Marin County supervisors have tentatively approved a plan to spend the bulk of a $26 million windfall after ending the fiscal year with more revenue than expected.
“The majority of revenues received in excess of our projections are due to higher than expected Treasury investment returns,” Budget Director Josh Swedberg told supervisors at their meeting on Tuesday.
Swedberg said the county earned the interest from “higher-rate securities,” an amount he called “abnormal” compared to years past.
“This is reflective of the high interest-rate market we have experienced as part of the pandemic recovery,” he said.
The Federal Reserve has kept interest rates relatively high as a means of cooling inflation, which spiked to 8% in 2022. In addition to pandemic-induced kinks in supply chains, two trillion-dollar spending bills passed during the Biden administration have been cited as probable causes of the rise in inflation.
Marin County benefited at both ends of the equation, since it received a $50 million share of the $1.9 trillion American Rescue Plan Act economic stimulus bill.
On Tuesday, Swedberg presented county supervisors with a seven-part plan for spending $20.4 million of the unexpected bonanza.
The county executive’s office recommended spending $10 million on a plan to build new headquarters for the Marin County Fire Department in San Geronimo Valley. County officials have formed a committee to coordinate the project and will update supervisors at their Dec. 17 meeting, Swedberg said.
Swedberg indicated that the county plans to issue a request for proposals for an outside contractor to conduct related community outreach and provide project design services.
“At this point, the full cost of the project is unknown,” he wrote.
The county executive’s office recommended spending $3 million on homelessness response and adult mental health residential costs. The money would be used to provide county matching funds for grants or bridge funding for critical housing projects and efforts to address homelessness, according to Swedberg.
“At this point these projects are not yet identified and would require additional board specific appropriations, or they could be used to supplement existing efforts, if required,” he said.
The county executive’s office endorsed reserving $2.5 million for “non-departmental operating contingencies.”
“This reserve is being established for currently unforeseen needs, and staff will return to the board at a later date to recommend specific appropriations,” Swedberg said.
The staff recommended reserving $1.5 million to address the effect of Proposition 1 on mental health services. Prop. 1, which California voters approved in March, authorized $6.4 billion in bonds to build mental health treatment centers, but it also rejiggered the way in which Mental Health Services Act funding is required to be spent.
It mandates that counties spend between 23% and 30% of their Mental Health Services Act funding on housing for people with serious mental illness and/or substance use disorders. Currently, the money can only be used to benefit people with a substance use disorder if they have a mental illness.
Before the proposition passed, Todd Schirmer, director of Marin County Behavioral Health and Recovery Services, projected that it would create a $7 million to $9 million gap in the county’s behavioral health services budget. Schirmer said the new requirement to spend up to 30% of Mental Health Service Act revenue on housing would cause the shortfall.
The county executive’s office also recommended spending $1.25 million to increase funding for the county’s retiree health care liabilities. As of July 1, 2023, the county had a funded ratio of 58%.
The county budget for fiscal year 2023-24, which supervisors approved in June, already contributes $13 million to retiree health care liabilities.
Other recommendations included spending an additional $1.25 million on capital investment in facilities and roads, and $900,000 on an effort to reopen the Civic Center’s cafeteria, which has been closed since 2018.
Swedberg said the administration is waiting until an independent audit of last year’s books is completed next spring to recommend how to spend the remainder of the $26 million surplus.
Rollie Katz, executive director of the Marin Association of Public Employees, expressed skepticism regarding the county’s claim that the interest earnings came as a surprise.
On several past occasions, Katz has questioned county officials’ claims of unexpected year-end budget surpluses due to higher-than-expected employee vacancy rates. Such unexpected revenue doesn’t get factored in during contract negotiations.
“So here we go again, more unexpected fund balance,” Katz said. “I would have thought that you knew what interest rates were at the beginning of the last budget and could have made a better projection.”
Katz said repeated discoveries of unexpected revenue undermines the credibility of county managers.
“It makes people wonder,” he said, “if it’s a way not to spend more money on salaries and benefits.”
