Board Chairman Steve Worthley Delivers State of the County Address
As I enter my 20th year of service to Tulare County it is a great honor to report on the state of the county in 2018.
First and foremost the county is strong; possessing great strength in its human and physical capital. And, I believe, we are positioned to increase our strength if we remain true to our principles of stewardship and responsibility to the people of Tulare County.
Our strength is found primarily in the men and women, the employees of Tulare County, who continually labor to improve the physical, emotional, and spiritual lives of our county residents. Whether in the fields of social services, public safety, land use or transportation, the vision of this board and the other elected representatives is to strive for continuous improvement of services rendered to the people of Tulare County.
Without adequate and resilient financial resources, the efforts of our county family to make improvements is difficult if not impossible. The Board of Supervisors’ strategic policies aim to improve our financial strength by encouraging and supporting economic development within the county and spending the tax payers’ money using conservative income estimates. Leveraging that financial strength with private, state and federal funding opportunities has proven fruitful. Over $1 billion of transportation projects have been delivered since the voters approved Measure R in 2006. This year we will complete the construction of the largest county construction project in over a half of century with the completion of the south county jail, a $66 million project. In 2018 we will break ground on another public safety facility in the north county, a $40 million state funded project. The purchase of the Tulare-Akers Professional Facility last year and the $3.5 million renovations thereafter resulted in the sheriff’s command staff and several divisions to move from the 1960 jail and the entire fire administration department to move from rented facilities. Other major improvements resulted in relocation of the Human Resources department to the old Ag Commissioner and UC extension building and district attorney staff to the former Tulare County Dept. Of Education building. Similar improvements are currently being made to expand County Counsel and relocate Risk Management in the former HR/ Counsel Complex, and to relocate the General Services Agency to the former Tulare County Dept. of Education building.
The evidence of the county’s financial strength is that all these capital purchases, building projects, and renovations have been and will be completed without incurring any additional debt to the county! In contrast, when Government Plaza was purchased in 1996, the entire transaction was financed by borrowing and only recently was the debt retired.
While many sister county and municipal agencies have struggled to this day to reinstate salaries and benefits which were reduced during the great recession, Tulare County has restored all of our employee’s deferred step increases and given 10% cost of living salary increases to general and safety employees in the last 4 years and employees will receive an additional 2% this July and safety employees will receive 3%. These increases have been made without incurring debt and in keeping with board policy of providing sustainable and reliable incomes to our valued employees.
Still, the county faces challenges both presently and in the near future.
While the county has substantially eliminated its’ formal debt, we face a mounting financial burden in our unfunded pension obligation to the Tulare County Retirement Association which operates independently of the county. It seems counter intuitive that after an incredible bull market economy in 2017 which saw a remarkable rise in the stock prices and real estate values that our own funded ratio of assets needed to pay current and future pensions dropped from 83% to 78%. How this occurred is worth exploring. Determination of the financial health of the retirement program is performed by independent actuarial analysis that looks at such factors as how long people live after retirement, future inflation assumptions, increased labor cost assumptions, and, most significantly, assumption concerning return on investments. The assets held by TCERA had an annualized return of 11.9% this last year. However, the retirement board uses a 10 year smoothing process to avoid spikes in losses or income which occur from year to year. Last year’s return is counter balanced against the 2008 losses of the great recession and all the years in between. Using this formula, the retirement assets suffered a $35 million loss last year which was added to the previously existing $238 million unfunded liability. Even more economically impactful was the decision by the retirement board to lower the assumed annual rate of return on assets from 7.6% to 7.25%. The lower the assumed rate of return, the larger the pot of money needed to pay future benefits. This change added an additional $82 million dollars to the unfunded liability and resulted in the 5% reduction.
This might just seem like some abstract math problem except that it has real financial consequences to the county’s financial heath and ability to continue to pay competitive salaries to our employees and provide essential services to our residents. Tulare County is obligated to pay the ongoing costs of retirement which is currently equally matched by employee contributions. The county is also obligated to pay down the unfunded liability and interest charges thereon at the 7.25% annual rate. This interest charge alone will cost the county $17 to $20 million in the coming year and significant future increases are projected.
