Rising pension obligations and unanticipated outlays tied to the expansion of the Riverside University Medical Center prompted Riverside County supervisors Tuesday to question what financial solutions might be possible to contain an “unsustainable” revenue drain going forward.
“The decisions we’re making now on the budget will have ramifications for years to come,” Supervisor Kevin Jeffries said. “We have to be very thoughtful in how we are approaching everything.”
His comments followed a presentation by the Executive Office to the Board of Supervisors on the 2018-19 first-quarter budget report.
The report revealed that four agencies are already projecting millions of dollars in red ink going into the second half of the fiscal year, but among the more concerning aspects of the narrative for the board was the estimated $52 million in new costs connected to the medical center build-out in Moreno Valley.
According to county Chief Financial Officer Don Kent, the unanticipated expenditures largely stem from the X-ray machines, MRI units and other specialized equipment — even office furniture — needed to outfit the new three-story medical office building, which will likely be completed by the end of 2019.
Kent suggested that the county could tap a generous line of credit extended by Bank of America to cover the purchases, but Jeffries expressed confusion as to why the move was necessary in the first place.
“I’m skeptical in financing assets using one credit card to pay off another,” the supervisor said. “It seems odd we’re going to be renting this space to physicians and physician groups, and we’re the ones who need to supply them with the equipment?”
Supervisor John Tavaglione, who is retiring at the end of next month, said the additional funding for the office building was mainly required to ensure that the outpatient surgery center that will occupy the first floor can meet patients’ needs — and attract business.
“These are complicated projects … (but) they can be money-makers,” Tavaglione said.
A decision on whether to authorize the necessary borrowing is expected to come in December.
The issue of ballooning pension costs was another sore subject.
The first-quarter report noted that the county’s current $350 million annual outgo for retirement obligations managed by the California Public Employees’ Retirement System will jump by $61 million in two years, and the cost trajectory points higher over the next decade.
“Within two years, for every four (general government) employees, the county (will be) paying for (one) position strictly in pension costs, and for every two public safety employees, the county (will be) paying for (one) position in pension costs,” county CEO George Johnson said in the report. “These costs continue to put financial strain and pressure on any method of achieving savings and efficiencies we gain.”
The county’s unfunded pension liability is roughly $3 billion.
“The one item that is going to eat us up is pension costs,” said Supervisor Marion Ashley, who will be leaving office with Tavaglione. “In other jurisdictions, labor and governing agencies have gotten together and agreed to share more costs. If not done here pretty quickly, you’re not going to have enough money to deliver services (because) you’ll have a lot less people working in local government.”
Supervisor V. Manuel Perez said it was long overdue to “sit down with labor partners” for a “hard conversation” about how to stop the financial bleed.
“This is unsustainable as we’re moving forward,” he said. “The numbers are right in front of us.”
Jeffries volunteered himself and Perez as potential members of a formal board “ad-hoc committee” that could spearhead talks with collective bargaining units — almost all of which have been deadlocked in negotiations with the county over future contracts — to iron out possible pension cost containment solutions.
A vote on forming the committee is expected after the new board convenes in January.
Along with the medical center costs, the Riverside University Health System is projecting a $16 million hole stemming from bigger allocations to run the system’s clinics, combined with fixed reimbursements from government health plans.
The Department of Public Social Services is projecting $11 million in potential additional costs that weren’t budgeted. DPSS manages multiple units, but the principal source of the overage was an increase in demand for welfare programs — after a roughly yearlong decline in applications — including CalFresh, CalWorks and MediCal assistance, officials said.
The Office of the District Attorney estimated a revenue shortfall of $4 million to meet commitments. D.A. Mike Hestrin went into 2018-19 with a revolving deficit that has been on the books since before he was elected in 2014.
Public Defender Steve Harmon, who has also wrestled with budget overruns since he was appointed in 2013, projected the smallest budget gap — $405,000 — all of which is tied to attorney labor.
Johnson announced that discretionary revenue for the current fiscal year is $15 million more than what had been anticipated in June, creating additional cushion against unexpected financial challenges.
Officials noted that the Emergency Management Department’s costs swelled by a half-million dollars because of the Cranston Fire in the San Bernardino National Forest near Idyllwild and the Holy Fire in the Cleveland National Forest near Lake Elsinore. The alleged arson blazes together consumed more than 36,000 acres and required the county’s Emergency Operations Center in Riverside to remain open for an extended period.
County expenses tied to actual firefighting will likely be covered through state and federal natural disaster grants, according to the Executive Office.