County of Santa Clara Finance Agency by liaoqinmei

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									                                                                                       Committee Agenda Date : October 14, 2010
                                                                                                            Agenda Item No. 7




County of Santa Clara
Finance Agency
Controller-Treasurer Department



FGOC F02 101410                                                             .
                                                                Prepared by:. Paul Knofler
                                                                              Debt Management Officer

DATE:              October 14, 2010

TO:                Supervisor.Ken.Yeager, Chairperson
                   Supervisor.Dave.Cortese, Vice Chair
                   Finance & Government Operations Committee

FROM:

                   Vinod K. Sharma
                   Acting Director, Finance Agency

SUBJECT:           Restoring Santa Clara County Cash Balances




RECOMMENDED ACTION
Consider recommendation relating to using 50% of the available revenues in the Tax Loss Reserve Fund towards
funding a cash reserve fund for Santa Clara County starting in Fiscal Year 2012.

Possible action:


      a. Forward recommendation of using 50% of the available revenues in the Tax Loss
         Reserve Fund towards funding a cash reserve fund for Santa Clara County starting in
         Fiscal Year 2012 to the full Board of Supervisors for approval.

FISCAL IMPLICATIONS
The fiscal implication of using 50% of the available revenues from the Tax Loss Reserve Fund to fund a County cash
reserve fund beginning in Fiscal Year 2012 is that those funds will no longer be available to budget.


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                                                                                           Committee Agenda Date : October 14, 2010
                                                                                                                Agenda Item No. 7



The revenues in the Tax Loss Reserve Fund are the fines and penalties that the County collects in return for fronting the
delinquent amounts of property taxes to the other property tax receiving entities in the County (the Teeter program).
There is a statutorily required amount that is required to be in the Tax Loss Reserve Fund. Amounts above the statutory
limit are transferred to the General Fund at the end of each year. The amount for transfer varies from year to year and in
Fiscal Year 2011, the budgeted amount is approximately $24 million, so the 50% amount in this fiscal year would have
amounted to approximately $12 million if this approach had been in place this year.


REASONS FOR RECOMMENDATION
Over the last several years the County has balanced the budget by spending down available reserves. This, in
combination with the severe economic difficulties of the last several years, has led to the decline in the County's cash
balances.

The County's TRANS group of funds consists of the four components - the general fund, Valley Medical Center funds, a
group of smaller funds and until this year the Teeter funds. The following shows the decline in the year end cash balance
for the TRANS group of funds (in millions):

FY 2005     FY 2006      FY 2007      FY 2008      FY 2009      FY 2010

$334        $301         $238         $101         $25         $17

The rating agencies guideline for cash balances is to have 5% of the annual cash flow available as year end cash. For
Santa Clara County, that guideline would be approximately $180 million. Monies set aside in the County cash reserve
fund would not be available for appropriation until the year end cash balance reached the 5% of the current year cash
flow threshold.

The first step in dealing with the County's cash situation was to separately finance the County's Teeter program. This
was recently accomplished with the issuance of the Teeter Financing Commercial Paper program. However, additional
steps must be taken to restore the County's cash balances. The recommendation to move 50% of the available revenues
from the Tax Loss Reserve Fund starting in Fiscal Year 2012, is a step in restoring the County's cash balances.

The County's Cash Management Committee (comprised of the County Executive Office, Office of Budget and Analysis,
Finance Agency, Valley Medical Center, Social Service Agency and the Management Audit Division of the Board of
Supervisors) recommends the funding of a County cash reserve fund by using 50% of the available revenues from the
Tax Loss Reserve Fund starting in Fiscal Year 2012.


BACKGROUND
There are two other options currently being looked at in relation to the County's cash balances. The first one is the fund
reservation designation. This would be the same process used in Fiscal Year 2010, when after the mid-year budget
review, the remaining Object 2 appropriation for each department was decreased by 25%. This process started in March
and by the end of the fiscal year had saved $17 million.

The Finance Agency is monitoring cash daily and the Cash Management Committee meets monthly, or more frequently
if necessary. At the point the Administration determines it has become necessary to invoke a fund reservation
designation, a report will go forward to the Board recommending the timing and amount of an Object 2 fund reservation
designation. This process will likely occur in conjunction with proposed solutions for current year budget imbalances.

The third option that has been presented is the Management Audit Division of the Board of Supervisors' proposal to
amend the Ordinance Code to authorize the Controller to implement an allotment system for department budgets. This


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                                                                                          Committee Agenda Date : October 14, 2010
                                                                                                               Agenda Item No. 7



allotment system would entail a quarterly review of department budgets where any unexpended and unencumbered
monies from a previously agreed on schedule would be transfered to a cash reserve fund. The maximum amount in the
cash reserve fund would be tied to a percentage of the current or preceding year property tax levy, whichever was greater
(i.e. a 10% limit would currently be $45 million, a 20% limit would be $90 million etc.). Full funding under this
proposal would be implemented over a number of years.

The full description of this proposal is included as an attachment to this transmittal. It includes two memos from Roger
Mialocq on this topic. If the Finance and Government Operations Committee and the full Board wish to pursue this
proposal, direction should be given to the Administration to do so.


CONSEQUENCES OF NEGATIVE ACTION
The funding of a County cash reserve fund, starting in Fiscal Year 2012, from 50% of the available Tax Loss Reserve
Fund revenues will not occur.


STEPS FOLLOWING APPROVAL
If the recommendation to use 50% of the available Tax Loss Reserve Fund revenues to fund a County cash reserve fund
starting in Fiscal Year 2012 is approved, staff will take the necessary steps to implement the process.


ATTACHMENTS


     • Cash Balance Memos




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