SUMMARY OF SAN DIEGO COUNTY FUND BALANCES 2017 REPORT

At the end of Fiscal Year 2016, the County of San Diego had a total of $2.8 billion ($2,783,314,000) in all of its reserve funds. All counties are required to have reserves, which should serve three purposes: to provide security in case of an unforeseen crisis, to offset the cost of shortfalls in revenue for any given year, and to ensure good financial standing so the County can draw investors and encourage economic growth. Download Printable Report

 

KEY FINDINGS

 

The County of San Diego has $1.7 billion in unrestricted General Fund reserves.

 

The General Fund balance has grown by an average of $94 million per year for the past 10 years.

 

The County could spend $122 million dollars per year, and still leave the $2 billion in the General Fund reserve untouched.

 


SAN DIEGO COUNTY TOTAL FUND BALANCE 
AT END OF FISCAL YEAR 2016

 

At the end of Fiscal Year 2016, the County of San Diego had a total of $2.8 billion ($2,783,314,000) in all of its reserve funds. All counties are required to have reserves, which should serve three purposes: to provide security in case of an unforeseen crisis, to offset the cost of shortfalls in revenue for any given year, and to ensure good financial standing so the County can draw investors and encourage economic growth[1].

The total fund balance for San Diego County has grown by 31% since FY 2007, a period which encompasses the worst financial crisis since the Great Depression, with an average growth rate of $73 million per year. This total of $2.8 billion is split among the General Fund, Public Safety Fund, Tobacco Endowment Fund and Other Governmental Funds. The most flexible of these funds is the General Fund, which compromises approximately three-quarters of the total fund balance and can be used for a diverse set of needs and responsibilities.

 

 

THE TOTAL UNRESTRICTED FUND BALANCE IS $1.7 BILLION.

THERE ARE NOT CONSTRAINTS ON SPENDING UNRESTRICTED FUNDS, EXCEPT THOSE IMPOSED BY THE COUNTY ON ITSELF.

GENERAL FUND RESERVES AT END OF FY 2016

At the end of Fiscal Year 2016, the total balance of the General Fund was $2 billion ($2,006,409,000). The balance of the General Fund is classified into 5 categories: non-spendable funds, restricted funds, committed funds, assigned funds, and unassigned funds.

Government Accounting Board Standard (GASB Statement no.54) defines 2 of these 5 fund classifications as “restricted” because the County cannot use its own discretion in determining when to spend these balances[2]. These funds are either non-spendable ($13.5 million) because they cannot be converted to cash, or restricted because the conditions under which they may be spent are determined by agreements with creditors, grantors, contributors or other governments ($272.5 million).Of the $2 billion in the General Fund, the restricted fund balance is $286 million ($285,989,000).

The total unrestricted fund balance is $1.7 billion, ($1,720,420,000). These unrestricted funds are available for the County to spend on the projects and programs that are priorities for their government. There are no constraints on spending unrestricted funds, unless imposed by the County on itself.

The money in 3 of 5 of these categories is unrestricted, and can be used for any purpose the County decides. The unrestricted total of $1.7 billion is comprised of committed funds ($592 million), assigned funds ($381 million) and unassigned funds ($747 million).

 

UNRESTRICTED GENERAL FUND RESERVES AT THE END OF FY 2016

 

The unrestricted fund balance totaled $1.7 billion at the end of fiscal year 2016, the equivalent of 48% of General Fund expenditures ($3,607,213,000) for that year[3].

According to the Government Financial Officers Association (GFOA), most governments will have a healthy fund balance if they have a General Fund reserve that is equivalent to two months (16.7%) of General Fund expenditures. Healthy reserves may be even less for the largest governments, including large counties like San Diego County. According to Standard and Poor’s (S&P), reserves that contain between 8-15% of expenditures are considered “strong,” and reserves with over 15% of expenditures are considered to be “very strong.” [4]

The county’s credit rating is important, and reserves should be maintained at strong level so the public can benefit from investment in its economy. Using the S&P standard, the County would have had a healthy General Fund Reserve as long as it kept an unrestricted General Fund Balance of at least $541 million. Instead, the County keeps $1.7 billion in unrestricted General Fund reserves. The County could spend $1.2 billion and still maintain a healthy balance of reserves for bond rating purposes.

 

SAN DIEGO COUNTY GENERAL FUND POLICY VS. ACTUAL FUND BALANCES

 

The Board of Supervisors for San Diego County has established its own policy regarding minimum required balances for General Fund reserves. This policy states that the equivalent of 5% of budgeted general purpose revenues should be saved for unforeseen catastrophic events, 2% should be committed to the General Fund contingency reserves and 10% should remained “unassigned.” [5] The County calculates these requirements as a percentage of general purpose revenue ($1.1 billion) rather than General Fund expenditures ($3.6 billion), yielding minimum balance requirements with significantly lower values than the ones stated above.

