Clackamas County Funding Study
Adopted on 5/11/02

A study of funding of Clackamas County including, but not limited to, where the money comes from, where it goes and how budgeting decisions are made. The study includes the budgeting process and discretionary vs. mandated spending.

Part I: Clackamas County Finances
Funding. Finances. Budgets. It all boils down to managing money. It is something we all have experience with - good and bad!

Terms used to describe our personal finances may vary from those terms used by government. Most people talk about their income, refrigerator expense and emergency fund while government officials talk about revenue, capital outlay and contingency fund.

We can tell the well-being, as well as the priorities, of a family, a business or our government by looking at the source and quantity of money coming in and how the money is spent and saved. With both families and government, there may be some monies that must be spent in specific ways making them unavailable for other uses.

In a family, a few people make decisions about money and can do so in private. The budget and decisions may be organized and written or may be in someone's memory with scattered check stubs and receipts. In government, may people voice opinions and sometimes make a decision via an election, but generally the elected officials make the final decisions and must do so publicly. Government financial decisions and budgets must be made and written in a prescribed format.

At the League's Annual Meeting last May we voted to study Clackamas County Funding.
In our five unit meetings in March we discuss the 2002-2003 adopted budget and talked about the following areas:

• Clackamas County's purpose and funding responsibility;
• Budget philosophy;
• How budget decisions are made;
• Where the money comes from;
• Where the money goes;
• Which expenditures are mandated, and which are discrectionary; and
• How to be a discerning citizen.

As financiers of county government, we need to understand our county budget!

Part II. Our County- Clackamas

Clackamas County's 1,879 square mile area extends from south of the metropolitan Portland area to lush farmlands of the Willamette Valley and the Cascade Mountain Range. This piece of real estate is the size of Delaware. There are 14 cities in our county and 3 urban renewal districts-Clackamas Industrial Area, Clackamas Town Center and Government Camp. Our population increased 1.7% last year bringing our number of residents to 350,850. About half of us live within incorporated cities.

Government Structure
The County has three elected commissioners, each serving four-year terms and elected at large. Daily administrative functions are overseen by an appointed County Administrator, while the Board of Commissioners sets policy, adopts the annual budget and passes ordinances in accordance with state law. The six other elected officials serve as department heads overseeing their respective functions. The Board of County Commissioners manages an annual budget of more the $420 million (adopted 7/1/02) and amended to $424 million. They direct the work of 1,800 full-time employees.

Clackamas County receives revenue from three other jurisdictions and therefore has to follow statutes and guidelines in addition to the County's. the other "layers" of government include Federal, State and Local (cities, counties and Metro regional services). The revenues received from each of these are for the operation of specific programs mandated or otherwise designated by these jurisdictions.

Any shortages of revenues or problems in these other levels of government are quickly felt at the county level, especially in social services and law enforcement. A combination of increasing expenses, such as employee health insurance and PERS, and loss of some state revenue, for example, means another difficult hear and more service cuts.

Services
The County provides services as mandated by law, requested by citizens or deemed necessary for public health and welfare. Our county government provides a full range of services including human services to the elderly and economically disadvantaged; public health and mental health services, planning and economic development; the construction and maintenance of highways and streets; and part services. Also included are the activities of the elected officials, including patrol and jail services of the Sheriff's office, the District Attorney who prosecutes criminal charges and maintains family support enforcement; the Treasurer who is custodian of County funds; and the County Clerk who conducts elections and maintains office records. The County Surveyor oversees public land corners and reviews proposals for land partitions and subdivisions, and the Assessor is responsible for the valuation of property for taxation and the subsequent application of all levies in the County to these properties.

In addition to the 1,800 employees, Clackamas County currently has a stock of nearly 100 owned and leased facilities including shops, offices and storage

Part III: Budget Philosophy for Adopted Budget of 2002-2003

The County Administrator involved each of the elected officials, department directors and division managers in the overall budget process to enable a broader and fuller understanding of their individual contribution to implementing the goals and objectives of the Board of County Commissioners.

Counties have limited resources and must limit the number of programs or services they provide; therefore, the methods used and fundamental choices made are at the heart of the budgeting process. At the same time, management emphasized the importance of sound financial and operational decision-making throughout the organization with a focus on strategic thinking and planning. In Oregon, with the passage of Measures 5 and 50, prudent financial management became even more essential. Measure 5 required that total general government property taxes cannot be more than $10.00 per $1,000 of real market value. Measure 30 required that assessed property values cannot rise more than 3% per year above the assessed value determined in 1999 on a property by property bases.

