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06.01 Proposed FY 2020-2021 Budget 2 - Budget MessageJuly 28, 2020 Honorable Mayor and Members of the City Council: Submitted for your consideration is the Fiscal Year 2020-2021 (FY21) Budget. This Budget responds to the ongoing economic downturn and incorporates the City’s firm commitment to fiscal responsibility, effective use of our resources, and high quality service delivery to our residents, businesses, and visitors. The past few months have been challenging for the Orange community, largely due to the impacts of COVID-19. Since the unexpected spread of COVID-19, the nation continues to face an economic challenge unlike anything it has seen in nearly 100 years. Almost overnight, the economy, which had boasted abundant jobs and soaring stock values, has fallen into disorder. Although local and regional economies continue to struggle, businesses are slowly re-opening with modifications to follow State and County guidelines. The long-term effects are still unclear as public policy related to COVID-19 continues to evolve. Our revenue is still significantly down from pre-COVID conditions, and while it is predicted that there are positive signs of the economy emerging from the lockdown, the City continues to face major uncertainty due to changes in public policy, market conditions, and current events affecting the lives of all our citizens. Despite these conditions, there continue to be reasons why we have a bright future in Orange. We remain one of the safest cities in California; we have an outstanding business environment and are home to several major corporations, hospitals, regional shopping centers and a diverse group of small businesses; we have one of the nation’s largest historical districts – Old Towne Orange with its thriving plaza area commercial district; we have excellent and well-maintained residential neighborhoods and parks, and; our residents have tremendous community spirit with a great deal of pride in their hometown. In spite of the pandemic, Orange continues to take a proactive response to address all issues affecting our citizens and business community. The budget for FY 21 has been prepared to be responsive to the needs of the citizens and businesses of the City of Orange while being fiscally responsible given the downturn of the economy and the impacts related to the COVID-19 pandemic. At $115.8 million, the General Fund budget is less than the FY 20 budget in spite of rising PERS retirement and labor costs. Finally, to allow time to complete labor negotiations and fine-tune projections, the City Council is being asked to adopt this FY 21 budget a month after the start of the fiscal year. While this is not the City’s customary practice, the additional time has allowed for more analysis of revenue projections, further refinement of expenditures, and finalizing negotiations with all bargaining groups regarding labor-related costs. GENERAL FUND REVENUE Total General Fund revenues for FY 21 are projected to be $107.5 million, representing a decrease of 10.7% from pre-COVID-19 projections and a 7.1% decrease from FY 20 estimated revenue.  Sales Tax is the largest source of General Fund revenue. In FY 21, the City anticipates sales tax receipts to be $40.6 million, a $2.1 million (4.9%) decrease from the FY 20 estimate, with the biggest decline occurring in the fuel-service station sector. Fuel sales are expected to be $937,000 (10.0%) lower than the FY 20 projections as commuting, travel, and tourism decline, as a result of the health crisis. In spite of COVID-19, it is expected some stores will not see a drop in sales tax, particularly big box retailers such as Target, Walmart and Best Buy. However, general retail stores, such as clothing and specialty retail, will likely have significant drops in sales as these stores struggle to attract shoppers as consumers may have changed their purchasing habits. At the Outlets at Orange, management is reporting strong foot traffic from consumers since they reopened in June. At this point, we are waiting for performance results, although we do expect that retailers there will see sales decline in comparison to the same period last year. It is likely The Outlets will be negatively impacted by the continued closure of The Disney Resort theme parks. At the Stadium Promenade, we will likely see a reduction of sales as fans are barred from sporting venues and the movie theaters are still non-operative. The automotive industry did see an uptick in sales in May and June. The question remains whether this is sustainable since it may be inferred that pent up demand during those months was a result from the stay-at- home order this past March. Finally, one bright spot in sales tax revenue is from online sales. Largely due to COVID-19, consumers have continued to increase their spending through online retailers. As such, we anticipate County allocations for online sales will continue to trend upward at a $405,000 (6%) increase.  