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Budget Advisory 1996/02/210 0 MEMORANDUM CITY OF ANAHEIM FINANCE DEPARTMENT DATE: MARCH 21, 1996 TO: CITY CLERK FROM: CHARYL MCC L SUBJECT: BUDGET ADVISORY COMMISSION MINUTES The attached Budget Advisory Commission Minutes from the February 21, 1996 meeting are being submitted to you for filing. �2 0 0 BUDGET ADVISORY COMMISSION MINUTES FEBRUARY 21, 1996 - 3:30 P.M. SIXTH FLOOR CONFERENCE ROOM MEMBERS PRESENT: Gene Brewer, Jeff Farano, Phil Knypstra, Dan Van Dorpe, Shirley McCracken MEMBERS ABSENT: Jimmie Kennedy STAFF PRESENT: David Morgan, Bill Sweeney, Edward Aghjayan, Elisa Stipkovich, Chris Jarvi, Michael Bell, Jack Kudron, Richard Bruckner, Steve Albright, Gay Forbes, Ron Morrow, Jeff Stone, Charyl McCully GUESTS PRESENT: John O'Malley, Orange County Employees Association; Art Fletcher, William Walters, Earl Schweitzer, Deborah DeMeo, Parks, Recreation & Community Services Department The meeting was called to order by Chairman Brewer at 3:44 p.m.. APPROVAL OF THE BUDGET ADVISORY COMMISSION MINUTES: Ms. Mc Cracken moved that the Minutes of the January 17, 1996, be approved. There was a second by Mr. Knypstra. MOTION CARRIED (5-0-0). CONTINUATION OF SUBCOMMITTEE RECOMMENDATION REGARDING THE DATA PROCESSING (Taken Out Of Order): Mr. Sweeney reported that the due date for the RFI (Request For Information) was extended to February 23, 1996, due to written questions received from potential respondents. Once received, they will be analyzed with results reported to the Commission at its next meeting. SUBCOMMITTEE REPORT REGARDING ECONOMIC DEVELOPMENT (Taken Out Of Order): Chairman Brewer reported that the Subcommittee on Economic Development met with City staff on February 5, 1996. Chairman Brewer commented on an article in the Orange County Business Journal which cited a trend of business opportunities moving to the east coast. He also mentioned an article on the changes underway in the distribution of power in the County. According to Mr. Aghjayan, the Public Utilities Commission (PUC) is allowing for the recovery of stranded costs until the year 2004. Stranded cost recovery balances the savings involved in finding cheaper sources for the utility. There have been no commercial/industrial rate increases in four years. Anaheim lowered its industrial rates by 2% ($4 million annually), beginning March 1, 1996, resulting in substantial savings for customers, which will be offset by the stranded cost recovery. In response to Mr. Knypstra, Mr. Aghjayan stated that Anaheim is not required to allow direct access, but may do so with reservations some time in the future. M.- 'Budget Advisory Commission, February 21, 1996 Page 2 Mr. Knypstra indicated that relocation of businesses from one city to another has no positive net effect on Orange County, and presents a fairness and equity issue. Ms. Stipkovich stated that economic development is tied to new jobs, and stressed the need for the State to become competitive with other States to attract business. Mr. Aghjayan indicated that special treatment is not given to companies with no intent to expand; and those who get special consideration are adding jobs to the economy. He explained that there are a host of programs to help all businesses with their energy efficiency. Ms. Stipkovich stressed the need to keep the customer base at a certain level. She also said that thousands of jobs have been lost, especially in the higher paid sector such as the defense industry. Replacing that level of employment is a goal, in order to balance the community. Mr. Aghjayan explained that, when customers leave, fixed costs must be borne by other customers, thereby driving rates up. Lost jobs must be replaced to keep this from happening. Anaheim's Powerful Partnership is a team whose mission it is to attract new business. In response to an article in the Orange County Business Journal, in which Anaheim was reported to have the highest fees in Orange County, Mr. Bruckner indicated that the article may have reported fees from a variety of different geographical areas and lumped them together. Ms. Stipkovich indicated that a program was initiated in the 2400 -acre Canyon Business Redevelopment area, to offset fees. Economic Development invested a great deal in infrastructure and traffic improvements in that area. Redevelopment agencies provide many of the improvements, thus allowing for reduction or elimination of some fees. There is a plan to make this practice more formalized in that industrialized area. Chairman Brewer indicated that, during the Subcommittee meeting, the issue of fiber optics was discussed. He asked the benefit of fiber optics to the business community. Mr. Aghjayan reported that a private company was hired to survey commercial/industrial customers. A high level of interest in telecommunications advancement was expressed by 70 to 75% of the respondents. A pilot system is planned for operation by late Summer, with the capacity to serve about 250 commercial/industrial users, primarily in the Canyon industrial area. The system loops the city, touching every major industrial and commercial recreation area, the Anaheim Stadium/Arrowhead Pond area, and going as far east as Fairmont. Five thousand accounts will be accommodated in the initial phase, with a five-year system buildout planned. First and second phases of funding will probably be private. The system, even if privately owned/funded, will be in partnership with the City. Preliminary budgets are available at this time with estimates of revenues. A consulting firm will be hired at Spectranet's expense to do a final due diligence business case analysis. According to Mr. Aghjayan, telecommunications use will increase our competitiveness in the utilities business, and lower utilities bills for customers. Schools are fascinated with the prospect of this technology, and funding sources are under discussion. Equal access to everyone is an important part of the fiber optics movement. Services should be 20-30% below market price, according to Mr. Aghjayan. There are no models to follow, and new ground is being broken which could provide an additional revenue source, with royalties based on marketing