Supervisor Pete McHugh
STATE OF SANTA CLARA COUNTY - 2008
I am honored to be the Board Chair again in my final year on the Board. This morning:
- I will take a brief look at how the County has been able to cope and adapt to its ongoing difficult financial situation since I was Board Chair in 2004.
- I will describe the initiatives that the Board has recently launched with the goal of achieving financial sustainability without drastic service and staffing reductions.
- I will also share what I believe should be the County’s highest priority for 2008 and what we must accomplish to make 2008 a successful year.
Since January 2004, 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.
Since 2004 in Santa Clara County, one hospital has closed and two others no longer welcome those with Medi-Cal insurance. It has become increasingly difficult for the uninsured and the under-insured to find a doctor in our county. During this period, the County stepped up as others have stepped away and one in four county residents has received some type of health care from Valley Medical Center.
At the same time, the State and federal governments have decreased their financial support of public hospitals. As a result, the County has increased the General Fund’s grant to Valley Medical Center by almost $100 million to $140 million in 2008. The $140 million grant helps cover this year’s Valley Medical Center’s operating loss of approximately $260 million.
To help maintain the County’s high quality and cost effective medical care safety net and respond to inadequate General Fund revenues, the County has devised resourceful and creative solution strategies.
We have deferred retirement rate changes and prepaid our annual retirement obligations.
We have improved workers’ compensation and retiree health financial policies.
We have eliminated the director-level executive manager positions in the General Services Agency and the Environmental Resource Agency. These organizational structural changes have achieved some savings.
We have used significant amounts of one-time funds and reserves to maintain ongoing General Fund services.
What is remarkable about the County’s efforts over this period is that the County has almost maintained the same total General Fund and Valley Medical Center staffing authorized in 2004.
In response to rising numbers of patients and new State-mandated nurse staffing levels, the County has added 657 positions to Valley Medical Center’s work force.
Unfortunately, the deficits were too large and General Fund departments have lost 674 positions, representing a six percent reduction.
The net result, however, has only been a reduction of 17 positions with our total General Fund and Valley Medical Center staffing remaining at approximately 14,000 positions.
Even during this period of solving significant annual deficits, the County has accomplished much for Santa Clara County residents.
We continue to maintain the County’s Children’s Health Initiative that covers approximately 11,500 children. While many jurisdictions have copied our creative and innovative program, the current Administration in Washington, D.C has threatened its success and that of California’s counterpart, Healthy Families.
Recently, the Congress and the President agreed to provide states with enough funds so that California will serve its current Healthy Families enrollment. I can assure you that we will continue to push for funding to expand these programs and we will also fight to preserve them.
We are beginning to experience the completion of the County’s $541 million bond-funded capital facilities program that the Board approved in October 2002 and modified in June 2006.
Under this program, the County purchased two buildings on North First Street now called the County Center at Charcot. By purchasing and improving existing buildings, the County saved at least $46 million over the original program budget to construct an equivalent facility.
During the last three years, the County moved the Probation Department and a number of other County departments from leased space into these buildings. These moves have also saved the County’s General Fund $4 million in annual ongoing lease costs.
In 2008, the County will see the opening of two new criminal justice facilities. We will have the Morgan Hill Courthouse and our Crime Lab.
The County will also complete seismic retrofits of four courthouse buildings in Los Gatos, San Jose, Palo Alto, and Sunnyvale.
For the County’s Health and Hospital System, there will be three new healthcare facilities. We will begin to see patients at the Valley Specialty Center, the Valley Health Center in Gilroy and the Valley Health Center in Sunnyvale.
Construction on the Valley Health Center in Milpitas began in late 2007. Approximately half of the construction is expected to be completed by the end of this year and the Center will be open for patients in early 2010.
While the Board is a team that works with our County Executive, his staff and our dedicated employees in doing what is right for our community, we have our individual passions and interests. I want to recognize some additional County accomplishments and I will associate them with particular members of the Board.
Supervisor Blanca Alvarado has always been a champion for the well-being of our County’s children. Her concerns for our children led her to advocate for the Board to add operational authority to the Board’s budgetary authority of the Probation Department.
After the voters approved this change in March 2004, she has pushed for progress in juvenile detention reform. The Department has successfully implemented several important innovative approaches that address the needs of youth in our County. These approaches include opening an Evening Reporting Center and implementing an Enhanced Ranch Program.
The Evening Reporting Center provides services to youth who are on the verge of violating their probation orders and the Enhanced Ranch Program achieves rehabilitation through individual and group counseling. The Department has also begun providing juveniles with comprehensive family oriented services that assist the family as a group to achieve positive outcomes in their lives.
