FY2019 Preliminary Forecast
Overview of FY2018 Year-End and FY2019 Preliminary Forecast
The Department of Budget and Management Services (DBMS) prepared this preliminary forecast report in accordance with Section 2-934(c) of the Cook County Code of Ordinances. The report presents a mid-year projection of year-end revenues and expenses for Fiscal Year 2018, and an initial forecast of Fiscal Year 2019 revenues and expenditures.
Fiscal Year 2018 Year-End
For FY2018, DBMS anticipates a combined budgetary surplus of $0.6 million in the General Fund and the Health Fund, which are the two major operating funds for Cook County. The General Fund is projected to have a positive variance of $2.9 million and the Health Fund a $2.3 million shortfall.
In the General Fund, year-end expenditures are estimated to come in roughly $6.0 million over budget due primarily to an overage in Reserve for Claims related to an unanticipated settlement.
The projected County FY2018 General Fund surplus is driven by greater than anticipated growth in Home Rule Sales Tax revenue. Home Rule Sales Tax revenue is projecting a positive variance of $44.9 million, largely due to better than anticipated economic growth and a onetime accelerated payment from the State of Illinois. In addition, the State has also reduced its collection fee from 2 percent to 1.5 percent effective July 1, 2017. This offsets a negative variance in County Treasurer revenue of $23 million resulting from a decrease in fees on delinquent tax bills. Due to the positive state of the economy, prepayment of property taxes in anticipation of the Federal tax reform and enhanced communications to impacted taxpayers, there are fewer delinquent taxes. Additional favorable revenue projections are attributed to increased revenues in the County Use Tax of $2.3 million and better than expected State Income Tax revenues of $1.8 million, again due to a robust economy.
In the Health Enterprise Fund, the Cook County Health and Hospitals System (CCHHS) is currently projecting a deficit of $2.3 million, or 0.1 percent higher than budget, driven primarily by projected expenditures. Although Patient Fees are expected to be $51 million below budget, Managed Care (CountyCare) revenue is projected to come in $559 million above budget due to higher than budgeted member enrollment, while CCHHS year-end expenditures are projected to be $2.3 million over budget. CCHHS continues to actively review expenditures and revenues to stay within the appropriated budget.
Fiscal Year 2019 Forecast
The FY2019 outlook includes a $52.3 million shortfall projected in the General Fund and a $29.5 million shortfall in the Health Fund, creating a total operating funds projected deficit of $81.8 million. This projection assumes a flat operating tax allocation for the Health System of $102 million. This projected operating deficit also reflects an increased appropriation of $360 million from $353.4 million in FY2018 for supplemental pension contributions that will put the County on a path to address the outstanding unfunded pension liability at the County Employee’s and Officer’s Annuity and Benefit Fund of Cook County (the “Retirement Fund”), consistent with the intention of the majority of the Board of Commissioners when they raised the Home Rule Sales Tax in 2015.
In the General Fund, projected expenditures of $1,863 million will exceed projected revenues of $1,810 million. The projected shortfall is driven by an increase in estimated expenditures of $63 million that outpaced an increase in expected revenues of roughly $10.5 million over the FY2018 adopted budget. In the Health Fund, revenues are expected to increase by $600 million reflecting the increased revenue generated by the acquisition of new members in the CountyCare program. Expenditures are projected to increase by $682 million, primarily driven by the associated expenses related to the increased CountyCare membership.
In the General Fund, projected cost increases driving this gap are an increase in expenditures for projected wages ($29.5M), employee health benefit increases ($10.1M), costs related to external borrowing ($9.4M) and spending on technology and system maintenance ($3.2M).
Revenue increases are driven primarily by an increase in Sales Tax revenues of $37 million due to growth in the nation’s economy. Although, a change in state legislation moving the date of delinquent tax sales from April to May resulted in an increase in revenue collected by the County Treasurer, timely payments caused an offsetting decline in this revenue. In FY2019, revenue is expected to decrease by $31 million.
In 2016, the County began making supplemental payments to the County Employees' and Officers' Annuity and Benefit Fund (Cook County Pension Fund) to help shore up unfunded pension liabilities. The FY2019 preliminary forecast continues to incorporate a supplemental appropriation to the Pension Fund that targets a 2 percent growth in payments as appropriations are approved by the County Board of Commissioners. The FY2019 payment amount is projected at $360.5 million. These payments were set at the lowest possible level to allow the Board of Commissioners to pay down the unfunded pension liabilities by 2049, and limit the projected growth rate of future payments to 2 percent or less.
