‘We’re going to feel the pinch.’ Merced County adopts cautious $1.17B budget

Stagnant sales tax revenue suggests economic downtown, officials say

Executive staff of the Merced County Sheriff’s Office are shown during a groundbreaking for the expansion of the John Latorraca Correctional Center on Sept. 19, 2023. Funding for the project is part of the increased spending in the county’s latest budget. Credit: Victor a. Patton/CVJC

By BRIANNA VACCARI

Central Valley Journalism Collaborative

Sept. 29, 2023

MERCED (CVJC) – As Merced County adopted its largest-ever budget at $1.17 billion, county officials said stagnant sales tax revenue could signal a coming economic downturn, and the county’s spending must remain conservative to ensure sustainability.

“Overall, we live to fight another day,” Board Chair Scott Silveira said after Tuesday’s budget hearing. “I do have concerns. I do think that, as things slow down, we're going to feel the pinch.”

Merced County CEO Raul Lomeli Mendez wrote to the board in his proposed budget that this year’s spending plan was particularly complex because of budget uncertainties at the federal and state levels.

“Additionally, efforts to stem inflation are beginning to slow the economy through increased interest rates, and experts predict that additional steps to reduce inflation could be taken in the coming months, creating a greater risk of recession,” Lomeli Mendez wrote.

To that end, $3 million was added to the county’s reserves to safeguard against future uncertainty, bringing the reserves up to $45.1 million.

After contributions from federal and state sources, Merced County’s two largest sources of funding are property taxes and sales taxes.

Property taxes account for $59.2 million of county revenue in the 2023-24 budget, up by about $4 million from the year prior. Revenue from county sales taxes, meanwhile, remained flat at about $11 million. With a combination of several other sources, the county brings in about $195.6 million in dedicated local revenue.

“We're all pretty much fiscally conservative because we care about Merced County and the sustainability of Merced County,” Supervisor Josh Pedrozo said. “There's things that we need to do moving forward because expenses are getting close to matching revenues.”

There was no public comment offered on the budget prior to the board’s vote, and the supervisors passed it with little discussion. Most of the work of developing the county’s proposed spending plan was completed months ago by the county executive’s office.

Spending in the 2023-24 budget is up by more than $100 million from last year. Much of the increase includes:

• $41 million for health and human services programs

• $21 million for expansion of the John Latorraca Correctional Center

• $21 million toward public safety and the justice system

• About $13 million for flood recovery and debris removal

• More than $10 million for facility and infrastructure improvements

County supervisors control small part of general fund

County supervisors actually allocate only a small portion of Merced County’s general fund, which includes money to keep the county running – operational funds – and to provide general services such as the clerk and recorder’s office and collecting taxes.

This year’s general fund is around $808 million. Most of it must be used on specific programs and services under mandates from the federal and state governments or grants. Only about 15% of the pot – or $126.8 million – can be allocated by the five elected supervisors. 

The county budget also includes debt service funds; funds for special districts; special revenue funds that have specific regulations tied to them; capital project funds for things such as building and infrastructure maintenance; enterprise funds that operate like a private business; and internal service funds that account for goods and services to other county departments and agencies. 

Those funds total about $357.3 million in this year’s budget.

More than half of the county’s funding, or about $612.6 million, comes from the federal and state governments and grants to provide specific services through the county departments, such as behavioral health, public health and human services. 

After several years of seeing a positive balance of general-fund revenue outpacing expenditures, last year’s income and spending levels broke even at $556 million, according to a budget presentation by Deputy CEO Vanessa Anderson. County officials project revenue and expenditures once again will meet this year, at approximately $612.6 million. 

County officials said this year’s spending plan represents county residents’ priorities, such as public safety, public building and infrastructure improvements and green space.

County staff pinched by rising healthcare costs

About 40% of the county’s general fund pays for staff salaries and benefits. Nevertheless, employees from several departments said their take-home pay is shrinking due to rising healthcare costs. 

The board was notified in September that premiums on all county medical plans are set to increase by more than 12% next year.

Larry Watson, a human services agency employee, told the board that, despite modest wage increases, some employees may take home as little as $10 an hour after all the deductions from their wages.

After approving the budget, county supervisors noted they’d received emails from dozens of staffers concerned about the medical premium increases.

“Just understand, the county's not the one that raises the rates,” Silveira said. “It’s the insurance company that raises the rates, and we’ve got to pass that along to somewhere.

“I think that there's some work that we can do there to try to help soften it, and just take that haircut together,” he said. “I'm going to commit to you that we're going to continue to work on this. …I'm willing and want to have that conversation, to really not only say how much we appreciate and value our employees, but actually put our money where our mouth is and let our actions speak louder than our words.”

Law enforcement presses for increased spending

County officials noted that spending on public safety claims 73% of the money within the board of supervisors’ control – about $92.8 million.

Nevertheless, Merced County Sheriff Vern Warnke, District Attorney Nicole Silveira and county jail personnel have pleaded for weeks with the board to increase pay and hire more correctional officers. The jails are majorly understaffed, they say, and the correctional officers who remain are burned out from working overtime. 

Though the county recently broke ground on a substantial expansion project at the John Latorraca Correctional Center, a project that will cost over $138 million in total, Correctional Officer Ashley Pena said she worries there won’t be enough staff to operate it.

“Yes, it’s nice that the job construction started,” she told the board Tuesday. “What won’t be nice is not being able to fully operate due to low staffing.”

Despite concern from local supporters that the county was poised to cut funding for the library system, library spending in the budget grew slightly from $4.89 million to $4.901 million.

The county also is pouring more than $71 million into its 1,754 miles of county roadways this year through its road division work program. 

Data visualization created by Zhaozhou Dai / The Center for Public Integrity & Central Valley Journalism Collaborative

Brianna Vaccari is the governmental accountability/watchdog reporter for the Central Valley Journalism Collaborative, a nonprofit newsroom based in Merced.