Supervisor Don Gage has made increasing the supply of affordable housing and ending homelessness in the County a priority of his for many years. In December, the Board accepted the final report from his and Mayor Reed’s Blue Ribbon Commission on Ending Homelessness and Solving the Affordable Housing Crisis.
The Commission’s report identifies action items, target completion dates, and parties responsible for implementing nine solution strategies and initiatives. The Board has referred to the Administration an evaluation of two important Commission solution strategies for the homeless. One is to establish a 17 bed medical respite facility and the other is to create a “one-stop” multi-service center.
Supervisor Liz Kniss has brought forward the Board Policy on Green Building that has been one aspect of the County’s demonstrating excellent environmental stewardship. Five buildings in our bond-funded facility program have received Leadership in Energy and Environmental Design certification. They earned these certifications because the combined design and construction materials conserve over 3.3 million kW hours of electricity and 200,000 thermal units of natural gas per year.
Supervisor Ken Yeager has just completed his first year on the Board, representing the Fourth District. From the experiences of counties during the recent fires in southern California, he focused our attention on some gaps in the County’s wildfire and disaster preparedness efforts. As a result, the County has begun the initial steps to bring what is called a reverse-911 system to the County.
In the area of disaster preparedness, the County has recently completed a comprehensive plan to address a pandemic influenza outbreak that took several years to finish. In late 2007, the County also participated with other local jurisdictions, State and federal agencies in the largest preparedness exercise held in the nation that year.
For myself, I wish to point to the County’s Unity in Diversity observance. This year we will hold our 11th annual observance. What began in 1998 as an event held on one day has evolved into a series of events over a six week period starting in late April. Although the structure has changed, Unity in Diversity still has the same goals. We are promoting diversity as a positive value in the community and we are increasing the understanding that County employees have of different cultures.
As Chair of the Finance Committee since 1999 I am also especially proud that we have managed to maintain the highest bond ratings of any county in California. I attribute our ability to maintain that rating to the fact that over the last five years, the Board has steadily increased the size of the Contingency Reserve.
Prior to 2004, the Board had a policy that the Contingency Reserve should be set at two percent of General Fund revenues, adjusted for the State pass through revenues. In 2004, I proposed that the Board set a goal of having the Contingency Reserve increase from two percent to five percent, by the 2008 budget. I am pleased to report that the Board has set the Contingency Reserve for this year at 4.7 percent that equals a reserve of $87.7 million
Our County’s resiliency in addressing our financial adversity, minimizing service reductions and enhancing the facilities in which we deliver services is a testimony to the dedication and professionalism of all our employees.
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.
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 our current level of services growing at an average annual rate of slightly over 6 percent. Ongoing revenues, however, are estimated to grow only at half that average annual rate.
These rates of growth in revenues and spending, coupled with planned one-time and ongoing solutions, translate into annual deficits that range from $155 million to $165 million.
These deficits only reflect the impact of local economic factors. They assume that our existing financial relationships with the State and federal government will continue.
The County’s Office of Budget and Analysis estimates that 34 percent of this year’s General Fund revenue will come from the State and 20 percent will come from the federal government. Although federal and State revenues equaled 61 percent of all General Fund revenues in 2004, the current 54 percent share makes the projected annual deficits all the more daunting.
The Governor’s recent proposals to solve the State’s looming budget deficits remind us of our vulnerability from what the San Jose Mercury News has put so eloquently as the “worry that the State will mug us when it needs a revenue fix.”
I continue to believe that our County’s brightest future lies in transforming our financial challenge over the foreseeable future into an opportunity to structure a sustainable county.
A sustainable county provides services that have high value to the community.
It also preserves the local environment and ensures a vibrant local economy.
To achieve these goals requires that our county take good care of its human and social capital, as well as its infrastructure. Taking care of our employees and facilities allows them to continue to support our county organization in the future.
A sustainable county also establishes a mix of functions and services whose operating expenses increase at the same general rate as its ongoing income.
It maintains adequate financial reserves to weather future downturns.
A sustainable county continues to change, improve, and develop its functions and services within its resource constraints in ways that enhance the quality of life of its residents.
The latest five-year forecast shows that on average, the projected annual ongoing General Fund revenue covers about 90 percent of the projected annual spending. That percentage of coverage means that, if the County took no actions to balance the budget, then the County General Fund would spend roughly $215 million more per year than it earns in ongoing income.