The Strategic Finance Ad Hoc Committee extensively reviewed this situation with the retirement board and its administrator, the county’s investment counselor, and other experts. Within a few short months a strategic plan will be presented to the board for review and proposed implementation to greatly assist the county in meeting its future obligations. The cornerstone of this plan is similar to refinancing a home mortgage with reduced interest rates. At current pension bond rates, the county expects to borrow money at 4 to 4.5%. Bond funds will be applied to the county’s unfunded liability on which we currently pay 7.25% interest. This difference in interest rates is projected to save the county approximately $52 million over the next 19 years matching the time frame the board is obligated to pay off its liability.
Another looming financial challenge will be staffing needs for the new jail facilities now under construction and those expected to break ground this year. At full build out it is expected that this will add $2.5 million annually to the sheriff’s budget. Recognizing that approximately 70% of the county’s committed budget is dedicated to public safety including the sheriff, district attorney, public defender, probation and fire services and that there are programmatic needs by all of those departments, it behooves the board as the steward of the county’s finances, to make certain that every dollar is well spent.
To that end, I propose the board through its ad hoc committee process, consider utilizing an independent third party review of the public safety departments and thereafter apply a similar review of all other departments. While there are costs to such an analysis other county governments who have engaged in such a process are recognizing significant savings while seeing improved public service levels.
Finally, we have invested significant resources improving many of our building interiors. Now it is time the board consider how we can beautify the exteriors of our facilities and their surroundings. I propose that a comprehensive plan be developed for future implementation that will accomplish this goal. Such a plan would include guidelines and policies setting forth principles of aesthetic beauty accomplished with drought resistant landscaping and viewing our facilities through the eyes of our residents. In many cases small things like a thorough cleaning, rearranging or disposing of unneeded personal property, and paint can go a long way. Removing dead or damaged vegetation and replanting with durable plants and aesthetically pleasing materials including the use of art will greatly enhance the appearance of our facilities.
While staff is engaged in crafting such a plan, today I challenge all of our elected officials, department heads, and every employee to examine your surroundings as though you were a tourist visiting your work site for the first time. Write down and submit your suggestions to the Board of Supervisors’ staff or General Services Agency staff on how we can beautify your place of work. I would like to add an additional incentive that within 60 days of today’s date we select the best and most cost effective suggestion for recognition at a public board meeting and honor the selected employee with a $1,000.00. Tulare County is a beautiful county and our facilities should reflect that beauty and demonstrate our commitment to be good stewards of all the public assets entrusted to us.
Our county faces other challenges which require active engagement by our residents and their elected representatives. These challenges may exceed traditional county government authority, yet they are foundational to our very existence. I only mention them today despite their importance and in the interest of time.
Agriculture is the foundation of our economy. Tulare County is consistently in the top three counties in the nation in agricultural production and value added industries. Yet this foundational industry is under siege on many fronts. Without water, however, there is no agricultural production. As such the county has stepped up and will continue to advocate for irrigation and potable water supplies critical to our region. Building Temperance Flat reservoir on the San Joaquin River is critical to addressing the ground water stabilization required by the Sustainable Groundwater Management Act passed by the state legislature in 2014. The San Joaquin Valley Water Infrastructure Authority, of which the county is an active participant, has submitted its application for funding for the Proposition 1 Water Bond. We must remain vigilant in pursuing state bond and federal funding for this project.
The recently concluded drought left 29 million dead trees in our county. The vast majority of this hazard to our water sheds and mountain communities exists on federal lands, particularly Sequoia National Forest. While 2017 was a banner year for snow and rainfall in our region, nearly 5 million additional trees died from the lingering effects of the drought and the infestation of pests. The county must continue to advocate with the state and the federal governments to address this problem and reduce the risk of catastrophic wild fires and to move beyond a passive management system which significantly contributed to the current crisis.
While the foregoing may seem overwhelming in the face of the magnitude of the challenges, I remain optimistic that ultimately we will prevail. We must, however, be vigilant in engaging in the arena of policy and politics at all levels of government: local, state, and national, and we must be willing to stay the course no matter how strenuous the battle.
Thank you for being here today, and for all you do for Tulare County. I truly believe that our county’s future is bright with hope and opportunities to continue to build upon the foundations laid by those who came before us.
On a personal note, this will be my last state of the county address and it has truly been a privilege and honor to engage with you all in this wonderful enterprise of making Tulare County a place I, and I trust you, are proud to call our home.