Budget Overview

The most significant factors affecting fiscal year 2022/23 budget development and process include the continuation of the effects of the COVID-19 pandemic and planning for the opening and operations of the new Criminal Justice Center. The American Rescue Plan Act continues to infuse significant funds into the County, affecting offices that then must manage and administer these funds. The new Criminal Justice Center, which is estimated to cost over $63 million to build, will be coming “on-line” in FY23. Initial estimates project approximate expenditures of $5,700,000 in direct detention services and $760,000 in co-located and support services.

Total assessed property values in the County were higher in 2022 by approximately 6 percent from the prior year. This equated to a small increase in property tax revenue due to increases in the assessed value. The actual tax rate decreased 3.5 percent from the prior year. General Fund revenues increased 12.5 percent from the prior year with the primary source of the increase being sales tax revenue. Special revenue funds are projected to be lower by 9 percent. Special revenue funds were higher in the prior year due to the influx of significant funds for the American Rescue Plan Act and funding for the new Criminal Justice Center.

General Fund expenditures are expected to be higher by approximately 8 percent. A good portion of this increase is to fund the rebalancing of employee's compensation to comparable market rates that were low due to inflationary and economic pressures. It is felt that funding compensation will address ongoing issues with position vacancies in key areas like public safety. Other areas that are projected higher than the prior year are supplies and services also due to inflationary and economic supply chain issues.

The influx of federal funding from the American Rescue Plan Act continues to require significant effort from the County to allocate, manage and administer the program primarily due to additional compliance requirements. These projects will span multiple years. Projected expenditures for FY22 are $2.6 million and $32 million for FY23 budget capacity (rough estimates). Allocation of currently projected expenditures for the usage of ARPA funds are as follows:

The new Criminal Justice Center, which is estimated to cost approximately $75 million with its co-located mental health functions, is due to come online early in the FY23 budget year. Planning and resourcing for this large project played a significant factor in preparing the FY23 budget from both a construction point of view and in determining needs and resources for operations going forward. The additional resources needed to run existing detention operations plus new operations require a significant transfer of funds from the County’s General Fund since the current jail tax will not cover the full cost. Those transfers include $7,843,350 for the required maintenance of effort and $11,428,308 in additional funding. Funds transferred from the General Fund to the Jail District are not excludable from the County’s current expenditure limitation, except for the amount used to cover debt service of $4,313,700. The additional large transfer affects the County’s ability to meet increased expenditure demands and stay within the current County expenditure limitation. Future budget year options include going to the voters to increase the County’s expenditure limitation or increasing the jail tax from ¼ to ½ cent, thereby reducing the amount transferred or subsidized by the County. Expenditures incurred from revenue raised through the jail tax are excluded from the County’s expenditure limitation.

Summary of Budgetary Increases to Accommodate New Criminal Justice Center (Approved in FY22) for FY23

• YCSO Detention Services Expenditures for Expansion $5,700,000

• Superior Court Security $ 230,000

• Clerk of Court $ 170,000

• Facilities Expenditures for Support & Maintenance $ 360,000

---------------

$6,460,000

Last, but certainly not least, are inflationary pressures. The nation has been impacted by record inflation. The U.S. Bureau of Labor Statistics’ data shows the western region, including local and state economies, has felt the impact at a higher rate than the national average. The cost of goods and services that the County must purchase continues to increase. In addition, the County’s most valuable resource, employees, are feeling the strain creating additional budgetary pressures to keep pace with the true cost of living. Results of the compensation study, solicited by the Board beginning last fall, assisted in identifying appropriate compensation levels for employees based on experience and comparability to the market. Recommendations from the compensation study as well as a 3.5% cost of living adjustment are included in the FY23 budget.

Additional information in this report includes information regarding the makeup and levels of resources coming into the County, budget assumptions used to build the budget, a summary of information covering major expense areas, a summary of the County’s current General Fund balance and reserves as well as considerations for meeting expenditure limitation pressures.

As with previous budgets, the FY2022/23 budget is a line-item budget that begins with funding levels from the current budget (FY2021/22) with all one-time requests removed to form the base of the new budget.

Exceptions for adjustments to the base include departments where cyclical activity creates variations from one budget year to the next such as Elections and Voter Registration. Another instance is where there are increases in costs for multi-year contracts that need to be added to the base budget or minor adjustments warranted as determined in the hybrid zero-based budget submittals or general budget process.

Major revenues for FY2022/23 state shared and County sales tax are budgeted at a 3.1% increase or fiscal yearend 2022 projected revenue levels in conjunction with the State Finance Advisory Committee and the Joint Legislative Budget Committee recommendations. Vehicle license tax revenue and highway user fee revenues do not include an increase above current FY22 year projected actual amounts.

