W. B m E L L ELLIS, R. CHEF EzCUTIW OFFICm

TO: Board of Commissioners

FROM: W. Burrell Ellis, Jr., Chief Executive OEmr

DATE: December 15,2009

SUBJECT: 2010 Executive Budget Recommendations

In compliance with the Organizational Act, enclosed is the Executive Budget recommendation for a balanced budget for FY 2010 for the various fbnds of DeKalb Gomty. This recommendation is the culminatidn of extensive analysis and review of the budgetary needs and the financial resources available within an earemely challeng-ing economic environment.

Financial resources available for the FY 2010 Tax Funds Budget have declined and continue to be impacted due to the State and national economy. Specifically, the economy has impacted the County's anticipated revenue in three key areas: (1) a reduction in real property tax digest values; (2) a reduction in sales taxes; and (3) a reduction in Hotemote1 taxes and fines and fodkitures. Additionally, the County's revenue continues to be impacted approximately $18 million per year due to a loss of t a e s and fees resulting from the incorporation of Dunwoody.

Rductioo in the Red Pro~ertv Tax Disest

Cunent economic conditions have had a significant impact on real estate values nationwide. The Atlanta region, including DeKalb County, has not been immune to this trend. The 2010 Executive Budget is based on current forecasts of tax digest values. Ems values will be available in June 2010 when the Board of Commissioners adopts the End millage rate for FY 2010. The voters approved the homestead value freeze rderendum fHB 595), for County taxes only, in November 2006. The revaluation of such prapeies, absent the referendum freeze, would have normally provided approximately $12 rnilli~n for County sewices and debt service in 2007, 2008 and 2009 Additionally, in the 2009 legislatme session, the ene ra l Assembly passed HB233, wkch fiaze wsessments on a1I residential gmJ commercial properties Ihrou& 201 1.

Memomdm to Board of Comiss ione~ 20 10 Executive Budget Rmomendations Page 2 of 8

Reduction in Siiles Tax Revenue

Sdes taxes collected in the Counq for the HOST pro@- which comprise approximately 15% of the tot& revenues in the Tax Funds, have declined 6.6% in 2009 compared to 2008.

In addition, residential building activi3 up to the last year in the County has substantially increased the financial requirement necessary to provide .Ear a 100Y0 Homestead Exemption. Sales tmes are projected to decrease from 2009 to 2010 by 196, while the f 00% Homestead Exemption requirement is projected to increase by 12.4% d ~ n g the same time period. The following table illustrates this trend:

Fwding Necessary to Provide

* B m d on recommended millage rate and no Hommwners Tax Relief Grant Cm& (IEEmG)

Factors Contributin~ to Deciinine Revenues

The decline in the Tax Funds Eund baianee is direetly attributable to the fbllowing principal factors:

I . The State vvitbholding $16.3 million in HTRG finds & the County had been directed by Q.C.G.A. Section 36-89-4 to credit homeownas' tax bills in the same amount, which the State legally committed to reimburse lfie County in 2008. The State did not reimburse DeKalb County until mid-2004.

2. The cumulative annual impacz: of HB 595 ""freezing" "homestead values at the J a n u q 1,2007 levels. As of the end of 2009, the estimated total impm for 3 y w s from this legistation was $12 million.

3. " f e first yew's (2009) i~npact ofthe incopr&isn of Dunwoody, estima;ted at $ 1 8+ dllion, afld its contimed negatJve impact in FE" 2018.

