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Study Session 03/28/17 APPROVED BY THE CITY COUNCIL ON JUNE 13, 2017 CITY COUNCIL ORANGE, CALIFORNIA MEETING MINUTES March 28, 2017 The City Council of the City of Orange, California, convened on March 28, 2017, at 5:00 p.m. in an Adjourned Regular Meeting in the Weimer Room, 300 E. Chapman Avenue, Orange, California. 5:00 P.M. BUDGET STUDY SESSION 1. OPENING This Adjourned Regular Meeting of the Orange City Council was called to order by Mayor Smith at 5:00 p.m. 1.1 INVOCATION Irma Hernandez, Deputy City Manager 1.2 PLEDGE OF ALLEGIANCE TO THE FLAG Councilmember Michael Alvarez 1.3 ROLL CALL PRESENT - Alvarez, Whitaker, Smith, Murphy, Nichols ABSENT - None 1.4 PRESENTATIONS/ ANNOUNCEMENTS/ INTRODUCTIONS Mayor Smith announced that she and Councilmember Whitaker attended a ceremony at the Chapman University Musco Center honoring Placido Domingo. The Mayor thanked City staff for their hard work in getting the Musco Center built. 2. PUBLIC COMMENTS - None 3. CONSENT CALENDAR — None 4. REPORTS FROM MAYOR SMITH - None CITY COUNCIL MINUTES March 28, 2017 5. REPORTS FROM COUNCILMEMBERS — None 6. REPORTS FROM BOARDS, COMMITTEES, AND COMMISSIONS - None 7. ADMINISTRATIVE REPORTS - None 8. REPORTS FROM CITY MANAGER 8.1 First Study Session for the Proposed Fiscal Year 2017 -18 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 2017 -18 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. Three high profile projects will be under construction this fiscal year. Renovations at Yorba Park have already begun. Renovations at Shaffer Park and the Metrolink Parking Structure are scheduled to begin soon. Fiscal challenges do remain for FY 18 and beyond. Rising costs related to the City's share of Ca1PERS costs will reach 21.2 million in FY 18. Ca1PERS costs will be even higher in FY 19 and FY 20. For FY 17 revenues are projected to be $110.9 million. Sales tax from that number is $41.6 million. $4.9 million of the sales tax figure is from one -time sources. Property tax revenue is projected at $26.0 million. 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 from the estimated FY 17 revenue figures. Approximately 1% of growth was originally expected. The growth did not occur and future estimates will use more accurate figures. Councilmember Whitaker pointed out that gasoline consumption as well as fuel prices are declining and have been since 2009. For FY 17 expenditures, the adopted budget was $106.3 million. Projected savings will be $3.7 million from expenditures. The City maintains 42 frozen positions that are unfilled. Total unreserved fund balance is $8.7 million after all transfers are made. $19.6 million is in the catastrophic reserve fund. FY 18 revenues are estimated at $107.8 million. Sales tax is estimated to grow by 1.9 percent. Property tax estimates indicate a 3.8 percent increase. PAGE 2 CITY COUNCIL MINUTES March 28, 2017 8. REPORTS FROM CITY MANAGER (Continued) In response to a question from Councilmember Alvarez, staff explained that TOT was last increased approximately 25 -30 years ago. An increase to the TOT would require a vote of the electorate. For FY 18 expenditures are estimated at $107.6 million. This is a 1.3% increase over last year. 83% of General Fund costs are related to staffing. 72% is from PERS contributions. In response to a question from Mayor Smith, staff explained that a catastrophe would be a physical act of nature like an earthquake, fire, or flood. A catastrophe might trigger the use of the catastrophic reserve. Councilmember Whitaker pointed out that the reason for a 25% reserve is so that the City could operate one full quarter without any revenues coming in. City Manager Otto reminded Council that no money was put into the reserve during the recession years and now, for the fourth year in a row, staff plans to place $500,000 in the reserve. Challenges include the Ca1PERS contributions increases. Pension costs are related to payroll while the unfunded liability for past shortfalls will be a fixed dollar amount. The FY 18 increase will be $2.3 million. The City will see increases of $3.0 million each year for the next several years as the Ca1PERS costs are fully realized. Contractual obligations will increase by approximately $500,000. Departmental operating budgets will also increase. Mayor pro tem Murphy noted that no cost of living increases or benefit enhancement are included in this budget. Budget priorities include no new positions. The City has approximately 40 frozen positions and currently, approximately 20 — 30 open positions. Mayor Smith noted that most of her contact with residents are complaints due to reduced staffing levels. Yet, most residents in the City of Orange are satisfied. The Mayor wants the Council to be kept up to date on staffing issues as keeping the City workers happy and not too overworked is a priority. Councilmember Nichols noted that the savings on the expenditure side of the budget comes partly from the 40 frozen positions the City is carrying. The Police Department has three vacancies with a few more coming due to retirements. Councilmember Nichols would like a breakdown of where the savings are by department from staffing shortages. Economic indicators indicate that the economy is still strong. For the next 12 -18 months the economy looks healthy. Auto sales should slow but overall the City economy should remain strong. Planning activity is still strong. The five year CIP budget includes 154 projects (123 projects are continuations of existing projects and 31 projects are new to this budget). For FY 18 the City Council is investing $23.2 million and $83.5 million over the five year term for the City's infrastructure. PAGE 3 CITY COUNCIL MINUTES March 28, 2017 8. REPORTS FROM CITY MANAGER (Continued) Projects include renovations at Shaffer Park, renovations at Yorba Park and improvements of the trail system. Mayor Smith noted that OPA does a wonderful job raising funds and maintaining the trails out in East Orange. City Manager Otto noted that the City is working with accepting easements which is making the trails project easier with OPA. Mayor pro tem Murphy noted that the OCTA project had a bid protest due to an America First provision in the contract and an elevator that was made in Germany. This protest caused OCTA to re -bid the project causing delay. Gas Tax revenue and OC Measure M revenues are down this current year. There will be a little less available for road repair and pavement plan projects. $1.3 million will be spent on the Pavement Management Program. Eleven projects are planned for water production. Mayor pro tem Murphy asked staff to note the Orange County wide OCTA signal modification projects that impact the City of Orange. Phase two of the City Council Chamber project is progressing. A replacement of six servers and a network overhaul will occur in FY 18. Plans are being developed to build one unified access program for all employees into City facilities. Strong support exists from downtown merchants and businesses for the building of a second parking structure to support downtown parking. Strong support exists for paid parking in the downtown area. Mayor Smith asked if an assessment will be completed to decide if a parking structure is justified in that area. She wants to see what the impact of the new Metrolink parking structure will mean for downtown and what concerns the close by residential neighborhood will have. Department work plans are available for review and any comments can be forwarded to the City Manager. Mayor Smith thanked the City Manager and staff for all their hard work. Mayor Smith also acknowledged the City Treasurer, Richard Rohm, for his work. ACTION: Received and filed report. PAGE 4 CITY COUNCIL MINUTES March 28, 2017 9. LEGAL AFFAIRS — None 10. RECESS TO CLOSED SESSION a. Conference with Labor Negotiator pursuant to Government Code Section 54957.6: City Negotiators: Laura Katy, Special Counsel. Employee Organizations: All Bargaining Groups. 11. ADJOURNMENT — The Study Session adjourned at 7:20 p.m. The next Regular City Council Meeting will be held on Tuesday April 11, 2017, 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. ROBE ZORNADO TERESA . SMITH CHIEF CLERK MAYOR PAGE 5