Washoe County Commissioners today received a presentation stating that although the current fiscal year budget is on track with no need to reduce it further, there will be a budget deficit in the 2011-12 budget year projected to be $33.5 million. This estimate does not include the possible continuance of a 9 cent property tax diversion to the State of Nevada which was implemented by the 2009 Special Legislative Session and recommended by Governor Sandoval in his State of the State address yesterday.
The deficit is the result of two things: continuing declines in property tax revenues which comprise about 55% of the County’s total general fund budget, as well as steadily increasing expenditures that outpace revenues . Property tax revenues are projected to be down nearly 8% from this current fiscal year–about $12 million less. Although a modest gain in sales tax of 1% is predicted, this certainly does not compensate for the significant loss in property tax revenues. It’s also important to note that based on reasonable assumptions, without action, the $33.5 million deficit becomes a $200 million deficit by 2015, which is not sustainable.
Although Washoe County has been very fiscally responsible and has taken often-painful measures to reduce expenses ($123 million in budget reductions over the past four years), the reality is that County expenses continue to outgrow revenues. Labor costs, which represent more than 75% of the general fund, will continue to grow at rates that are not supportable by current revenue sources. Rising health care costs are the largest single contributor to this unsustainable cost and are projected to increase by 12% alone in 2011-12 for the current plans.
Commissioners were informed by staff that revenues cannot sustain projected expenses, both in the short-term and the foreseeable future. Since Washoe County is at the statutory limit for our region’s overlapping tax rate, there is not enough sustainable revenue capacity to change that even if there were support for raising taxes, which there is not. Therefore, Washoe County must once again reduce costs.
Proposed Solution. Washoe County has led the State’s public sector in addressing this structural deficit issue, even before many were willing to recognize the impact of a recession upon governments. Four years worth of $123 million in budget cuts and a 16% reduction in workforce has taken its toll, with employee sick leave usage increasing and service levels suffering. But the need for long-term sustainable solutions is clear.
Staff provided a four-pronged recommendation to the County Commission today on how to address the projected deficit. This approach sets a foundation for sustainability by 1) resetting the cost of delivering services, 2) refining the focus on which services the County can sustainably continue to deliver, 3) rethinking ways for greater efficiency in delivering core services, and 4) investing fund balances to achieve long-term changes in service delivery and labor costs. These four deficit-closing strategies align with the Balanced Plan for Sustainability presented at the Organizational and Financial Sustainability Workshop on December 14, 2010. Citizens can view a video of that meeting by going to our website’s The Washoe Channel link.
The numbers that go with the proposed four-pronged approach are:
1. Reset the cost to deliver services by seeking to negotiate permanent labor cost reductions totaling $13.8 million in 2011-2012.
2. Refine the focus of services provided to achieve $5 million in FY 2011-12 savings.
3. Achieve additional efficiency and attain $5 million savings from department operating budgets.
4. Investing fund balances of $9.75 million to create long-term change.
Details of how to obtain these goals will be vetted over the next several months with staff providing some general recommendations and observations for the Board’s consideration today. The Board gave direction to staff today to pursue the four-pronged plan while also soliciting input from county management and staff as well as citizens. The next opportunity for the Board to discuss this topic will be at their Strategic Planning Retreat scheduled for February 1st.