4. The continued and pemasive eEect of the economic recession irnpacling the CQUIIL];'S numerous revenue sourees.

Memomdm to Board d GoWssionem 20 10 E x m ~ v e Budget Recomenhtions Page 3 of 8

hereased Deazsud on Services

D u ~ n g FY 2009, the County continued to deal with the poplation p o w h of the last daade and the commensurate increase in the demmd for sewices. At the beginning of the last decade, the County" actual population was deter&ned to be 553,800, according to the U S Census. firing the second quasler of 2001, the County" 2000 population was ofXicially restated at 665,865. This constitutes a 20,254 growth factor, which validates the subslantid growth in the demand for County sewices expefienced in recent years. At the end of 2009, the Atlmta Regional Go ssion estimates the County" s population to be 73 1,200

* Bepadrnenbl requests fbr the FY 2010 Tax Funds Budget identified $639,322,114 in operating costs and $47,117,54 1 in capital costs, for a total 20 1 0 budget request of $686,439,657. In order to balmce the budge, the recommendation for FU 2010 is $582,742,150, before the inclusion of yew-end encumbrances. Once the Oracle F M S is closed, the encumbrance caw-fornard amount will be added by amendme&. This rqresents a reduction of $103,697,507 &om dep&mental requests. This also represents a decrease of $24,087,875 &om the mid-yew adjust& FY 2009 Tax Funds Budg& of $606,750,025, which includes encumbrances. It is presently estimated that aaer the inclusion of yemend encumbrances, there will be a budget decline of approximately $18,000,000 (-3 .ON).

* The hndamental issue relative to the recommended "bare bones" bdg& of $582.7 million is that, %yithout any millage increase, there is estimatetl to be available only $552.3 million. To recommend a balanced budget with this revenue shorthll eliminated compldely by service cuts alone, would require an $83 million reduetion &om our 2008 budget level and, consequently, a. subdmtial redudon in services at a time when there is an increased demand.

Accordingly, in order to lessen Ihe impact of service reduction on ow chizens, iind to mitigate the impad on taxphtyers that reduced revenue has on the Counqls bond rating> f am proposing: f 1) an early retirement incentive p r o g m designed to reduce the cunent h b ~ r force by more than 400 positions coupld with cm &otishment or de&nding of approximately 360 unfilled positions, and (2) a 1.25 millqe rate increase ddicated to presming Public Sd&y oEcers, along with an dditisnal.61 of a mill to cover other reesmmended persomet eqenses.

Memorandum to Board of Commissioners 20 10 Executive Budget Recommendations Page 4 of 8

* The HOST Homestead Exmption has been included in the recommended Tax Funds Budget at the 95.0% use of funds level: The HOST requirement mandates that no less than 80% of the funds collected in the prior yeas be allocated to provide Homestead Exemption tax relief for qualifie3.d residential homeowners in the County. For three straight years, the County provided fbr a 100% Homestead Exemption (1999 thm 2001), and the FY 2002, FY 2003, FY 2004, FU 2005, FY 2006, FY 2007, FY 2008, and FY 2009 Tax Funds Budgets provided for an 86.8%- 60.5894, 59.0796, 54.64%, 56%. 60.8%, 58.396, and 56.6% Homestead Exemption, respectively. The presently recommended Executive Budget, using 95% of the prior year HOST collections, provides for a Homestead Exmption of 49.08%. Under the recommended overall budget structzlre, the County will have available and has budgeted $4.4 million for capital projects in the Tax Funds hnded by HOST.

The HOST program continues to be impacted by two financial trends:

1. The projected decline in sales tax collections in FY 2010 as reflected in the table on page 2. Sales tax collections decreased every year fkom 2000 ($87,658,299) through 2003 ($81,6&1,425). The actual 2009 collections were below 2008 collections by 6.6%. The 2010 budget assumes no growth in HOST sales tax collections based on indications of a continuing slowdown in 2010 in the Stafe economy.

2. The substantial increase (24,753 from 1999-2009) in the number of new owner-occupied residences in the County over the last 10 years. This increase has the effect of reducing the impact of the HOST Homestead Exemption because available HOST funds must be divided among more residences.

* It is estimated that the cash available Fund Balance at the close of business for 2009 in the County's Tax Funds will be approximately $15.2 million. Approximately $1 1.2 million in the Budgetary Reserve has been re-budgeted in the 2010 Budget. The County is targeting the end of FY 201 1 to return the Tax Funds fund balance to the fiscal policy target of one month.