2019 Preliminary Forecast
The table below provides a detailed summary of the Preliminary Forecast:
The outlook for FY2019 includes a $81.8 million shortfall across the General and Health Enterprise Funds. The General Fund’s deficit is projected at $52.3 million and an additional $29.5 million deficit is estimated in the Health Enterprise Fund for a total projected deficit of $81.8 million. The FY2019 forecast reflects a decrease in legacy debt service payments of $19.5 million increasing the amount of property tax levy available to the General Fund. It includes a $36.9 million increase in County Sales Tax due to a growing economy. The FY2019 revenue collections are projecting to decline in County Treasurer revenue as experienced in the FY2018 budget. Also included is an increase in the supplemental pension appropriation of $7.1 million over the FY2018 budget to $360.5 million, consistent with the alternative payment schedule adopted by the County Board of Commissioners to address the unfunded liability in the Pension Fund.
2019 Revenue Overview
The preliminary revenue estimate for FY2019 is $4,443 million for the General and Health Enterprise Funds. This represents a 16 percent, or $600.1 million increase over the FY2018 budget, which is overwhelmingly dedicated to Managed Care Community Network revenue in the Health Enterprise Fund.
The County’s General Fund revenue is comprised of Property Tax, Non-Property Taxes, Fees, Intergovernmental Revenues, Investment Income, Indirect Costs and Miscellaneous Revenues. The Health Enterprise Fund revenue is comprised of Patient Fees, Managed Care and Other revenue.
The preliminary estimate for General Fund revenues in FY2019 is $1,810 million, an increase of $10.5 million, or 1 percent compared to FY2018 budgeted revenues. This figure assumes an operating tax allocation to the Health Enterprise Fund consistent with the FY2018 figure of $102 million which essentially covers expenses related to non-fee generating programs in public health and correctional health.
Health Enterprise Fund
The preliminary estimate for Health Enterprise Fund revenues in FY2019 is $2,633 million, an increase of $589.5 million, or 29 percent compared to FY2018 budgeted revenues. This figure does account for the operating tax allocation from the General Fund to the Health Enterprise Fund of $102 million, consistent with FY2018.
Preliminary Gaps (in millions)
The preliminary estimate for the Property Tax Levy in FY2019 is $281.8 million, an increase from the prior fiscal year budget by $19.5 million primarily due to the decline in debt service payments for General Obligation Bonds that are supported by Property Taxes. The Tax Increment Financing Surplus to the General Fund is projected at $6 million.
The preliminary estimate for revenues for Non-Property Taxes for FY2019 is $1,323 million, which is $35.8 million more than prior year budgeted revenues. This increase is driven solely by the increase in County Sales Tax revenue due to a robust economy and the reduction of the 2 percent service fee imposed by the State on municipalities for the collection and remittance of sales tax revenue to 1.5 percent. Absent the growth in County Sales Tax revenue, Non-Property Taxes would be decreasing compared to prior year budgeted revenues by $1.1 million.
General Fund Fees
The County imposes various General Fund fees for certain services that it performs. The fees charged by various County departments include: fees for vital records, real estate transactions, court case filings, and delinquent taxes. The preliminary estimate for General Fund Fees in FY2019 is $187.2 million, a $32.3 million, or 15 percent decrease in comparison to FY2018 budgeted revenues. This is primarily the result of a decline in fees generated by the County Treasurer’s office. The fees consist of penalties on delinquent taxes. Due to the positive state of the economy and enhanced communications to inform impacted residents, there are fewer delinquent taxes. The County Treasurer is projecting FY2019 revenues of $30 million, that is $31 million, or 51 percent less than the FY2018 budget.
The preliminary estimate for Intergovernmental Revenues for FY2019 is $46.1 million, $2.8 million higher than FY2018 budgeted revenues. This projection reflects a slight increase in subsidies from the Administrative Office of the Illinois Courts (AOIC).
Investment Income, Indirect
Costs, and Miscellaneous Revenues
The County is projecting to receive Investment Income of $1.8 million in FY2019, the same as FY2018 budgeted revenues. Investment Income is the interest garnered on County fund cash balances.
