When Sacramento County supervisors finalized their budget last week, they dipped into their contingency funds despite warnings that using money set aside for one-time fiscal emergencies to finance ongoing programs would send the wrong message to bond-rating agencies.
Bond agencies rate the county's creditworthiness. Over the last few months, all three national agencies – Moody's, Standard and Poor's, and Fitch – have downgraded Sacramento County's credit rating one notch. The downgrades do not impact current county debt payments, but they could increase the cost of any future borrowing.
The narratives accompanying these downgrades are instructive. This past June, Moody's analysts said the county's negative fiscal outlook reflects "the fact the county has no recent history of anything other than expedient one-time fixes to budgetary imbalances. The political willingness to create structural balance has been noticeably absent."
Standard and Poor's, which downgraded the county's credit rating back in April, called the county's fiscal outlook "stable." Nonetheless, it said "going forward, the county is likely to face continued financial pressure." Analysts specifically cited the $63 million in additional costs "to meet contractual commitments" to county employees and the county's use of $55.5 million in one-time money to balance last year's budget.
Finally, Fitch downgraded the county's credit rating from stable to negative, citing "the prolonged and severe real estate-led economic downturn ... probable state funding cuts ... reduction in sales tax revenues ... and the county's rising and inflexible debt service profile."
Despite the downgrades and objections raised by their fiscal advisers, Supervisors Susan Peters, Don Notolli and Roberta McGlashan voted to spend $300,000 of a scant $2 million the county had put aside for fiscal emergencies to fund the Sheriff's Department, Child Protective Services and other programs. Old habits die hard.
This is even more troubling because the supervisors have not made serious adjustments on the labor side of the budget equation. While the board has tentatively approved the legally questionable but innovative nine-tenths plan, in which most county jobs would revert to a part-time schedule, the supervisors' inability to get concessions from labor unions remains a big problem. Even in the face of union recalcitrance, one rating agency complained that the county has been ambivalent on cost-cutting, particularly when it comes to layoffs.
The fiscal emergency the county faces is likely to last for years. Given that, a permanent reduction of the full-time work force may be unavoidable. Some services that county employees provide could be delivered more cheaply and better by private contractors if county managers were allowed to pursue that option. The supervisors should revisit a county charter provision that bans contracting out if it would displace county employees.
Finally, supervisors urgently need to scale back the extraordinary pension benefits that result in some county workers making more the day they retire than when they worked.
It's too late for modest adjustments. Supervisors need to rethink how vital services are delivered in this county.
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