Additional Consideratiolls of the 2010 Budget

* The recommended budget anticipates a net reduction of 400+ filled positions in the Tax Funds from the implementation of an early retirement incentive program in the first half of 201 0. By utilizing an incentive-based program, we anticipate savi~igs of approximately $2.7 million in unemployment claims. A recommended millage rate increase of 1.25 mills is dedicated to presewing sworn Public Safety oficers, and will pemit maintaining the staffing levels of essential public safety personnel in the deparlments of Police and Fire Rescue, and the offices of the Sheriff and District Attomey, at cunent levels,

Memomdm to Board of Codssionefs 2010 E x m ~ v e Budget R a o m e n & ~ o n s Page 5 of8

S a l q savings and vacancy abofishments in the proposed 2010 Tax Funds Budget are mticipated at a Level of $1 8,1 million. This level of salsl~y saGngs arid abolishment recognizes the previous high vacancy rate that exists in the Tax Funds Budget and =fumes that, on averal;e, approximittely 360 positions will be considered in these categories during 2018

A pension con~bution adjustment resulting from an aauarial recommendation of increasing the 2010 County contribution to 1Ph (of payroll) from 9.5% (of payroH) will impact the 2010 Tax Funds Budget by approximately $1.2 million. This adjustment is necessary primarily due to investment pe&omance during 2008. An associated increase in the employees\ontribution will incmse the total deduction for employees to 5.0%. At the latest aduarial exmination (4/2009), the fitnd was 72.1% &nded. These contribution increases are actuarially determined to meet State funding requirements.

e With a substmtially dovwtsized woruorce and increased pension cont~bution, it becomes increasingly importmt to set sdaries at levels comparable to competing jurisdictions and to provide suficient customer service training. I am, therefore: recommending a 2% merit increment for county employees remaining after the incentive-based Reduction in Force (RIF) and $375,000 for customer sewice training.

Etestruct;urine of DeKalb Countv Government

The effective delivery of services with a downsized workforce will require continued efforts to r e a m a r e operational &n&ions within counq government. Accordingly, the 20 10 budget provides for hrther consolidation of dep ents into groups as follows:

Development Consolidation of Community and Human Development depmments, ~vhich will result in Lower operaling costs, greater coordination and eEciency. The outsourcing of all or seaions of Development in the Planning and Development department is further projeded to result in savings of more than $1.5 million.

Zrifrsstructure Integahon of project manwemeat, mkntenance management, and environmental qultlity and compliance efforts will enable the redudon of more than 100 positions. Changes in 2010 also will dfow for more intense focus on enr;ironmental sustainability and green initiatives.

Pidmirxistrative * Bepmments are conducrlirrg assessments to deternine cost savings thou&

process hgrovements, which wilt result in the elimination of 36 vacancies and s a l q aved positions. Surveys and online user group $iscussions signal a geater integation and ~"Eiliaation of technotau to drive change and eBciency.

PubIic SafeQ * There has been a complete operdonal reorgmization of the DeKalb County

Police Depmment following a reloation of the Emergency 9- 1 - 1 Center, Code Enforcement, h imal Services and Enforcement, and Emergency Management from the BCPD. Oversight of the Recorders Court md the Medical Exa~ner ' s Ofice bas also improved delivery of service to the public. As a result of this reorganization, the County has eliminatd top-level cotnmanders, streamlined operations, and is providing more eecient delivery of services.

Executive Overview

In developing the recommendations for the 2010 Budgd, the Administra;tion has had to accommodate, for the second year, the incorporsrtion of Dunwoody. The legally requhed catcutations for 2005, under the Special Services Tax District &atutes produce a rnJllage rate increase of 791100'~" of a mill in the unincorporated part of the County as a result of the incorporation of this new city. Final digest values, which will be known in May 2010, mdd well have an addition& impact on Tax Funds millage rates.