In the months leading up to the budget presentation in May of 2002 the Executive Management Team, supervisors and employees worked diligently, under many challenges, to craft a financial plan that accomplishes the Board's goals and objectives. These challenges include the following:

1. To develop a financial plan that recognizes all ad valorem property tax revenue in the General Fund. This occurs as a five-year tax policy expires, which had allocated property tax receipts on a property tax ratio basis to public safety and library departments, as well as the General Fund. (Under Measure 50 existing serial levies were rolled into the General Fund and became part of the permanent tax rate. Law enforcement and libraries had existing levies, which in effect were honored by extending them for 5 years. This is the last year these levies will be honored.)
   
   
2. To develop a financial plan in which the law enforcement agencies and departments reflect available targeted resources. (This means the sheriff's department and other County departments cannot budget beyond their available sources of revenue…or in plain language don't plan to spend more that what you will receive.)
   
   
3. To develop a financial plan that reaches "Sustainability" for the next 3 to 5 years.
   
   
4. To develop an increased ending fund balance for the General Fund to aid in the Board's goal of reaching "Sustainability." (This means lowering expenditures to a level below revenue so that there is a positive balance left in the General Fund from period to period to insure revenue can support the expenditures.)
   
   
5. To re-focus the programs and the services of the organization to promote the County's core mission. (The core mission is to provide a high quality of public service.)

In addition, staff focused on the County Commission's Goals and Objectives previously established in the Business Plan, and priorities and recommendations identified by the citizens who participated in the recent Complete Communities Project.

Part IV - How Budgeting Decisions are Made

The primary players in the budgeting process are:

1. Budget Officer - Jon Mantay, County Administrator
2. Budget Manager - Diane Padilla
3. Director of Finance - Marc Gonzales
4. 3 County Commissioners
5. Clackamas County Budget Committee made up on the county commissioners and three citizen members. Citizens are chosen for the committee by the three commissioners for 3-year appointments. They are recruited through county publications as are other committees. A chair is elected by the committee.

The budget is an annual financial and operational plan. It is a clear statement of County priorities as established by the Board of Commissioners. According to Jon Mantay, "Budget is a management tool, not accounting; a road map subject to change." However, any alteration of the approved plan requires prior approval of the Board of Commissioners.

The budget is driven by Budget Law - ORS Chapter 294, Revised Statutes. It contains specific information as to how budgets are to be arrived at, approved and made available to the public. You can view this lengthy document at www.leg.state.or.us/ors.

The basic assumption in the budget process is that you are going to do business the same as last year. The County did not use zero-based budgeting because it doesn't make sense as you are not going to do away with the Sheriff's department. Costs for Human Resources, finance department and other administrative functions are costed out to all departments and re-calculated every year.

Work leading up to the budget process starts in September with discussions with department heads on what the County considers important. The actual process starts in November and takes two-thirds of the year.

Prior to beginning the formal process, the Finance Director meets with 8 labor unions as to wages and benefits. This information on the union contracts estimates is given to departments for their budgeting. Management gets basically what union contracts get in terms of increases.

Budget Categories

1. Personnel Services (wages, salaries, fringes, PERS)
2. Material and services (light bulbs and lawyers)
3. Capital Outlay
4. Debt Service
5. Contingency (a predetermined percentage of the total resources set aside for unforeseen
   circumstances; cannot expend it without approval of Board of County Commissioners)
6. Reserves (saved for future years)

As the process continues:

1. Each department develops its budget and then presents it for review (early April). This includes recommendations regarding user fees, which are set to recover the total cost associated with the service provided. In preparing budgets the departments use estimates of inflation factors to calculate increases in operational costs.
   
   
2. Finance Department analyzes the requests, asks for more information where needed, and basically checks the request.
   
   
3. Finance Department presents to budget officer who spends 3 - 4 weeks reviewing budget with department heads.
   
   
4. Budget Committee (composed of County Commissioners and 3 citizens) gets recommended budget and then review (April - May) in up to 6 public meetings. Not much change occurs at this level as figures have been reviewed many times by this point.
   
   
5. Budget Committee approves and forwards to Board of County Commissioners who may make changes up to 10% in each fund (usually in June).

Notices of Budget Committee and Board of Commissioners meetings are published in The Clackamas Review and/or The Lake Oswego Review in the legal notice section as well as online at the county's website. Public meetings of the Budget Committee may be too late to effect much change in the budget. Citizen involvement is best done at the earliest stages.

Part V - Clackamas County Budget Where the Money Comes From

Fees and fines: 16%
These are payments for services provided by County departments to citizens or to other departments which as centralized services for data processing, accounting, legal services, and mailroom support. Recording fees are collected by the County Clerk.

