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Budget Advisory 1996/01/17V G D MEMORANDUNN V 1Z 18 F '9G CITY OF ANAHEIM FINANCE DEPARTMENTM C E OF CITY C' E K K CITY Or ANAHEIM DATE: FEBRUARY 22, 1996 TO: CITY CLERK ' FROM: CHARYL MC(ULL/Y SUBJECT: BUDGET ADVISORY COMMISSION MINUTES The attached Budget Advisory Commission Minutes from the January 17, 1996 meeting are being submitted to you for filing. e � • BUDGET ADVISORY COMMISSION MINUTES I"i G E I E D JANUARY 17, 1996 - 3:30 P.M. SIXTH FLOOR CONFERENCE ROOM FEB 29 1105 Ali '96 OFFICE OF CITY CLERK MEMBERS I'MSEN19PHE Gene Brewer, Jeff Farano, Phil Knypstra, Dan Van Dorpe, Jimmie Kennedy, Shirley McCracken MEMBERS ABSENT: Kathryn Freshley STAFF PRESENT: David Morgan, Bill Sweeney, Jeff Stone, Charyl McCully GUESTS PRESENT: John O'Malley, Orange County Employees Association; Art Fletcher, Rey Ortiz, William Walters, Earl Schweitzer, Parks, Recreation & Community Services Department The meeting was called to order by Chairman Brewer at 3:35 p.m.. APPROVAL OF THE BUDGET ADVISORY COMMISSION MINUTES: Ms. Mc Cracken moved that the Minutes of the November 15, 1995, be approved. There was a second by Mr. Knypstra. MOTION CARRIED (6-0-0). EVALUATION OF SUBCOMMITTEE RECOMMENDATION REGARDING THE ANAHEIM PUBLIC LIBRARY: Mr. Sweeney reported that the Subcommittee met to discuss the future of the Anaheim Library. Mr. Morgan explained alternative courses of action being considered. One consideration involves a Joint Powers Authority to oversee the combined library service for the cities of Anaheim, Fullerton, Orange, Yorba Linda, Villa Park, and Placentia, to form a North Orange County Library District. The feasibility of this plan is still in question. Completion of the study was stalled, in part, by the illness and subsequent death of the City Manager from Orange. Once the City of Orange situation stabilizes, the numbers will be analyzed to determine actual financial impact. Savings could possibly reach three to four hundred thousand dollars or 10%. The savings will be in the elimination of the Director, Executive Secretary, and management staff positions, not service staff. The City has reduced its number of department heads from sixteen to ten in recent years. This includes the recent reassignment of Bill Griffith, Library Director, to the City Manager's office to handle special projects. The possibility of combining the Library with the Parks, Recreation, & Community Services Department is also being evaluated. An internal reorganization of this type would minimize the advantages of the proposed Joint Powers Authority. The County is also revisiting their library system for the possibility of forming their own joint powers authority. Budget Advisory Commission, January 17, 1996 Page 2 CONTINUATION OF SUBCOMMITTEE RECOMMENDATION REGARDING THE DATA PROCESSING: An RFI (Request For Information) was advertised for the purpose of determining the availability of services that would result in significant savings to the City. Responses are due on February 15, 1996. If such services appear to exist, an RFP (Request For Proposal, or sealed bid document request) will be initiated, depending upon the type of service(s) sought. In response to Mr. Knypstra, Mr. Sweeney indicated that some small California cities have outsourced data processing functions, while some larger cities have outsourced specific functions. Special components of Information Services could lend themselves to outsourcing. CITY COUNCIL BUDGET WORKSHOP: Mr. Sweeney presented the report entitled "Plotting the City's Fiscal Future", which was presented to the City Council in November, 1995. This report examined the City's General Fund- past, present, and future. The primary objectives that drive fiscal planning in the City are: to build the economy; enhance neighborhoods; ensure safety; maintain the infrastructure; maximize assets. The financial position of the General Fund is most problematic, and directly impacts traditional services, especially in our dynamic environment. The City has traditionally had innovative leaders with the foresight to identify future problems, and implement solutions. As a premier tourist and convention destination, the City has a strong and diversified income stream, a successful economic development record, and the ability to provide quality services. Accomplishments include: Anaheim Plaza; Resort Area Plan; Sports Center study; Convention Center business plan; developments in telecommunications; the downtown community center; Coal Canyon annexation; Disney GOALS and Ice Rink; police enhancement; North Net fire dispatch; a new Bookmobile; the Anaheim Magazine; reduced health care costs. Additionally, Library hours were restored; youth services expanded; and additional police were hired. Steps taken to maintain fiscal balance include: a $34 million reduction in spending; and the elimination of 241 non -safety, 45 management, and 6 department head positions, for a work force reduction of 16.4%. The economy and tight financial controls are working in the City's favor. The 1995-96 deficit was solved through strategic expenditure reductions, as well as the