SLO County faces $15.6 million budget deficit. Here’s how it plans to close the gap
The San Luis Obispo County general fund faces a $15.6 million deficit for the 2024-25 fiscal year, budget director Lisa Howe told the Board of Supervisors on Tuesday.
So the county is looking at a variety of measures it can take to close the gap.
The deficit resulted from the loss of one-time funding, increasing salary and benefit costs for county staff, and slow-growing tax revenue, Howe said.
In response, the county will cut department budgets, move funding around and use reserves to make up the difference, according to Howe.
“We’re closing that gap and providing a balanced budget using a combination of short-term reductions and long-term reductions,” she told The Tribune.
Howe introduced the budget to the board on Tuesday.
Right now, the general fund budget is proposed to be $741 million for 2024-25, a 3.9% increase from this fiscal year, according to Howe.
Meanwhile, the county’s entire budget will be more than $993 million — even closer to $1 billion than this year’s budget.
The supervisors will review the budget again at a three-day hearing starting June 3, and will vote to adopt it by June 5.
How will SLO County manage $15.6 million deficit?
The loss of one-time funding and a slow rate of tax revenue growth contributed to the county’s $15.6 million general fund deficit, Howe said.
“Overall, the county’s budget continues to be in an increasingly precarious position, due to its projected rate of spending outpacing its revenues,” the staff report said.
The county will lose $8 million of one-time funding next year, including $5.2 million of federal American Rescue Plan Act funding, Howe said.
Meanwhile, discretionary revenue will only increase by 4.46% next year — which is a slower rate of growth than previous years. Discretionary revenue includes property taxes, sales taxes and transient occupancy taxes, among other things.
Staff salaries and benefits comprise 52% of the county’s operating costs, according to Howe. Next year, the cost of salaries and benefits will increase by 3%, or $13.6 million — mostly due to changes approved by the board during the past year.
The San Luis Obispo County Jail budget will increase by $2.7 million next year, while the county’s Cal Fire contract will cost an extra $3 million because the Cal Fire union negotiated to replace the 72-hour work week with a 66-hour work week, Howe said.
To minimize impacts to county services, the county plans to balance the budget with both short-term cuts and long-term structural changes to county operations, Howe said.
Budget cuts to county departments will make the largest dent in the deficit, Howe said. Overall, departmental budget cuts will save the county $8.9 million next year — which takes care of 57% of the deficit.
As part of this effort, eight positions will be removed from the budget, while 22 vacant positions will be unfunded — which means departments can’t fill those vacancies without approval from the board, Howe said.
Meanwhile, the county will supplement the general fund with $1.5 million of the county’s rainy day funds and $1.8 million from the remaining pool of COVID-19 funds.
The county will also reduce its general fund contingency, which is revenue set aside for mid-year emergencies. Staff recommended that the board lower the contingency from 5% to 4.75%, which would save the county $2.1 million, Howe said.
The county will also defer $850,000 of automation depreciation to a time when the budget is in better shape.
Finally, the county will reallocate $500,000 of American Rescue Plan Act funds originally dedicated to housing and homelessness to efforts to close the budget gap.
Even though the county balanced the 2024-25 budget, it could still face financial challenges in the future.
Based on early projections, the county’s General Fund could face a deficit of about $5.6 million during fiscal year 2025-26, and a deficit of $300,000 in 2026-27. But these numbers could easily change, Howe said.
Will California budget deficit impact SLO County?
San Luis Obispo County isn’t the only government entity suffering from financial difficulties.
The California state budget for 2024-25 could contain a $68 billion deficit, according to the Legislative Analyst’s Office.
Gov. Gavin Newsom released the first public draft of the budget on Jan. 10.
The final budget is due on June 15, but lobbyist Paul Yoder said that lawmakers may miss the deadline. Yoder represents the SLO County Board of Supervisors at the state Legislature.
“There is a lot in the June 15 budget that is real, that sticks, that stays — but it is oftentimes significantly redone at the end of June and actually even into August, which probably will happen this year,” Yoder said.
San Luis Obispo County receives 39% of its general fund revenue from the state.
Yoder warned that state budget cuts being discussed by the state Legislature could impact local programs — especially programs run by the Department of Social Services.
Newsom and the state Legislature are considering cutting funding to programs that address homelessness, behavioral health, broadband and water storage, he said.
“The governor is not just proposing cuts to administration,” Yoder said. “A lot of these cuts, in fact, relate to programs that directly serve people.”
Because the state budget hasn’t yet been finalized, the county does not officially know how the state deficit will impact the general fund.
Still, the county is preparing to receive a reduced amount of state funding, and county staff will likely need to revise the county budget in September after the Legislature and Newsom approve the final state budget, according to Howe.
“We’ll be working very closely with all county departments over the next few months to determine how to best move forward,” Howe said.
This story was originally published May 15, 2024 at 12:41 PM.