Property Tax, the second largest source of General Fund revenue, is estimated to be $44.0 million for FY 21. While assessed valuation has increased, property tax revenue remains consistent with FY 20 primarily due to potential non-payments from residents who have suffered job losses and other economic hardships.  Transient Occupancy Tax (TOT) is expected to be $1.9 million, a 50% reduction from FY 20. Business and leisure travel remain at depressed levels during the pandemic. We expect TOT to recover steadily in the latter part of the fiscal year as hotels slowly resume services when COVID-19 concerns are hopefully largely diminished or removed. Again, this sector is dependent on the reopening of the Disneyland Resort and Anaheim Convention Center.  Fees for Services and Licenses and Permits account for combined $10.2 million, 9.5% of General Fund revenues, and are set by the Master Fee Schedule. With the adoption of the FY 19 budget, City Council approved a significantly updated Master Fee Schedule model. As part of the preparation of the FY 21 budget, staff has updated current charges for services based on revised time estimates and costs for delivering each service. With the proposed fees, we anticipate recovering approximately 71% of costs associated with provided services. The total revenue impact of the recommended fees represents an increase in General Fund revenue of approximately $454,000, which has been included in the total FY 21 revenue of $107.5 million. This increase is primarily due to higher permit and planning and inspection fees for some Building Division charges, based on the actual cost of providing the services. Increases in fees for zoning clearance reviews, fire construction permits, encroachment applications, and encroachment plan checks and inspections, also contribute to the increase in revenue. While many of the proposed fees reflect increases based on actual cost of providing services, several fee decreases reflect reduced time estimates in providing the services. Updated proposed fees for new construction, plan check, and inspection fees are also included in the recommended fees. Further, staff has reviewed the animal control and shelter charges. These fees are administered and collected by Orange County Animal Care (OCAC) to offset the City’s costs. As cities are allowed to set their own fees for animal licenses and services, staff is proposing updates to animal service fees. Most notably, the fee for a dog license will increase from $35 to $36. The proposed fee increase will generate an additional $20,000, bringing revenue from animal control fees to $888,900. As the total cost for the OCAC contract is $2.0 million, the net cost is projected at $1.1 million.  Use of Money and Property is expected to be $1.6 million, $401,000 (20%) below the FY 20 estimate. This projected amount accounts for a potential further decline in interest rates due to economic uncertainty caused by the pandemic. FY 21 General Fund Revenues Sales Tax $40,619,959 37.79%Other Taxes $678,900 0.63% Property Taxes $43,958,186 40.89% Licences and Permits $4,694,693 4.37% Fines & Forfeitures $1,939,510 1.80% Fees for Services $5,526,243 5.14% Franchises $2,290,532 2.13% Charges to Other Funds $2,586,559 2.41% Revenue from Other Agencies $1,103,833 1.03% Use of Money & Property $1,602,630 1.49% Miscellaneous Revenues $590,918 0.55% Transient Occupancy Tax $1,940,010 1.77% While we anticipate the projected revenue amount of $107.5 million for FY 21 will be the base from which we will recover, we remain cautious that any future growth in General Fund revenue will be modest and will occur gradually as the economy recovers with the re-opening of businesses in all sectors of the industry and commerce. What is not included in the FY 21 revenue budget are any funds from the Federal Stimulus packages that have already been approved or are being considered by Congress. While the City has received $1.2 million in CARES Act funds in FY 20 for direct and unbudgeted COVID-19 related expenses, the amount we will receive in FY 21 is unknown and therefore is not included in the FY 21 budget. Further, while the City expects a loss of over $16.0 million in revenues for FY 21 due to COVID-19 impacts, Federal Stimulus packages to date have not included any revenue backfill funds. GENERAL FUND EXPENDITURES AND BUDGET BALANCING STRATEGIES The City is fortunate that its history of conservative spending practices positioned us to weather the sudden economic downturn due to COVID-19. The City has continued to implement budget balancing measures over the past three years and has remained vigilant in controlling spending growth during better financial times. Over the past several months, the City Council addressed budget related issues at three budget sessions. Through their