Amid a souring economy, San Diego County amassed hundreds of millions in reserves and maintained a stellar credit rating through conservative budgeting, spending cuts and debt management.
But critics question the county’s policy of stockpiling reserves in tough times while shedding workers and stretching to provide services.
With about $1.2 billion salted away — most of that is reserved for emergencies, dedicated purposes and capital improvements — the questions intensified after Gov. Jerry Brown announced plans to shift the responsibility for a host of state programs to local government without the guarantee of sufficient funding.
“Increasingly, it seems like they are saving for a rainy day during a monsoon,” said Clare Crawford, executive director of the Center on Policy Initiatives, a pro-labor think tank that advocates for working families.
Chief Administrative Officer Walt Ekard said reserves are generally not used to fund ongoing programs in the county’s $4.84 billion budget. Once the county spends one-time money it is gone and the program and its financial demands remain.
“Rating agencies look carefully at a county’s reserves and reserve policy as a primary signal of the discipline that the county exhibits, which translates to a higher credit rating and lower borrowing costs. In our case, we have the highest possible ratings,” he said. “As far as backfilling the state is concerned, our general rule is we don’t backfill a permanent state cut.”
The county does spend reserves on occasion to “glide slope” a cut, lessening the impact and giving officials an opportunity to make adjustments.
Closer look at numbers
A recent study by CPI indicated that the county finished last fiscal year with $2.19 billion. The Union-Tribune set out to provide a breakdown of the figures.
After subtracting contractual obligations, debt service and general fund dollars earmarked for 2011-12 and 2012-13, the county is expected to have about $1.2 billion available on July 1.
Most of that money has been reserved or designated for a specific purpose. That includes $388.8 million in a tobacco settlement fund, $155 million for economic uncertainty and catastrophic events and $65.3 million for realignment of health and social service programs.
The total also pulls together $31.2 million in agency reserves, $58.3 million for an environmental trust, $90 million for capital projects and $171 million in special revenue funds including libraries, asset forfeiture and housing and community development.
The explanation behind each pool of money is complicated. For example, the county established the $388.8 million tobacco fund in 2002 and 2006 for health programs. In lieu of receiving tobacco settlement revenue yearly, officials securitized the payment stream and deposited the net proceeds of $536 million into the fund. This enabled them to pay for about $25 million in health programs annually through 2036.
Other funds are governed by policy. The Board of Supervisors has pledged to maintain at least 10 percent of budgeted general purpose revenues for economic uncertainty, 5 percent for catastrophes and 2 percent for contingency reserves.
Supervisor Bill Horn, the board chairman, said the policy of building and maintaining healthy reserves has allowed the county to save millions in taxpayer dollars over the years. Financing projects with cash rather than debt is expected to save more than $1 billion in interest costs over three decades.
Pair of critical studies
According to CPI’s comparative analysis of the state’s largest governments released in April, the county has amassed unspent reserves while restricting safety net services during the recession.
Last year, the county’s end balances totaled almost 60 percent of expenditures, compared to an average of 42 percent among other major counties, according to the report. The author, Vladimir Kogan, said spending more of its revenue on local services would help create jobs and boost the economy. It also would help people struggling in the recession, he added.
A separate report released by CPI and San Diego State University in May asserts that the county’s efforts to improve enrollment for public assistance has degraded service quality and work performance.
Eric Banks, president of the Service Employees International Union Local 221, said the county has been cutting back, not filling positions and asking people to do more with less. Using reserves, he said, was a matter of political will.
“If we’re going to live up to the county’s basic mission, the motto engraved on their building — ‘The noblest motive is the public good’ — then they need to live up to that and dip into their reserves,” Banks said. “This isn’t a business — it’s a government. Even if they did just a little more to bolster services then they would still have a lot of money.”
County says reserves not a solution
County officials called the findings inaccurate and said the results speak for themselves: Enrollment in CalWorks and CalFresh have increased between 7.5 percent and 50 percent for seniors. They also took issue with the study and its author, calling it a “stunt by a labor organization” and pointing out that the SDSU researcher was affiliated with Center on Policy Initiatives.
Using reserves to pay for ongoing programs — including those handed down by the state — was not a solution to the problem, supervisors said.
Supervisor Greg Cox, who serves on the California State Association of Counties, said the bottom line was the county believes it can run some of the programs cheaper and more efficiently than the state can.
“At the same time if the state doesn’t provide us with what we’re going to need there’s probably going to be a reduction in the level of services in some of these programs,” Cox said.