This additional spending allows for the continuation of vital and needed services and that amount is equivalent to funding for approximately 1,700 positions.
Last year, the County Executive recommended a General Fund budget for the current fiscal year that proposed eliminating 630 General Fund positions. The community’s concerns led to the Board’s decision to restore 203 positions.
The County began this year with total General Fund staffing at slightly over 9,100 positions. The experience from last year’s budget hearings tells me that we, as a Board, organization and a community, are unable to imagine or accept the level of General Fund services provided by 8,900 positions let alone by 7,400 positions.
To avoid the unimaginable and unacceptable, the County must continue to pursue and, more importantly, be successful at three broad deficit reduction strategies.
Two of these strategies involve generating significant ongoing revenue independent of State or federal control.
To achieve revenues in these amounts, one strategy asks the public to increase its support of County services through tax ballot measures.
The other strategy develops the County’s surplus land assets into other uses that generate revenue for the County.
The third strategy focuses on reducing the rate of growth in ongoing costs by making our operations more efficient and effective.
The Board has recently launched a number of initiatives in each of these strategies.
- We have authorized a community survey to measure support for a tax ballot measure. We will discuss the results of that survey later today.
- We have directed our staff to develop an emergency response and disaster preparedness fee proposal that the Board will consider for final action at 2 p.m. today.
- We have approved a Countywide corporate sponsorship and marketing policy and a three-year implementation plan.
- We have authorized staff to issue a request for proposals to a number of pre-qualified development teams to develop our Fairgrounds in a way that will be a model of responsible urban planning and an economic development engine while still continuing to serve as a gathering place for the community.
- We have asked County staff to evaluate the disposition of several surplus sites including those where the County operated the Men’s Work Furlough Program, the Women’s Residential Center and the combined Chaboya Health Center and Korean Church site.
- We have approved the Valley Medical Center Transformation 2010 Plan. This Plan represents a major commitment of staff resources to implement changes in seventeen areas to realize within three years an ongoing annual financial benefit ranging from $50 million to $110 million. To assist County staff in implementing the Plan, the Board approved a significant multi-year consulting contract with Deloitte Consulting.
- We have directed the hiring of consultants to conduct studies of the criminal justice system and the acute psychiatric services function.
The community and the Board must not underestimate the time and effort it will take our managers, supervisors and line-staff to achieve the desired results of these initiatives. The County staff must remain focused on executing their plans and adjusting them as challenges and opportunities emerge.
Every new major direct service policy initiative or major expansion of an existing program in the General Fund or at Valley Medical Center will force staff to choose how to spend their time.
How much of their time do they take away from these initiatives to work on a major new policy priority or major existing program expansion?
During 2008, there may be efforts to add major new direct service initiatives or significantly expand some existing programs. We, the Board and the community, must weigh carefully the potential impact on the successful implementation of these initiatives when considering such requests.
For 2008, my priority is to have us successfully implement these initiatives in the General Fund and the Valley Medical Center Enterprise Fund. To borrow from a marketing slogan that Ford Motor Company used a few years ago, Job One for the County in 2008 will be to execute the plans we have or will make to achieve the desired results of these initiatives.
I will be using the following report card to communicate to the Board and the community how successful we are in achieving our goals. To significantly improve our financial sustainability in 2008:
It has been over ten years since the Board looked at the how best to use the County land at Reid Hillview Airport for the community. If I had been on the Board at that time, I would have voted to keep Reid Hillview operating. Given the County’s current financial situation and the solution strategies we prefer to use, I cannot ignore the existence of such a large property asset.
I will be shortly making a referral to the Administration to report back after July with information on the closure process and the potential benefits to the County of developing it for other uses. I am not ready at this time to make the decision on closing Reid Hillview. Since it has been over ten years, the Board, however, should familiarize itself with the issue and make the appropriate policy decision.
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.
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.
We live in a region where the forces of university-level education, access to capital markets, the cultural diversity of our population, and the entrepreneurial drive and talent of our people have converged to create Silicon Valley. These same forces also demonstrate a remarkable adaptability to sustain the region’s economic vitality based on different technologies.
I am confident in the County’s ability to tap into these same forces to enable us to meet our challenges. The caliber of our County employees, our management team, and our Board staffs make me even more optimistic about the upcoming year. We will have a successful 2008.
My staff and I pledge to work collaboratively with my colleagues, our County Executive, our employees, and our non-profit partners to forge a sustainable county without dismantling our General Fund departments as we know them.
We must confront our reality and make our own future. This will be our legacy to the next generation that will shortly assume the leadership of our County.