relies on $441,461 in General Fund salary savings to reduce the expense of the Department Requested Budget. This is a significant decrease from the amount of salary savings that was available to balance last year’s Budget. The current Position Vacancy Report/Salary Savings Table is included as Attachment C to this report.)
By design, determining the amount of salary savings to include in the CAO Recommended Budget is a conservative process. In evaluating current vacancies, recruitment experience and trends are considered on a position-by-position basis to determine a reasonable period of time that the position is likely to remain vacant. Unless fiscal conditions dictate otherwise, positions are not required to be kept vacant for a longer period of time than is anticipated as being necessary to successfully recruit a well-qualified candidate.
However, because of the conservative approach taken when budgeting salary savings, there will usually be additional salary savings in the Budget after it is adopted. For example, a position budgeted as providing three months of salary savings may actually take four or five, or even seven months to fill, thereby generating additional savings. Unless this savings is re-appropriated elsewhere in the department’s budget during the fiscal year, it will show up as part of the Fund Balance calculation at the end of the year.
Furthermore, there will always be vacancies that arise later in the year that simply cannot be anticipated at the time the Budget is prepared; this is simply a reality of the workforce in most organizations. While it is reasonable to anticipate that there will always be additional “unanticipated” or, perhaps more accurately, “unbudgeted” salary savings that accrue throughout the year, it is not easy to anticipate what the amount of that savings might be. It is neither practical nor prudent to attempt to guess which departments might experience vacancies after the Budget is adopted and then try to adjust their budgets accordingly in advance. Again, because of this phenomenon, there will always be unbudgeted salary savings in the County Budget at the end of the year – unless the savings is re-appropriated to other expense categories in departments’ budgets (a practice that, in most cases, is actively discouraged by the CAO and Auditor-Controller). The matter of whether this unanticipated salary savings ultimately shows up as Fund Balance is largely dependent on whether departments avoid over-spending their budgets and achieve all of their budgeted revenues.
The General Fund Balance that we are working with to balance this year’s Budget benefits from approximately $2,403,359 in salary and benefit savings during FY 2006-07. While the practices and realities described above explain how we arrive with salary savings at the end of a budget year, they do not necessarily explain why the dollar amount is so high. In contemplating the amount of money associated with salary savings, and all the variables at work, it is perhaps most useful to consider the amount of money associated with salary savings as a direct reflection of the fact that personnel costs account for 62% of the County’s General Fund Budget (or, $29,038,480).
Under-expenditures
In addition to savings from position vacancies that arise during the year, under-expenditures in other categories of expenses also contribute to Fund Balance. As previously reported to your Board, there is not a single budget, or a group of budgets that routinely budget far more than they actually spend (to the detriment of tighter, “more realistic” budgets). Rather, analysis reveals that under-expenditures can generally be segregated into two categories: (1) individual, high-priced expenditures – such as a capital improvement, consulting contract or large, one-time purchase – that, for any number of reasons, do not
| FY 2007-2008 CAO Recommended Budget | Page 4 of 29 |
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October 24, 2007