Using the FY 2016 adopted budget estimate of $1.1 billion ($1,086,200,000) in general purpose revenue, had the County adhered to its own reserve policy, the General Fund balance would have been approximately $471 million at the end of FY 2016, not $2 billion. The General Fund balance of $471 million would have included $286 million in restricted funds, $109 million to meet the County’s target for the “unassigned”/unrestricted category and $76 million in committed funds. The $76 million would have included $54 million for unforseen events and $22 million in the contingency reserve.

The County’s reserve policy sets no targets or goals for the remaining committed fund balance; it only states that “[f]rom time to time fund balance may be committed by the Board and/or assigned by the Chief Administrative officer for specific purposes.” This means the County held approximately $1.5 billion ($1,535,766,000) in funds for which there was no explicit policy requiring they be held in reserves. We do not hold that every dollar of these funds should be spent immediately. Rather, we contend that this $1.5 billion should be subjected to open and transparent conversations about whether the funds should be spent and/or whether the reasons they are being held in reserves are of greater importance than the pressing needs that exist throughout the region. 

 

GROWTH IN THE GENERAL FUND RESERVES

 

The General Fund balance has increased over the years. Between FY 2007 and FY 2016, a time period that encompasses the most significant financial crisis since the Great Depression, the General Fund balance grew by an average rate of $94 million ($94,591,889) each year.

Leaving aside the question of how much the General Fund should be spent now rather than being held in reserve, there is the issue of what to do regarding  future growth in the General Fund balance. This is important, because over the past five fiscal years, from FY 2012 to FY 2016, the General fund balance grew by an average of $122 million ($122,405,800) per year. The County dedicate $122 million per year to new expenditures and likely leave the General Fund reserve untouched. Even adding this amount to annual expenditures would allow the County to significantly increase spending on services for community members in San Diego.

 

THE ROLE OF SAN DIEGO COUNTY GOVERNMENT

 

Even though the reserves are intended in part to serve as a safeguard in the case of an unforeseen crisis, the County continued to grow its reserves throughout an unforeseen financial crisis. When we examine the County’s overall use of general purpose revenue, its priorities are clear. Rather than increase funding for health and human services or community services, the County spent 61% of $1.1 billion in local taxes on “public safety.”

The bulk of this money is dedicated to policing and incarceration, a spending strategy rejected by the voters of San Diego County when they overwhelmingly supported Proposition 47, The Safe Neighborhoods and Schools Act.

 

 

 

According to California state law, “[t]he role of county government, as a political subdivision of the state, is to deliver the services mandated by the state and federal governments, for instance, health, welfare[…]” [6]. The County has the authority to levy local general purpose tax dollars because it is the governing body mandated to provide for the health and welfare of San Diego County residents. As such, it is appropriate that residents and elected officials throughout the County hold the San Diego County Board of Supervisors accountable to its responsibility to serve the public. With $1.7 billion dollars in unrestricted funds and over $100 million in annual growth in the General Fund, the San Diego County Supervisors have the resources to make a substantial impact on some of the region’s most pressing problems.

 

 “[T]HE ROLE OF THE COUNTY GOVERNMENT, AS A POLITICAL SUBDIVISION OF THE STATE, IS TO DELIVER THE SERVICES MANDATED BY THE STATE AND FEDERAL GOVERNMENTS, FOR INSTANCE, HEALTH, WELFARE […]”

 

 

Photo Credit: Michael Mims https://unsplash.com/photos/ISczHsDwK1M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[1] These purposes are outlined in Ordinance no. 10400 (N.S) of the San Diego County Code

http://www.sandiegocounty.gov/content/dam/sdc/cob/ordinances/ord10400.pdf

[2] These fund classifications are designated by Statement no. 54 of the Governmental Accounting Standards Board, a financial reporting policy that applies to all state and local governments

http://gasb.org/resources/ccurl/313/494/GASBS%2054.pdf

[3] We have chosen to purposely overstate County expenditures by not excluding operating transfers to and from the General Fund from total expenditures. This leads us to overstate actual FY 2016 expenditures by $125 million for FY 2016.

[4] The Government Financial Officers Association (GFOA) recommends that governments maintain an unrestricted budgetary fund balance equal to two months (16.7%) of General Fund revenues or operating expenditures. However, they also note that “a level of unrestricted fund balance significantly lower than the recommended minimum may be appropriate for states and America’s largest governments (e.g., cities, counties and school districts).” (GFOA Best Practice, Determining the Appropriate Level of Unrestricted Fund Balance in the General Fund (CAAFR, Budget), (2015)). http://www.gfoa.org/sites/default/files/AppropriateLevelFundBalance.pdf

As reported by the Independent Budget Analyst for the City of San Diego, Standard and Poor’s Assessment rates reserves of 8-15% as strong and reserves over 15% as very strong. https://www.sandiego.gov/iba/pdf/reports/2015/15_41_151103.pdf

[5] http://www.sandiegocounty.gov/cob/docs/policy/B-71.pdf

[6] http://guides.ll.georgetown.edu/california-in-depth/local-governments