leadership, the resulting budget balancing strategies were developed collaboratively, involving all City departments and bargaining groups. The $115.8 million General Fund expenditure budget reflects the following balancing measures:  Additional Operational Budget Reductions : In FY 19, the City implemented an Operational Budget Reduction (OBR) strategy. In response to rising operating costs outpacing expenditure, departments were asked to reduce General Fund salaries and benefits (S&B) and maintenance and operations (M&O). In addition to the existing OBR strategy, departments will reduce M&O budgets an additional 5% for FY 21. These reductions include further cutbacks in travel and training budgets, and printed publications, the renegotiation of service contracts, and delayed replacement of office equipment and furniture and fixtures. While departments have been able to keep up services levels through creativity and hard work, their operating budgets are being stretched as far as they can. Departments will continue to address operational challenges as a result of these and past budget reductions. The OBR for FY 21 nets a savings of $2.8 million.  Freezing Vacant Positions: The City currently has over 50 vacant full-time or part- time benefitted positions, many of which are being counted as part of previous budget reduction measures. In addition, there are several vacant positions that will need to be filled, given their vital role in the organization. However, nine positions have been identified that will be kept vacant throughout FY 21, generating $750,000 in savings. Further savings are anticipated as attrition occurs during the year and those positions are held vacant. It is important to note that the number of funded Full Time Equivalent (FTE) positions has decreased significantly from 796 FTEs in FY 09 to 724 FTEs in FY 21 as a result of the hiring freeze and elimination of positions during the Great Recession. Therefore, as the City transitions from a “hiring chill” to more of a “hiring freeze” in FY 21, organizational impacts could be significant. Going forward, each position will be carefully evaluated to determine operational impacts balanced against budgetary savings.  Labor Negotiation Savings: As salaries and benefits comprise about 70% of the City’s General Fund Budget, reducing those costs is a critical component to closing the FY 21 budget gap. Starting in early May, we began to meet with our labor group partners to assist with our budget balancing efforts. It is anticipated that renegotiated agreements with these groups will generate a total savings of $1.7 million, which we include as an additional reduction to budgeted expenditures. We are extremely appreciative of the employees of this City for their collaborative approach to our budget situation, which illustrates their commitment to the organization and to the residents and businesses of Orange.  Alternative Funding for Fire Headquarters: Initially, the General Fund expenditure projection for FY 21 included $1.5 million to pay for the first year debt service for the Fire Headquarters-Station No. 1 lease revenue bonds. With a revised first year debt service of $1.1 million, the first year debt service payment can be covered by the Capital Projects Fund, reducing the direct impact on the General Fund.  Use of Reserve Funds: in 1996, the City Council established the Catastrophic Reserve Fund which has primarily been funded by the prudent practice of transferring end-of-year savings into that “rainy day” account. The intent of the Catastrophic Reserve Fund is to provide a vital fiscal resource to the City during times of natural disaster or other calamity that severely impacts the City’s financial stability. It is important to emphasize that in the 24 years of its existence, the City has never had to utilize these funds as a budget balancing measure. However, the effects of the COVID-19 pandemic have reached such a level that the City’s financial stability has been severely impacted. Therefore, we proposed $4.4 million transfer from the Catastrophic Reserve to help alleviate a portion of the deficit. Likewise, the PERS Set-Aside Fund was established to serve as a reserve fund in the event the City needed a source of funds to address rising PERS costs. The proposed $2.1 million transfer from this fund represents the amount PERS costs will increase for FY 21. Finally, based on the strength of the Capital Projects Fund, we propose to transfer $2.0 million from that fund to the General Fund Operating Budget. All total, the FY 21 Budget will utilize $8.5 million of reserve funds as a budget balancing resource. As a result of these balancing measures, the $115.8 million General Fund Expenditure budget for FY 21 remains slightly less than the adopted budget General Fund Expenditures for FY 20. This decrease was achieved in spite of increases in employee retirement (PERS) costs, salary and benefit costs, and contractual obligations. With the use of reserves as a budget balancing source, the General Fund is balanced with revenues exceeding expenditures by $150,531. FY 21 General Fund Expenditures ESTIMATED GENERAL FUND BALANCE FOR FY 21 The FY 21 projected beginning General Fund unreserved fund balance is $5.6 million. Revenues and reserve transfers of $116.0 million and expenditures of $115.8 million result in a surplus of about $150,000, bringing the unreserved fund balance to $1.7 million, after recommended transfers of $4.1 million from the unreserved fund balance to the following funds: $1.0 million to the Equipment Replacement Fund; $500,000 to the Vehicle Maintenance Fund; $1.1 million to the Computer Equipment Replacement Fund; $900,000 to the IT Maintenance Fund; and $600,000 to the Liability Fund. Due to the need for continued budget reductions, we propose the FY 21 budget not include a transfer of General Fund monies to the Catastrophic Reserve, which after the previously mentioned transfer to General Fund, will have a balance of $15.7 million. This results in a FY 21 estimated ending General Fund reserved and unreserved fund balance of $17.4 million. Non-Departmental, 1,060,782 , 0.9% Fire, 30,257,257 26.5% Community Development, 4,688,142 , 4.1% Community Services, 9,101,243 , 8.0% Library Services, 5,135,182 , 4.5% Administration, 5,885,961 , 5.2% Public Works , 8,037,623 , 7.0% Police, 49,875,742 43.7% Estimated Available General Fund Balance Unreserved Fund Balance Available @ 6/30/20 $5,610,683 FY 21 Estimated Revenues $107,492,463 FY 21 Estimated Revised Expenditures (115,841,932) Net Surplus (Deficit) (8,349,469) Transfers In from Reserves 8,500,000 Unreserved Fund Balance Available @ 6/30/21 5,761,214 Transfers Out Transfer to Equipment Replacement Fund (1,000,000) Transfer to Vehicle Replacement Fund (500,000) Transfer to Computer Replacement Fund (1,100,000) Transfer to IT Maintenance Fund (900,000) Transfer to Liability Fund (600,000) Total Transfers Out (4,100,000) Estimate Available Fund Balance @ 6/30/21 1,661,214 General Fund Catastrophic Reserve 15,667,960 Est. Reserved & Unreserved General Fund Balance @ 6/30/21 $17,329,174 FY 21 Reserve and Unreserved Fund Balances Estimated Available Reserves @ 6/30/21 Accrued Liability/PERS set-aside (Fund 760) $ 4,164,852 Business Investment Fund (Fund 115) 23,595 Capital Projects (Fund 500) 4,713,999 All Other Internal Service Funds (various) 10,301,842 Total Est. Available Reserves @ 6/30/21 $19,204,288 Unreserved General Fund Balance $ 1,661,214 General Fund Catastrophic Reserve $15,667,960 Total Est. Available Reserves @ 6/30/21 $36,533,462 REVIEW OF OTHER KEY FUNDS While the General Fund accounts for 44% of overall expenditures, there are several other funds managed by the City. The FY 21 budget reflects a total of $281.2 million in expenditures for all funds. The key areas are summarized below: The Water Enterprise Fund, which includes both operating and capital expenditures, is projected to begin FY 21 with an available fund balance of $7.4 million. Revenue and expenditures are estimated at $36.9 million and $42.7 million, respectively, which includes $5.9 million in water capital projects and an increase of operating expenses due to the anticipated need to purchase water from MWDOC caused by the shutdown of five wells. As a result, the expected ending FY 21 available fund balance is about $1.9 million. With the last water rate increase occurring in January 2022, the City will begin the process of a water rate study in July 2021 to provide the City Council with strategies and solutions for their consideration. The Sanitation Fund, which includes sewer maintenance, tree trimming and environmental compliance services, is projected to begin FY 21 with an available fund balance of $3.9 million. FY 21 revenue projections are $5.9 million and expenditures are $6.0 million, resulting in an estimated ending fund balance of $3.8 million. Specific to the Sewer Capital Projects Fund, the FY 21 revenue estimate is $2.2 million and capital improvement expenditures towards sewer line replacement and maintenance are $2.4 million. The estimated FY 21 ending fund balance is $1.7 million. The Gas Tax Fund is projected to begin FY 21 with an available fund balance of about $450,000. FY 21 revenue estimates are $3.4 million with expenditures of about $3.8 million, resulting in an ending fund balance of about $20,000. Specifically, The Road Maintenance and Rehabilitation Account (RMRA) will begin FY 21 with a fund balance of about $335,000. In FY 21, the City will receive about $2.5 million from the State, which will be fully allocated towards Pavement Management Program expenses. CITY HIGHLIGHTS FOR FY 21 Despite the economic challenges we are facing, there is much room for optimism. As we enter FY 21, the City has many opportunities to make positive