By my recornendation of 95/5% use of Eunds for HOST, we are able to somewhat mitigak t.he impact of the rwommended 1.86 pubIic safety millage increase on the homeowner" tax bills for 2010.

Addition$ items cansiderd thin the 2010 Executive Budget are as follows:

* $1 1.8 million has k e n approp~ated in this Budget to Eund the 27t" payday: w%ch will impact the CounQ in 201 0, This amount is just for Tax Funds. Other firnds will be handled in like fashion.

* A recommendsltion to increase Fir&MS .Fees (along with the previously dismssed Public Safety millage increase in the Fire District) to maintain hnding for cu~en t E"b&MS positions,

Continued implementation of 2806 bond projects: The 2010 Budget w4l continue the emphasis on the cofilpldion of Trampomtion; L ib rq , and Parks and Creenspaa prc?jects a& in the 2005 Bond Progam.

M e m o r d m to Board of Com&ssione~ 20 1 O Exau~ve Budget RecomenMans Page 7 of 8

* I am recommending the continued suspension of the rou~ne vehicle replacement g r o g m fo"or201, and the defenal of vehicle replamment cbges , with the exception of Fire md some Police replacements, and chwges due to loan repawent for lease purchase.

* Continued focus on uppading public safey facilities, equipment and capabili-lies: The budget recommendation includes $1.5 million to continue the process of converting all public safety communications (radios) to state-of-the-rn digital platfoms.

* f am recommending $1.1 million for technoloejy improvement projeas in Recorders Court to improve citation processing" and facilita-te the move to elstronic ticketing.

* In an eRod to maintain the efficiency of arts Gnding, I am recommending $225,000 for the at centers,

* I am also recommending the creation ~f an Ofice of hsp&or General, which would report directly to an independent Board of Transparency & Accountability. This oEce would consist of approximately four posieions, In order to m k e knding for this recommendation budget-neutrd, f am recommending this office be &nded Eorn the anticipated savings from the early retirement incentive progrm and/or the transfer of equivalent positions &om the Finance Dep~dment,

* Relative to the Development Fund, which is not in the Tax Funds, there is available Gnding for first qu&er (20 10) activity only, due to a precipitous decline in constmdion activity. Therefore, it is my intention to ooutsource these activities before the end ofthe first Qumer 2030.

* Development of a long-range progrm to generate a revaue source to knd the Gounq" ongoing capital ingastmare needs. PUthou& I am recommending a 95i5oi;t HOST utilization in this budge to mitigate the proposed m i l l ~ e increase dedicated to Public Sd&y, this only represents approximately %,4 million available for capital projeas. This is due to de~lining yeas-aver-yeas sales taw colle&ions

A related problem is the over-dqendemce sf the C o u n ~ on residential propem taxes in comparison with co cia1 propem tmes. Cunently, more thm 56% of the County" sax digest (real p r o p w ) is rqreserrted lay Etsrrmeslead residel?tid values This reflects the effects of residentid constmaion over the

hlrmornndum to Board of Con~mtsstoners 2010 Executlte Budget Recommendat~nns Page 8 of 8

last 8 years. In the long term, a relatitle balance between residential and commercial valuations should be soubt . The County must take a rnore aggessive approach to encourage commercial and industrial det~elopment and redevelopment.

During 2010, the Administration will maintain the same high level of control over the filling of vacmt positions as in 2 0 0 m d mmagerial controls will be maintained to flurther control overtime.

e The State of Georgia has discontinued hnding the Homeowner's Tax Relief Grant progam.

Summary

The FY 2010 Executive Budget recommendation has been developed afier comprehensive and carehl analysis of the County" needs and resources. Such consideration has required dimcult decisions during FY 2009. The Executive Branch, with the cooperation of the Board of Commissioners, hopes to continue to focus on the highest level of service delivery to address effisiency and efkctiveness at the lowest cost to our citizens and stakeholders.

Chief ~xeeutike Officer