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Saturday, Dec 28 2013 09:00 PM

County's financial future will be dark for years

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BY JAMES BURGER Californian staff writer jburger@bakersfield.com

Kern County has been in a dark financial tunnel since the recession began in 2008, and there isn't much light at the end of it.

The county slashed its workforce by about 1,000 employees, limited library hours, dialed back park maintenance, cut the time spent cleaning up neglected property and make a host of other reductions.

Careful budgeting since then has allowed the county to make improvements in some areas. But it will be years, officials say, before the county can get back everything it lost.

And there is a significant risk that things will get worse.

During the next five to eight years, the county is compelled to fund major projects, budget massive increases in annual costs and deal with the serious churning potential for financial loss at Kern Medical Center.

Estimates put the county's one-time cost increases at nearly $100 million by 2017 and its jump in ongoing, annual costs at between $25 million and $40 million through 2022.

County tax collectors don't expect to pull in new revenues to offset those budget negatives.

The best the county can hope for is to maintain its recession-thinned ranks at current levels and keep public services from weakening, said Assistant Kern County Administrative Officer Nancy Lawson.

 

LERDO JAIL

In the next year or two, Kern County will begin a major multimillion-dollar expansion of its jail.

While the project comes with $100 million in state grant money, the county is obligated to pay whatever else it takes to complete the project.

In August 2012, when supervisors approved the jail expansion, the county expected to pay $28 million from its own funds to complete the work. County Administrative Officer John Nilon said the work could cost up to $9 million more as the rebounding construction industry sees more demand for its services.

Once the project is done and the state grant money spent, the county is far from done with jail cost increases.

As part of the grant deal, the county committed to have the jail expansion up and running by 2016 and to keep it operational and fully staffed for the following 30 years.

Lawson estimates that will increase the cost to run the county's jails by between $25 million and $30 million a year starting in 2016.

 

ROADS

Then there's the $54 to $60 million the county must cough up in 2017-2018 to help fund projects being planned under the Thomas Roads Improvement Program.

The money is needed to match the $630 million brought to Kern County by former Congressman Bill Thomas which is aimed at building the Centennial Corridor freeway, widening 24th Street through downtown and Rosedale Highway, among others.

It's estimated that construction work will hit its stride in 2017-2018 and that's when the county's money will be needed.

 

DEBT

An independent analysis by KNN Public Finance released this month shows the annual principal and interest payments the county makes from its general fund to retire debt will increase by an average of more than $1 million each year between now and 2022.

At just less than $30 million now, the general fund share of those annual debt payments will soar to more than $40 million in 2021, according to the report.

Most of that general fund burden -- $19.9 million in the 2012-2013 fiscal year -- goes to pay off three bonds the county took out between 1995 and 2008 to eliminate gaps between the money the county's pension system had invested and how much it needed to cover future retirement costs.

In 2023, after the 1995 bond is paid off, the county's general fund debt drops to just more than $20 million -- freeing up nearly $20 million in annual revenue.

General fund costs of the other two bonds will increase annually, topping out at just less than $25 million before they, too, are paid off in 2028, sending the county's total annual debt costs to less than $10 million.

 

PENSIONS

At the same time the county deals with the rising costs of its debt, it also expects to put more money into investments aimed at funding pensions for future retirees.

The recession and lucrative pension increases handed out retroactively to county workers in the early 2000s blew a gaping $1.99 billion hole in the county's pension fund that has required Kern to pour more money each year into funding pensions.

In the most recent valuation report on Kern County Employees' Retirement Association investments, the contribution rate for the county was set at an annual $131.5 million.

That's an increase of less than $1 million over the cost to invest in pensions in the previous year.

That's relatively good news, after $13.7 million, $11.3 million and $1.7 million increases in the past three fiscal years respectively. But with money tight, any cost increase makes life harder.

 

KERN MEDICAL CENTER

And, among all the other costs, the county-owned hospital is the biggest fiscal question mark.

