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08.02 Proposed Budget FY 2018-19 Staff Report CITY COUNCIL MINUTES March 27, 2018 7. ADMINISTRATIVE REPORTS - None 8. REPORTS FROM CITY MANAGER 8.1 Update on the design changes for the City Council Chamber remodel and A/V Presentation system project. Action: Receive report and file. The City Council sub - committee was very pleased with the changes to the AN Presentation system. The touch screen system with the agenda and the vote system all on one screen was exactly what they were hoping to see. Staff thanked the sub- committee for their help. 8.2 First Study Session for the Proposed Fiscal Year 2018 -19 Budget. City Manager Rick Otto and Finance Director Will Kolbow reviewed a series of slides, outlining the status of the current year budget and the projections for the FY 2018 -19 budget. Also reviewed were the CIP Budget. Departmental work plans have been made available to the City Council and any questions can be answered by the Department Heads who were all in attendance. The local economy remains strong and the real estate market is robust. Increased PERS contribution rates are hurting the City. The budget process began with a three million dollar hole and staff has cut that down to under $200,000. Each department was tasked with cutting 5% in the Maintenance and Operations portion of their budgets and an additional 2.5% from Salaries. For FY 18 revenues are projected to be $108.6 million. Sales tax is down $707,000 due to an accounting anomaly. Property tax revenue is projected up approximately $314,000. All other sources are also trending up due to the strong economy. In response to a question from Mayor pro tem Murphy, it was clarified that sales tax revenue figures are a little down due to an accounting issue where the State of California overpaid the City last year and then underpaid this year to square the accounts. Murphy added that a recent purchase of rail cars might bring revenue to the City. Staff is still not sure who will receive the tax increment from the Orange County Transportation Authority purchase. For FY 18 expenditures, the estimated costs will be $108.3 million. The City maintains 42 frozen positions that are unfilled. Total unreserved fund balance is estimated at $27,633,261. In response to a question from Mayor pro tem Murphy, it was clarified that the $4.4 million that is sent to reserves could be included in the unreserved fund balance increasing that line item. FY 19 revenues are estimated at $111.5 million. Sales tax is estimated to grow by 2.0 percent. Property tax estimates indicate a 4.9 percent increase. PAGE 3 CITY COUNCIL MINUTES March 27, 2018 8. REPORTS FROM CITY MANAGER (Continued) In response to a question from Mayor Smith, staff explained that the money donated by the Community Partners is not shown as a line item but is included in the General Fund. For FY 19 expenditures are estimated at $111.7 million. In response to a question from Councilmember Alvarez, staff explained that the City saved approximately $40,000 by having Orange County cover the gas extraction equipment at Yorba Park. The work was completed during the remodel of the park and facilities. Mayor pro tem Murphy added that the costs were a wash with the improvements made to Yorba Park. Councilmember Whitaker added that with the City owning many of the streetlights in town, we will save money on maintenance costs. In response to a question from Councilmember Whitaker, staff agreed that this is the first year in the past several that there are no plans to add money to the PERS set aside fund. Mayor pro tem Murphy asked if the City has changed where money is saved within the budget. He questioned whether money was saved in the Unreserved fund or Internal Service Funds. City Manager Rick Otto explained that the Reserved funds had a total of $27,000,000 and a total of $57,000,000 in reserved and unreserved funds. Councilmember Whitaker noted that with our narrow budget margins, the City has less flexibility to move funds into reserved funds. A hiring freeze might become necessary to keep costs down. City Manager Rick Otto noted that with staff cutting back on departmental budgets, there will be less money left over at the end of the year to move into reserved funds. PERS costs will be going up $400,000 due to the reduction in the assumed rate of return on the investments. PERS is assuming returns of 7.375 %, down from 7.5 %. One piece of good news, as we move forward, more PEPRA members are hired into the City and will lower its normal costs that are paid to PERS. Mayor pro tem Murphy noted that the projections for future budgets are based on the economy remaining strong. Councilmember Whitaker noted that it will not be acceptable to use catastrophic reserve funds to balance future budget shortfalls. Mayor Smith called a short break at 6:20 p.m. and called the meeting back to order at 6:30 p.m. Mayor Smith added that she and Councilmember Nichols attended the grand opening of the new Mental Health Center at CHOC Hospital. This new center adds 18 beds to Orange County resources for those with mental health issues. PAGE 4 CITY COUNCIL MINUTES March 27, 2018 8. REPORTS FROM CITY MANAGER (Continued) City Manager Rick Otto plans to come back to Council with proposals to change developer impact fees. These fees have not be adjusted in decades. CIP budgets and significant projects were reviewed by the Community Services Department, the Public Works Department, and Fire Department. Mayor pro tem Murphy noted that with Caltrans plans to widen the 55 freeway; it might be smart to purchase the Handy Park section that is currently owned by Caltrans. He noted that if there were a drop off point at Maybury Ranch the neighborhood would be more likely to support the Trail Improvements Program in that area. Councilmember Whitaker suggested an attractive barriers might help keep trail users from accessing the trails at unofficial points. Councilmember Alvarez likes the trails project. He added that the City of Tustin had some good ideas on parking and trail access problems. He want to see a strong lighting plan for the street between the new parking structure and downtown businesses. He wants to see upgraded lighting included in the CDBG project to widen the intersection where Palm and Handy meet. Mayor Smith noted that OPA maintains both City trails and their own trails in that area. She added that she wants to see improvements in the Old Towne lighting project. Staff added that there is a budget for the lighting project and work continues. Mayor Smith thanked staff for the new lighting on the Glassell and Maple intersection. City Manager Rick Otto asked Council their opinion on rebuilding the old Fire Station One facility or, building a new facility on the Water Street location. Mr. Otto discussed the possibility of a second parking structure in Old Towne. Councilmember Whitaker added that public private partnerships could help bridge gaps in funding to build a second parking structure. Mayor Smith wants the City to monitor the parking structure to watch for residential parking uses. She reminded staff that the potential new structure would be in a residential area with two churches in the vicinity. Mayor pro tem Murphy encourages a hard enforcement of rules regarding the parking structure. He would like to see both a new Fire Station on Water Street and an Old Towne parking structure be built. Councilmember Alvarez is interested on what the demand will be for Old Towne parking once the new structure is built. If demand is still high, possibly move toward paid parking downtown. Councilmember Nichols would like to see paid parking offered so visitors can park close to restaurants and stores downtown. PAGE 5 CITY COUNCIL MINUTES March 27, 2018 8. REPORTS FROM CITY MANAGER (Continued) Mayor Smith thanked Staff for their efforts on preparing the budget and announced the second budget study session will be held on April 24, 2018. ACTION: Received and filed report. 9. LEGAL AFFAIRS — None 11. ADJOURNMENT — The Study Session adjourned at 7:55 p.m. The next Regular City Council Meeting will be held on Tuesday April 10, 2018, at 4:30 p.m. for an Employee Recognition, 6:00 p.m. in the Council Chamber for a Regular Session with a Closed Session beginning at 5:00 p.m., if necessary. V J , Cf ROBERT 0 " ADO TERESA E. SMITH CHIEF f ERK MAYOR PAGE 6