Indirect Costs are charged to Grants and Special Purpose Funds to reimburse the General Fund for pension and administrative resources. The projected FY2019 Indirect Costs revenues are projected to remain steady at $11.6 million in comparison to FY2018.
The preliminary estimate for Miscellaneous Revenues for FY2019 is $25.3 million, which is a decrease of $8.7 million compared to FY2018 budgeted revenues due to one-time legal settlements anticipated in FY2018 but not in FY2019.
Cook County Health and Hospitals
The Health Enterprise Fund receives patient fees and supplemental payments for care provided at County Hospitals. In addition, the Cook County Health and Hospitals System (CCHHS) operates a Managed Care Community Network (MCCN) referred to as CountyCare. CountyCare receives a fixed per member per month reimbursement for each of its roughly 332,000 members. CountyCare membership realized a substantial increase above the 140,000 members in FY2017 and the estimated 225,000 members in FY2018 as a result of two successful strategic acquisitions. CCHHS’ preliminary estimate for fees in FY2019 increases 30 percent, or $589.5 million to $2,560 million compared to Fiscal Year 2018 budget. The projected rise is due to increased enrollment into the Managed Care Community Network.
Projected 2019 Expenditures
The FY2019 General Fund expenditures are projected to increase by $62.8 million over the FY2018 appropriation. This increase is driven by rising personnel costs ($29.5M) as a result of projected wage increases. Further increases are driven by scheduled step increases. Another key driver of increasing expenses are rising employee health benefit costs ($10.1M) which are expected to rise at the rate of medical inflation.
Non-personnel spending is also forecasted to increase by 1.3 percent over FY2018 appropriations. Contributing non-personnel factors include increased costs related to external borrowing ($9.4M) as well as an increase in technology spending as a result of upgrades and maintenance obligations ($3.2M).
Health Fund expenditures are expected to increase by $619 million from the FY2018 appropriation, a 30 percent increase from the prior year, with budgeted expenses for FY2019 totaling $2.662 billion. The primary drivers of the cost increases are due to larger than anticipated CountyCare enrollment and personnel costs, increasing by $519 million and $33 million, respectively. Additionally, CCHHS anticipates increases in the operating budget to continue upgrades and advancements of medical and technology equipment to provide better and more efficient care for patients. Historically, CCHHS relied on debt proceeds from the County to purchase capital equipment, now capital expenditures are funded through its operating budget. Additional expenditures include a $27.6 million increase for the maintenance and procurement of software and hardware to continue efficiency upgrades to the Cerner system and other software, and increases in surgical, medical and dental supply budgets by $16.5 million, to support increased patient volumes.
Debt Service Fund
The County has undertaken a long-term plan to manage its debt service in a manner which will target the rate at which debt service will grow in future years at no more than 2 percent of the 2018 figure, when including all projected new money borrowing. Even with this long-term plan, achieved through strategic refinancing, limited principal re-amortization as necessary, and continuing to limit the issuance debt as the County has done in recent years, debt service will continue to rise through 2026 before leveling off at approximately $335 million based on a significant legacy debt service burden and the need to invest in County facilities and technology infrastructure.
During 2009 and 2010 the County sold a significant amount of new money debt, approximately $686 million, which was structured for a roughly $100 million increase in debt service in the 2011 fiscal year. Subsequent refinancing of this legacy debt service has allowed the County to create this multi-year ramp, and even though the County has limited the issuance of new money borrowing in recent years and has $358 million less debt outstanding at the end of FY 2017 than in FY2011, the County’s debt levels remain very elevated versus peer Counties across the nation.
The County continues to emphasize long-term fiscal sustainability. Although the County has a diverse revenue base, inflationary factors put pressure on expenditures, causing them to rise, in many cases faster than the rate of inflation. In FY2019, the County expects to benefit from a robust economy with the anticipated growth in the Home Rule Sales Tax. However, due to uncertainty of activities at both the state and federal levels as well as economic volatility, out year budget gaps are still of great concern and reinforce the need for judicious fiscal management.
In FY2019 the County will continue to target both expenditure and revenue solutions that support long-term fiscal sustainability. The County’s long-term outlook addresses challenges associated with the solvency of the Retirement Fund, stability of debt service and growing expenditures. The administration looks forward to working with the Board of Commissioners, elected offices, taxpayers, employees and other stakeholders to address challenges. The tables that follow provide further analysis as described in this summary overview.