enhancements and changes in the community and in the organization:  COVID-19 Response Requires Reinvention and Innovation: A true test of an organization is how it responds in a time of crisis. Therefore, I am extremely proud of our City organization in how we have responded to the many challenges the pandemic has presented. To continue to deliver the high level of services the community expects, we have continuously had to reinvent our service delivery model. This includes new services such as electronic building plan-check services, curbside library materials pickup, virtual recreation and community programing, electronic employee- related documents processing, a reservation system for public counter visits, and remote internal and external meetings. These are services that will continue beyond the pandemic and will improve our efficiency as well as enhance our reach within the community.  Supporting Local Business: Maintaining our tax base is critical to the City’s ability to provide the highest level of services and programs to our residents and businesses. In these unprecedented times, the City continues to be innovative in its approach to assist Orange businesses. As a response to the evolving public policy from the Governor’s office regarding COVID-19, we established the “Orange Plaza Paseo” in Old Towne, transforming the 100 blocks of north and south Glassell Street, as well as parking areas along Chapman Avenue, into a series of public spaces, creating an inviting and safe environment to dine and shop. The public’s response to the Orange Plaza Paseo has been tremendous, and the restaurants and retailers are reporting strong sales. Additionally, the Small Business Assistance Program was established, aiming to provide relief to small businesses affected by the COVID-19 crisis. Through CARES Act funding provided by the County, $3.4 million in grants will be distributed to assist small businesses with payroll, capital, and operating expenses.  Continued Focus on Economic Development: Attracting and retaining businesses in Orange has always been a critical focus for the City. Recognizing the strength of our local economy is an essential driver to the success of the City, our staff continues to look at traditional and innovative ways to provide business development services. A vital component of our business development program is ensuring for a streamlined and efficient land use entitlement process. Some of the key businesses that are currently in the entitlement process and plan to invest in Orange include Prologis, who is building a 200,000 sq. ft. industrial logistics warehouse; St. Joseph’s Hospital, who is building a 116,000 sq. ft. medical office building, and Kherut, who is developing an industrial kitchen and commissary. Already home to two In & Out Restaurants, the iconic burger establishment is planning a third location in Orange. In addition, Chick- fil-A will soon begin construction on their restaurant on South Main Street. Finally, in Old Towne, several high quality restaurants are coming to the Plaza area, including Philz Coffee, BossCat, Brewery 1886, Stubrik’s, Butaton Ramen, and O Sea. No doubt, this new wave of restaurants were attracted to the Plaza area following the completion of the Old Towne West Metrolink Parking Structure, which provides over 600 free parking spaces to our downtown patrons and Metrolink commuters.  City to Conduct its First District-Based Elections: In November, the City will be transitioning from a five person City Council – four directly elected at-large Council members and a directly elected at-large Mayor, to a seven person City Council, including one directly elected at-large Mayor. The City’s six new voting districts will each elect one Council member. Obviously, there will be changes in how City Council business is conducted going forward. To that end, the City Council Chambers are being upgraded to accommodate two additional Council members at the dais. As part of this project, we are including a few technology enhancements to improve the voting system as well as the name designations.  New Fire Headquarters to Begin Construction: After nearly two decades of planning, the City will soon break ground on a new Fire Headquarters facility on East Chapman at Water Street. The $34.4 million project will replace the 50-year old Fire Station No. 1 and Headquarters building, and provide for improved administrative and training space, and increased room for fire apparatus. To fund the project, the City issued bonds in early July, the first time in 30 years we have assumed debt to complete a capital improvement project. Due to the City’s strong fiscal standing, we were given a “AA-“ rating which allowed for us to issue bonds at a very favorable true interest cost of 2.95%.  