Much of the cause of Kern Medical Center's worsening annual budget was revealed this year: years of miscalculation had blown an estimated $64 million hole in the hospital's finances.

The practical result of the gaffe was that KMC has racked up a debt to the county's general fund that hovers around $100 million.

The county doesn't yet know how to eliminate that loan burden, operate KMC at a profit or rebuild the hospital's billing, physician pay and operations systems. It also needs to attract a better mix of patients -- fewer poor and uninsured patients and more paying customers.

That is the task given to Russell Judd, the KMC CEO hired to replace Paul Hensler, who was fired after he delivered county supervisors the bad news.

County Administrative Officer John Nilon said the county will have to budget an ongoing contribution to the hospital's budget to uphold its current level of operations.

The question, for the county budget, is how big the contribution will have to be.

 

EMPLOYEE WORKFORCE

In June 2008, the county had the equivalent of 8,480 full-time employees. In June of 2012, that number was 7,374, according to year-end financial reports from the Kern County Auditor-Recorder's office.

Without new revenues, already lean departments are facing years of holding on tight to what they have and hoping not to lose more, Nilon said.

"I don't think we're going to be in a growth mode for a number of years," he said. "If we can't get a handle on Kern Medical Center and some of these other issues, we're going to have some challenges."

County department heads are bracing for a long, rough slog.

New funding for the expansion of the jail will bolster his staffing levels and increase his budget on paper, Sheriff Donny Youngblood said.

But the money will be spent to run the jail, not put more sheriff's deputies on the streets or detectives on cases.

The people who fight crime will have to make do, he said, and rising pay and benefit costs will challenge him to do the same job with the same street budget.

As cost-cutting measures, Youngblood has looked at possibly selling 32 beds to the California Department of Corrections and Rehabilitation, and delaying the replacement of the office's aging cars.

"This is going to be a tough five-year period," he said.

More than a year ago, Parks Director Bob Lerude outsourced maintenance and custodial work at Paramount Park in Lost Hills and in county buildings in four northwest county communities. It was expected to save the county around $81,000 in staff travel and supply costs.

That effort may be expanded to cover other remote communities that force parks workers to make long drives to work sites.

District Attorney Lisa Green said money from state prison realignment has helped boost the staffing in her office.

But the state money that flows to law enforcement agencies in Kern County like hers and Youngblood's, she said, isn't enough to handle the prosecution and jailing of all the former state prisoners that have ended up back in Kern County.

And that money can't be spent on the parts of her department that don't handle those former prisoners.

"We're operating with a business office that is the same size that it was when I started 30 years ago," Green said.

 

FLAT on CASH

New county revenue isn't likely, said Assistant Assessor-Recorder Tony Ansolabehere, even though residential home values are improving.

The county's most powerful fiscal engine, the property tax base from the oil industry, is not showing growth despite higher oil prices and the promise of new reserves in the highly touted Monterey Shale formation in Kern County.

"Oil production is down," Ansolabehere said. "This Monterey Shale has never happened."

In September, Kern County governments and special districts repaid Occidential Petroleum $31 million in tax money the oil giant said it was overcharged based in part on the value of its holdings in the Monterey Shale.

Kern County's share of the repayment was $11.3 million.

Ansolabehere said large industrial or commercial projects -- big enough to improve the tax rolls in a major way -- just aren't on the horizon.

The bright spot in the county's financial present, Lawson said, is the fact that the county has pulled together a sizable network of nearly $90 million in reserve funds in the past five years.

While those could be used to knock out the one-time costs the county faces for the new jail or TRIP funding, she said, depleting those reserves too far could leave the county without an umbrella in an emergency.

If the reserves are emptied, they can't be used to soak up the increased cost the county will face again year after year.

Lawson said the county is doing what it can: looking for grants to support programs, solutions at Kern Medical Center and creative ways to do the same work more efficiently.

The county has a good grasp on the challenges ahead and time to work, she said. But, barring a miracle, the county's short-term future will be tough.

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