic
Sales tax $ 25,577,353 $ 32,101,942 $ 6,524,589 closures.
Intergovernmental $ 28,795,396 $ 25,670,181 $ (3,125,215) Timing of Grant Reimbursements.
Primarily due to necessary public health restrictions impacting Detention Center Federal Bed
Charges for Services $ 12,444,279 $ 11,549,397 $ (894,882) Utilization; Budgeted$1.6 million and Actual is$803,671.
Investment earnings $ 530,000 $ 17,708 $ (512,292) Lower interest rate environment eroded yield opportunities.
License and permits $ 288,250 $ 281,024 $ (7,226) Comprised of Franchise Tax and Privilige License.
Miscellaneous $ 1,003,000 $ 865,501 $ (137,499) Comprised of Lease Rentals and Donations
Total revenues $ 235,872,325 $ 240,095,148 $ 4,222,823 Positive variance attributed to property and sales tax collections
EXPENDITURES
Community service $ 11,436,885 $ 9,962,876 $ (1,474,009) Manager Cost Containment measures and Personnel Attrition.
General government $ 14,733,484 $ 13,549,081 $ (1,184,403) Same comment as above.
Public Safety $ 29,051,056 $ 27,428,024 $ (1,623,032) Same comment as above.
Human services $ 46,160,781 $ 41,797,621 $ (4,363,160) Same comment as above.
Education $ 93,809,052 $ 92,671,015 $ (1,138,037) Same comment as above.
Support services $ 12,787,530 $ 11,970,772 $ (816,758) Same comment as above.
Debt service $ 33,910,651 $ 33,764,216 $ (146,435)
$ 241,889,439 $ 231,143,605 $(10,745,834) Manager Cost Containment measures and Personnel Attrition.
Revenues over(under)
expenditures $ 8,951,543 Basis for Mid-Year Budget Adjustment
NOTE All transactions indicated above the line exclude transfers in and out