Body Cameras for the Police Officers Going Live in August: In March 2020, the City Council approved a contract with Axon for the purchase and installation of body- worn and in-car cameras for the Orange Police Department. This project coincides with the need to replace the current in-car camera system as it has reached end-of- life. Implementation will begin in August and will transition through the fall. Once complete, every police officer, while assigned to patrol, will be equipped with a body- worn camera, thus increasing the transparency and accountability of the Police Department.  New Website and Customer Reporting Tool Coming Soon: While the City’s current website platform is only four years old, it is essential that this vital communication and services tool stays relevant, useful, and fresh. As website technology has significantly evolved over the past four years, we are planning to complete a major renovation of the City’s website during FY 21. In addition, this fall we will be implementing a new mobile-enabled customer reporting tool which will allow the public to submit service requests and report issues on their mobile devices. This easy to use application will streamline the customer service request process, both for the public as well as for staff.  Innovation and Technology Improvements: In response to public sector processes and services becoming more reliant on technology, and after 35 years of outsourcing, the City established the Information Technology (IT) Department to bring key functions in-house. In April 2019, as part of this transition, eight new full-time equivalent positions were created to provide for higher level technical support, business development services, and overall management of the City’s IT infrastructure. The transition to primarily in-house services has exceeded expectations as it has been more nimble, responsive, and efficient. As the transition is complete, during FY 21 we will be focusing on enhancing the City’s IT environment, including a new agenda management application, facility access security system, and water management system. In addition, we will be enhancing our network security infrastructure in response to concerns for cyber security, particularly in the public sector.  City Continues to Make Significant Investments in its Capital Improvement Plan (CIP): Over the past several years, despite challenging economic conditions, we have seen a high level of capital improvement activity in Orange. Looking forward, the CIP identifies 159 projects proposed for the five-year period. For the upcoming fiscal year, there are 23 new budgeted projects and continued investment in 136 projects that are either a continuation of previously approved plans, or anticipated to start during the out-years. With these proposed projects, the City Council will be investing $70.0 million in the upcoming fiscal year and $144.8 million over the five-year planning horizon. This is a major investment in the City’s infrastructure, and represents a significant commitment to our community’s future. Funding for the CIP comes from different sources including Gas Taxes, Measure “M”, Developer Impact Fees, State and Federal Grants, former Redevelopment Bond Proceeds, and Community Development Block Grants. The following are highlights of the FY 21 Capital Improvement Plan: o Construction of Fire Station Headquarters. o Rehabilitation of the Police Headquarters Roof and Atrium. o Installation of shade sails over existing tot lot equipment at El Camino Park. o Installation of LED lighting at El Camino Park tennis courts. o Renovations to update El Modena Park. o Renovations to the Handy Park Community Room and parking lot. o Rehabilitation of the Children’s Courtyard at the Orange Public Library & History Center. o Maintenance and rehabilitation of City streets through $12.1 million in SB 1, gas tax and CDBG funds. o Commitment of $5.6 million towards 17 projects intended to maintain or improve the City’s water production and distribution, including $1.1 million for pipeline replacement. o Commitment of $750,000 toward various City infrastructure, facility, and parking lot improvements.  City is a Leader in the Response to Homelessness and Affordable Housing: The City continues to be a leader in the county-wide response to the homelessness. Through the Orange Police Department’s efforts with the HEART Team, as well as the Bike Team, the City provides daily outreach and public safety services to the homeless community. In addition, the City has been a partner with Mary’s Kitchen for over 35 years in support of their mission to provide meals and essential supplies to those in need. The City has also been an active leader in the efforts of the North Orange County Service Planning Area (NSPA). Specifically, the City has been a significant funding partner for two homelessness navigation centers located within the north county area. The City has committed a majority of its SB 2 (Building Homes and Jobs Act) funds for shelter development as well as