Marin County budget managers say they are considering new ongoing spending commitments despite a questionable economic forecast.
County Administrator Matthew Hymel outlined the additional spending planned during a three-day workshop with supervisors in preparation for the 2023-24 budget.
“Based on the feedback we received,” Hymel said at the conclusion of Wednesday’s workshop, “we will include new fiscal policy in the proposed budget to provide $25 million to the Affordable Housing Trust over the next five years to help implement the recently introduced residential element.”
Hymel said he will also consider committing the district to new ongoing spending to increase the district’s living wage from $16.95 an hour to $18 an hour. to create an inspector general position to oversee the sheriff’s department; and providing child care grants to district employees.
Hymel estimated that the living wage increase would cost $1.3 million a year, but only $500,000 of that would come from the county’s general fund. Hymel said the district has already committed to an additional $150,000 in annual spending to ensure improved sheriff oversight, but an inspector general would cost significantly more. He gave no estimate of how much could be spent on the child care grants.
Overall, including the additional $5 million per year for affordable housing, Hymel said he would not recommend adding more than $6.3 million to the county’s annual general fund spending.
On the first day of the workshop, Josh Swedberg, the district’s Treasurer, presented a sobering assessment of the district’s economic prospects. Swedberg pointed out that federal stimulus funds in recent years, including the $1.9 trillion American Rescue Plan Act, have enabled historic one-off spending by the county.
“We are now seeing that the tax environment is changing,” Swedberg said. “We are seeing an economic slowdown coming out of this era. We see an increase in persistent inflation. We see reduced local property tax sales. We see stock market losses.”
Swedberg said mounting government budget losses pose a significant risk for the county. The Legislative Analyst’s Office has forecast a federal deficit of $24 billion for fiscal year 2023-24, and the state has accumulated a deficit of $4.7 billion for the current fiscal year ended February.
Swedberg said the state’s budgetary woes are important to Marin, as the county gets about a third of its revenue from the state, much of it to pay for contracted services.
The county also expects its property tax revenue, which accounts for about 43% of its general fund income, to decline over the next three years. Swedberg said property sales in the county were down 33% year-on-year.
“Therefore, we are revising our assumptions for property tax growth from 6.5% in the current year to 5.5% in fiscal 2023-23, with 4.5% and 4% thereafter,” he said.
Swedberg projects small budget surpluses of $2.1 million in 2023-24 to $1.3 million in 2024-25 over the next three years.
However, Swedberg said the projection assumes the country’s economy will not slide into recession.
“If we end up going into a recession,” he said, “we’ll have to revise our budget plans.”
Given the mild recession scenario, Swedberg said he expects the county to post a deficit of $4.6 million in fiscal 2024-25 and $8.8 million in 2025-26.
One thing that works directly in the county’s favor is the cost of its employees’ pensions. The Marin County Employees’ Retirement Association’s investment returns fell 9.92%, or $547.5 million, for the fiscal year ended June 30.
MCERA assumes an annual return on investments of 6.75% and an inflation rate of 2.5%. Swedberg said the Bay Area’s inflation rate was 5.3% in February.
Still, the amount of money the county has to set aside for pensions for retired employees will actually drop from 22.35% to 21.4% of salary in fiscal 2023-24.
That’s because MCERA’s investment returns are up a whopping 32% over the past year, and the association has had gains and losses over five years. Investment gains in the year ended June 30, 2021 were such that Marin County’s unfunded pension liability was temporarily wiped out.
However, following MCERA’s investment losses last year, the county once again has an unfunded liability. The liability now stands at $185.6 million. Also, the county’s Retiree Health Fund has $108 million in unfunded liabilities.
Hymel said it’s important for the county to keep its funding levels for pensions and retiree health care high, otherwise annual costs could exceed the county’s spending on services.
“We’re in a situation where we have more retirees than current employees,” Hymel said.
Supervisor Mary Sackett asked, “Do you expect this trend to continue in the future?”
Hymel said yes, “given that people are living longer”.
29% of the county’s residents are over the age of 60, and by 2030 that number is expected to rise to 38%.
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