the finished product to other cities. We currently have a fifty -mile loop of 96 fibers, 60 of which are committed to this system in Phase I, at a cost of $6 million. This replaced the previous copper system. ($600,00 was spent on the additional fibers, above those necessary to replace the system, as necessitated for system control and protection). This was necessary Nortel and Spectranet are committing $60 million, including the $6 million reimbursement to the City, and will take care of all PUC requirements. In response to Mr. Farano, regarding the target markets for future expansion, Ms. Stipkovich indicated that marketing strategies are now being evaluated. The target market are those companies with a need for the level of technology Anaheim can provide, and those for whom, telecommunications cost is a large part of their budget. High off-peak utility use, Property Tax, types of buildings, structures, and unsecured equipment are also taken into consideration. . • Budget Advisory Commission, February 21, 1996 0 Page 3 In response to a request from the Subcommittee, Ms. Stipkovich distributed a map which identifies redevelopment projects in Anaheim, and an updated status report on Anaheim Plaza. Anaheim Plaza has done extremely well, and has exceeded all sales tax projections. Expectations for 1996, are over $100 million in taxable sales. There are a number of projects under construction at this time, and a number of additional projects planned. In response to Chairman Brewer, Ms. Stipkovich explained that the River Valley Project, which includes Savi Ranch, is the intersection of Weir Canyon and LaPalma, where a levy was needed to make the land buildable. The Redevelopment Agency adopted the project in 1985, to build improvements, with an agreement to rebate money as property tax increased. Ms. Stipkovich asked the Commission for their support for the Economic Development program, which is a combination of the Community Development and Utilities Department. General Fund monies help with non -Redevelopment projects, allowing the Department to work City-wide. She went on to say that $6 million was lost to the State over the last three years in local property tax, of which $3 million was from Project Alpha This was due mainly to appeals. While there is no current talk about taking more money from Redevelopment; there are threats of federal cuts, especially in the JTPA program. SUBCOMMITTEE RECOMMENDATION REGARDING THE STREET TREES OPERATION: Mr. Sweeney indicated that the Subcommittee met to discuss the updated Parks, Recreation, and Community Services Department's report concerning the status of the privatization study of the City's Tree Operations. The Subcommittee asked staff to research and respond to two issues. One concerned the level of understanding of the bidders of the scope of the operation, and any possible discounts not considered by respondents due to misunderstanding. Mr. Kudron explained that the RFP included the street and park tree work, as well as utility line clearance. Bidders had the option of stipulating that combination of project items their bids covered. The Purchasing Division was contacted for an opinion of the clarity of the bid document. It was their opinion that there was sufficient detail and instructions, as well as proper formulation of the RFP, to cover the issue. Additionally, there was a pre-bid meeting, with ample time following it to obtain clarification on all parts of the document. Of the six respondents, two bid on only utility line clearance, two bid on the streets and parks segment, and two bid on the entire package. There was no segment advantage, as the low bidder was the same company in each case. The second question involved the possibility of insurance cost savings to the City if the operation were privatized. The City's Risk Manager addressed the issue in a detailed report, indicating that there would be little cost savings ( $8500 or less) with privatization. Mr. Kudron indicated that most of the overhead would remain despite privatizing. A portion of the overhead is for the TreePower program. Mr. Van Dorpe maintained that the overhead costs were not factored into the initial RFP, and that the complete cost of doing the job should be considered when comparing private costs to in-house costs. Mr. Sweeney indicated that certain City-wide fixed costs cannot necessarily be reduced with small-scale privatization. Privatizing the tree operation would result in eliminations of nineteen positions, and could lessen inter - program revenue to Fleet Maintenance by $255,000 annually. Some revenue would be gained from the sale of vehicles and related equipment. Based on the analysis of the numbers and all related issues, staff concluded that advantages to retaining the in-house operation included liability factors, community safety, control, flexibility, and service quality. According to Mr. Jarvi, given the little to be gained, the turmoil that would be created, and control to be lost with privatization, the City is justified in maintaining the current operation. w a `Budget Advisory Commission, February 21, 1996 0 Page 4 Mr. Knypstra distributed an analysis he had prepared, comparing tree operations wages of the Cities of Torrance and Anaheim. Because Torrance does not do utility line clearance, the comparison is irrelevant. Mr. Kudron indicated that productivity is a better measure than salary. Chairman Brewer moved that the Commission discontinue any further evaluation of the tree trimming operation for privatization. There was a second by Mr. Van Dorpe. MOTION CARRIED (5-0-0). PUBLIC COMMENTS: Mr. O'Malley stated his appreciation for the work and recommendations by staff regarding the Street Trees operation. AGENDA ITEMS FOR APRIL MEETING: Staff reports on data processing RFI, and an explanation of the indirect cost allocation plan. ITEMS BY COMMISSION MEMBERS: Chairman Brewer requested staff assistance to encourage the City Council to replace Ms. Freshley who recently resigned from the Commission. OTHER BUSINESS: None ADJOURNMENT The meeting was adjourned at 5:40 p.m., by Chairman Brewer. Respectfully submitted, i f Charyl Mc ully g/ Secretary to the Commission WPBAC/MINFEB96/CPM