Primary expenditure assumptions:

Salaries & Wages

• Budget includes 3.5% cost of living adjustment as previously approved in concept by the Board in January 2022. This percentage adjustment was based on a 10-year average trend of the Western Region CPI. To compare a 5-year average trend equaled 3.55%.
• Merit increases – Due to the need to fund the compensation study, the Board has chosen not to fund merit increases in FY23.
• Included in the FY23 budget are adjustments to the employee pay scale as recommended by the Compensation study. Out of the three models considered for implementation, the Board selected the “Compa” model which provides the most benefit for all employees of the County and should reduce retention issues by bringing salaries in closer alignment with market.

Benefits

• Health insurance is estimated at $10,000 annually per employee. This varies person to person based on elected coverage.
• Worker’s Compensation rates for the State and Arizona Counties Insurance Pool (ACIP) similar to previous year with a slight increase.
• Retirement – The primary increases in rates were in the Elected Officials Retirement Plans (EORP). Other retirements plans experienced only minor changes.
• Funding to pay down additional unfunded retirement liability is included in the budget at $4.5 million ($4M PSPRS and $500K CORP). The Board has the option of delaying payments.

Other

• General Fund contingency set at $4 million and Special Revenue Funds at $10 million.

• Capital

o Criminal Justice Center estimated construction expenditures for FY23 = $12,135,332

o Co-located facility at new Criminal Justice Center for FY23 = $4,059,563

o Gurley Street building remodel = $6,517,500

o Capital contingency set at $200,000

o Vehicle purchases are included with a rollover of $1.8M not expended in FY22 and another $1.8M budgeted for FY23 vehicle replacements.

• Reserve Balance - Transfer $5 million to the Capital Reserve Fund - Balance approximately $30 million after transfer.

In fiscal year 2022/23, departments were asked to submit requests based on the strategic priorities of the Board for the budget year. Those strategic priorities included successfully completing and bringing into operation the new Criminal Justice Center and co-located facilities, funding compensation at an appropriate level to reduce impact of inflation, improve retention and bring salaries up to market.

Departments requested approximately $12.3 million in General Fund dollars, $8.7 million in one-time requests and over $3.6 million in permanent funding changes. Special Revenue and Special District requests totaled around $1 million dollars with most of that being one-time requests.

Budget requests approved for FY23 totaled $1.4M in General Fund, $787K in permanent increases and $666K in one-time expenditures. Most of the Special Revenue requests were approved in the amount of $938K, mostly one-time requests.

Limiting the approvals for General Fund provided space to fund compensation study recommendations for employees which was a top priority for the FY23 budget.

There were no changes from the preliminary proposed budget to the final adopted budget.

The expenditure limitation is basically a tool to limit the amount cities, towns and counties in Arizona can spend of “local” revenues as defined by Arizona Constitution, Article IX, Section 20(3)(d) which includes receipts such as tax revenues, fines, fees, or charges for services. Changes in population and inflation affect the County’s annual expenditure limit amount which is prepared each year by the Economic Estimates Commission.

In simple terms, the primary elements of calculation for the expenditure limitation for Yavapai County is primarily:

• Budgeted expenditures (all funds)

• Less: Estimated Reconciling Items

o Separate legal entities (Library, Jail, other Special Districts)

o AHCCCS LTC Contribution (ALTCS Payments)

o Required fees to AZ state agencies

o Involuntary Court Judgements

• Less: Estimated Exclusions

o Debt Service

o Investment income including delinquent tax revenue

o Trustee or Custodian funds (AHCCCS & Anti-racketeering fund 0138)

o Federal and State Grants and Contributions

o Other Excludable Revenues in GF such as AZ Lottery funds, PILT, JP Salary Reimbursements

o Other State Grants (VLT)

o Interfund Transfers already considered elsewhere

o HURF Expenditures in excess of base

o Intergovernmental Agreements

Since the budget includes additional expenditures for basic budget capacity, expenditures are generally “overbuilt” when compared to actual expenditures at an average rate of 88% over the last seven years. An example of an expenditure built for budget capacity is the General Fund contingency of $4M. Likely most of this amount will not be spent but is prudent to include for unforeseen events or projects.

Even though the County’s expenditure limit went up $8.7M to $146.2M from $137.5, funding additional Jail District expenditures (in the form of a General Fund transfer to the Jail District which are not excludable) and funding the increase for compensation pushes the County close to the expenditure limit. There are several activities the Board can take to manage expenditures within the limit. Those include (but are not limited to):

 Consider short-term financing for the paydown of the unfunded liability. Debt service is excludable for the expenditure limit calculation.

 Get approval from the voters to increase the Jail Tax from ¼ to ½ cent thereby eliminating the additional transfer to the Jail District that is not excluded from the limitation.

 Get approval from the voters to increase the expenditure limit for the County.

 Utilize the revenue loss designation of ARPA funding for General Services Projects which is excludable (already in the works with the approval of $10M previously approved).

 Adjust scope/timing of work for fund 0401 capital projects and/or large regional road projects as necessary to reduce expenditures to come in under the limitation at yearend.

 Avoid spending contingency.

 Avoid approving additional expenditures during the year as “budget savings” in Departments. On average the County has underspent its General Fund budgeted expenditures by 6%.

 Utilize carryover amounts from previous years as necessary.