Licenses/Permits: 3.1%
These represent the granting of authority to do something such as build a house or provide cable or garbage service within the County's jurisdiction. They include building permits, plan check permits and electrical permits. These construction related fees were expected to decline to $0.6 million from 2001-2002. Cable franchises are budgeted to add $1 million and garbage hauling franchise payments to collect $0.80 million.

Local Revenues: 4%
This refers to funds that are provided by sources such as cities, counties, and METRO regional services. These agencies combined add over $15 million. Transient Room (hotel/motel) tax receipts amount to $2 million. These proceeds are transferred to the Tourism Development Council and County Fair Fund to support tourism development and the annual County Fair. The Sheriff receives $2.4 million from contracts with the cities of Wilsonville, Happy Valley and Estacada for patrol services, as these cities have elected not to maintain their own patrol units. Mental health receives $1.4 million and Public Health receives $3.2 million from a variety of sources. Public Health support has risen over $1.5 million reflecting increases in the levels of health care clinic and community nursing services it provides.

State Revenues: 19%
State funding provides the largest share of support for designated activities. For FY 2002-03, state dollars are budgeted to provide about $65.3 million to the County. The Road Fund receives $15 million, primarily from gasoline taxes, which are used to maintain County roads. Mental Health Programs receive $30.7 million in support from the Oregon Health Plan and State Mental Health Division for such programs as patient care and housing and training for the developmentally disabled. The Office for Children & Families expects to receive $4.3 million to provide services to County youth under the age of 17. Community Corrections programs receive almost $4.5 million in state funding to provide for supervision and services to felony offenders. As you are aware, some of these funds have been cut due to decreased State revenues.

Federal Revenue: 12%
Moneys from federal sources are budgeted at about $41.2 million for FY 2002-03. Community Development gets about $6 million from Housing and Urban Development (HUD) to develop new housing for low-and moderate-income people in the County, to improve neighborhoods, public facilities and historic buildings and to make home repair loans to individuals. Social Services programs receive $10.3 million in federal support for a wide variety of services to the aging, disabled or poverty stricken. Workforce Investment Act funds provide almost $2.8 million to increase the number of jobs available to county residents and train unemployed and unskilled workers to qualify for employment. Public Health gets about $2.3 million for health and dental care clinics, services to women, infants and children and other outreach programs.

Property Taxes: 17.84%
Permanent tax rates for the County are $2.4042 per $1000 of assessed value inside cities and $2.9766 in unincorporated areas. Tax revenue is budgeted to increase about 2%, a somewhat slower rate of change than in previous years. This is primarily due to a more conservative projected tax collection rate for 2002-03.

Fund Balance & Prior Year Revenue: 18.29%
Beginning Fund Balance is non-grant revenue carried forward from the previous year. Prior Year Revenue is grant revenue dedicated for specific purposes mandated by the grantor. This line will increase and decrease depending upon the number and size of grant projects in progress at year-end.

Other Revenue: 9.3%
This category includes proceeds of debt issues and payroll reimbursements to the general County from other Clackamas agencies, and will increase by 4%. This category was abnormally high in 2000-01 due to a $9.7 million bond sale to finance an 800 MHz radio system (9-1-1).

Part VI - Where the Money Goes

Chart on page 151, Budget by Funds. Property tax money is almost 18% of the budget.

Clackamas County's budget is put together by fund. There are both federal and state
requirements for local governments to budget by fund as a means of maintaining records for resources that are designated to carry out specific activities or meet particular objectives. These funds are:

General Fund is used to record transactions relating to activities for which specific types of funds are not required. It is the general operating fund for local governments. Examples include Board of County Commissioners, County Administration, Counsel, Employee Services Administration, Assessor, Clerk, Surveyor, Finance, Treasurer and Purchasing. 24.8% (almost 25%)

Special Revenue Funds account for specific revenue sources that are restricted to expenditures for designated purposes. There are 33 funds including library, mental health, sheriff's operations, social services, office for children and families, juvenile, district attorney, planning, and County fair. 59.4% (almost 60%)

Internal Service Funds are used to account for services furnished by one county department to other departments in the County. Examples include cable, motor pool, printing, central dispatch, equipment maintenance, facilities management. 10.5%

Other Funds are 5.3% and include:

Debt Service Funds record principal and interest payments on general obligation long-term bonds. Resources cannot be diverted or used for any other purpose. Examples are Challenge Center, 800 MHz Radio System (9-1-1) and 2 Local Improvement Districts. 0.9%