on-going operations. Once completely built out, the two navigation centers will provide 250 beds to the homeless community in the 13 north county cities. Finally, the City is working with Orange Housing Development Corporation, a local non-profit affordable housing developer to develop a 62-unit permanent supportive housing project on surplus property adjacent to the City’s Corporation Yard. This transitional housing project will be an essential resource to those individuals that are transitioning from homelessness or housing insecurity to permanent housing. We continue to encourage the development of additional affordable and permanent supportive housing units in Orange. Finally, in partnership with the City, Orange Senior Housing, Inc. will be building the Katella Terrace Apartments, a 74-unit deed-restricted, affordable senior housing project near the intersection of Katella Avenue and Tustin Street. We continue to encourage the development of additional affordable and permanent supportive housing units in Orange.  New Housing Construction Continues: The Southern California housing market continues to demand additional housing units. As such, the demand for residential real estate in the City of Orange has remained steady and the City’s larger housing development projects have continued in spite of the pandemic. Of note, construction should be complete by the end of 2020 on the 250-unit Toll Brothers apartment project in the Town & Country area and the 100-unit Branch West apartment project on West Katella. Through FY 21, construction will continue on the 700-unit Fairfield apartment and townhome project in the Town & Country area. Construction is expected to begin on two apartment projects approved near The Outlets. Finally, there are several housing projects, both for sale and rental, currently going through the entitlement process. LOOKING FORWARD With the economy slowly recovering from the months long shut-down due to the COVID- 19 pandemic, and the possibility of more restrictive guidelines due to a rise in the number of cases, the current financial times remain unclear. The economy continues to improve incrementally, but it seems like it’s two steps forward, then one step back. As a result, the City still faces some significant financial challenges. In addition to addressing the FY 21 budget deficit, the City is also facing a structural General Fund deficit for the next several fiscal years due to both lower revenues as a result of COVID-19, as well as higher PERS rates. Although we base many of our budget assumptions on expert economic forecasts, detailed trend analysis, and complex financial calculations, certain conditions cannot always be predicted or forecasted. Certainly, COVID-19 has proven that. The City Council’s prudent policies continue to set the stage for staff to meet the budgetary challenges and demands of FY 21. While it is important to continue on the path of caution to ensure long-term fiscal health, the City Council works hard to be able to allocate the necessary resources to allow the City to provide the citizens and businesses of the City with the excellent services they have come to expect. Following the adoption of the FY 21 Budget, staff will continue monitoring the incoming revenues and reviewing regional economic data that so that we can stay focused on the status of our current fiscal condition as well as plan for an equally challenging FY 22 budget. We are hopeful the gradual reopening of the economy will result in a slow rebound in economic activity. However, many conditions are still unknown and dependent on a variety of factors such as public policy, marketing conditions, and the current events affecting the lives of our residents. THANKS AND APPRECIATION Undoubtedly, the preparation of this budget would not be possible without the dedication and commitment of the City’s Department Heads and their key staff members. To each of them, I extend my thanks and appreciation for their hard work, dedication, and “can do” approach as we develop this budget, particularly in light of additional Operational Budget reductions. The extra effort required to prepare the departmental budgets coincides with the exceptional demands of the City’s day-to-day operations. Furthermore, I would like to thank all City of Orange employees. Their willingness to work with the City Council and City management to renegotiate existing contracts is greatly appreciated. Given the fiscal challenges we faced in preparing this Budget, the high level of teamwork and cooperation was evident. I would also like to express my appreciation to the members of the City Council for your confidence in the City’s management team as well as your policy direction in this budget process. This document reflects the directions and suggestions you offered, as well as the sincere compassion you have for this community. Sincerely, Rick Otto City Manager