Trust and Agency Funds are the assets held by the County as trustee or agent for individuals, private organizations or other units of government. Examples are Peace Officers and Command Officers Medical Benefits Funds, Parks Trust Fund, and Tourism Development Council Fund. 1.6%

Capital Project Funds account for the receipt and disbursement of moneys used to finance the building or acquisition of capital facilities. These are non-recurring, major expenditures. Examples are Systems Development Charge Capital Projects Fund, Capital Projects Reserve Fund and Local Improvement District Construction Fund. 2.8%

Part VII - Mandatory Services

In our own budgets, we have items that we feel we must spend money on. These are items such as food and housing although they may include additional items for which we have an obligation, such as a car loan. Even within items that we feel are mandatory or obligatory, there are levels of discretion. Think of apartments/condos/houses or cars. The same is true with county government. There are services that must be provided because of requiring legislation or because of obligations. These services and obligations must be paid for first.

Within mandatory government services, there may be levels of discretion. That means that when times are tough, it is fair to look at the required level of a mandated service to determine if reductions can be made. The best way to tell what the requirements are for a mandated service is to refer to the authorizing legislation.

The Clackamas County Business Plan, revised in 1998, contains an analysis of county services and a rating of those services as essential, preferred, discretionary or "could be transferred elsewhere." Essential services are defined by Clackamas County as those services that are mandated by law or "valued by citizens as essential." Services listed by department as mandatory are:

The Business Plan lists the following services essential but not mandatory:

To determine the cost of each of these services and the funding source or sources, examination of the county budget is necessary. The county is currently reviewing and updating this services analysis.

Debt service funds or resources for payments on long term debt cannot be diverted or used for any other purpose. Clackamas County has the following debt service funds:

Part VIII - How to Be a Discerning Citizen

The Clackamas County budget is based on cash revenue being adequate to cover all cash expenses each year. The county receives its revenue from Federal, State and Local sources. If those revenues decrease the County budget needs to be adjusted. When income equals expenses we call this a balanced budget. Counties by law must have a balanced budget. When there is a significant decrease in revenue, as there is in this economic climate, the County Administrator and budget committee have a dialogue about how to balance the equation. There have been many recent newspaper articles about declining revenues implying that the expense side of the equation needs to be reduced or another source of income needs to be found. The newspapers follow and report on these discussions and decisions. Headlines such as County Sees Shortfall in Millions or Choices: Probation or Beds attract the attention of the community. The word Millions usually gets our attention.

In the County Shortfall article, County Administrator Jonathan Mantay, was interviewed about the budget situation. Increasing payroll, retirement benefits and healthcare expenses were given as reasons expenses are rising. The state expects large decreases in income taxes, which will reduce county income. State revenues "are quickly felt at the county level, especially in social services and law enforcement". This means that there is a projected gap between revenue and expenses of 3-4 million dollars (or more) in the 2003-2004 budget, if the current services were to be continued. These articles point out that the County has to rebalance the current budget, as well as plan for future reductions in the 2003-2004 budget.

On the revenue side, Clackamas County property taxes levied increased by 4.2%. Some of this increase will help close the deficit. Property taxes account for 18% of the county budget and are a relatively stable source of income for the county. Measure 50 allowed property taxes to increase by a maximum of 3% each year. The other 1.2% increase comes from new construction. These increases are a help, but they are not large enough to close the entire gap. On January 28, 2003, there was a measure on the ballot asking for an increase in state income taxes. The voters said no, 54% to 46%. While there will be no increase from income taxes, property taxes will offset some of the growing expenses. However, the total amount of property taxes levied may not be collected this fiscal year.

No new income taxes means that the county will have to look again at the expense side. Budget cuts will have to be made to balance the budget. Clackamas County (as well as Multnomah and Marion Counties) has looked at law enforcement expenses. Eliminating some discretionary budget expenses, such as closing the work release center in Milwaukie, will save $1.1 million. This reduces the gap by 25-33%. This is an example of a non-mandatory service that many people thought was mandatory.

Decisions on where to cut the budget are difficult and controversial. Cutting jobs, freezing wages, reducing services are all part of the expense side of the budget. There are scheduled public meetings for public input so that the committees can assess public preferences. At the state level, a public meeting was recently held where some taxpayers offered to pay an increase in fees. The sportsmen and women wanted to maintain the services provided by fish hatcheries and marine biologists. The legislators were concerned that this would be viewed as a form of increased taxes, which the voters declined. The other fundamental issue raised is one of philosophy. Which services should be funded - libraries, parks or law enforcement? This dialogue is part of the democratic process. The decisions we make will give direction to the governments of the 21st century.