deferral of reserve funding, and use of one-time monies. In light of these actions, revenues are currently tracking above budget, while expenditures are below budget. Management expects a break-even position without reliance on budgeted one-time money, and predicts a surplus of $83,732, at the end of FY 1995/96. In response to Mr. Knypstra, Mr. Morgan indicated that Sportstown is scheduled to be built without public money. There has been much media attention lately to the negatives of building sports/entertainment facilities with public money. Movie theaters planned for an Orange site will be competition for Sportstown. The Convention Center expansion is planned, and revenue is currently being sought. Mr. Morgan explained that a 15-20 year plan by the architect is being developed for various stages of the Convention Center expansion. This plan will be presented to the City Council in the near future. Hotels have been given an opportunity to partner with the City in this process. i Advisory Commission, January 17, 1996 Page 3 This year's budget will be an update of the two-year budget. There will be a new two-year budget next year. Mr. Sweeney stated that there is a need to keep an eye on our tax structure. We are heavily dependent upon sales tax and the Transient Occupancy Tax. Sales and Use taxes are projected higher than originally expected. TOT will be much higher than originally projected, accounting for the majority of new money. Property Tax revenues were budgeted at $16,252,000, and projected at $15,750,000 for 1995/96. County property devaluations and low turnover account for this. The bankruptcy has complicated the property tax situation also. The 1994/95 decrease was due to the absence of any increase, and the County's holding of a portion of teh City's property tax money. In response to Mr. Farano, Mr. Sweeney explained that next year's property tax figures will be reduced, with no increase factored in. In terms of the overall budget, this drop will not be overly significant. It is very difficult to estimate property taxes. Monies are received after the County collects it, with the bulk received in December and April. Anaheim gets about 10.8% of each dollar collected. Estimates are received from the County in July, making projections difficult. In response to Mr. Knypstra's question regarding the tax increment taken by redevelopment, Mr. Morgan explained that in some redevelopment agencies, there are no increments. Project Alpha has been a source of money for projects for many years. Mr. Sweeney indicated he would get back to the Commission with some rough numbers. Sales tax works more in our favor, and has been on the increase since 1994/95, with encouraging signs for next year. We get 1% of all taxable sales generated within the City, and a portion of the County and State pools. These percentages vary. TOT gains surprised everyone. Even with the increase from 13% to 15%, the figures are higher than anticipated. Mr. Morgan indicated that a higher occupancy rate, rather than higher room rates, is primarily responsible. If hotels now boost room rates, the City will benefit further. Mr. Sweeney plans to flatline projections for 1996/97, to avoid over -projecting. Room sales, which trigger tax, and are used to project figures, are still tracking well. At the request of Mr. Van Dorpe, more information on interfund transfers will be forthcoming. Projections for the coming 18 months include: an increase in sales taxes; TOT holding steady at the 1995/96 level; labor costs increasing only by the Anaheim Police Association Memorandum of Understanding; other costs held flat. These steps are projected to result in a slight deficit (approximately $739,866). Assumptions for the period of FY 1997/98 -FY 2000/01, indicate an annual growth in property and transient occupancy taxes of 2%; a sales tax increase of 4%; continuation of asset forfeiture contributions; elimination of one-time revenues; absence of new revenues; retention of existing taxes and fees; the beginning of the $1.5 million Arena transfer (for 5 years, beginning in FY 1997/98). Expenditures for the same period assume: full funding of the current retired medical program, and other required reserves; flat -lined labor and other operating costs; scheduled debt service. Mr. Morgan indicated that Public Works managers around the County are attempting to come up with standard recommendations for telecommunications technology improvements. Right-of-way fees may become an issue in this matter. With regard to questions concerning the electric utility, Mr. Morgan explained that a Joint Powers concept is being discussed with some area cities that have their own utility. However, the City Manager of Riverside indicated disinterest. Price Waterhouse studies demonstrate a need to discuss the future direction of private utilities; utilities commissions are indicating their intention to protect stranded costs. Anaheim's distribution system will always have value, and the City wants to find a way to maximize that asset. Budget Advisory Commission, January 17, 1996 Page 4 The projected balance for June 30, 1996, after one-time reserves transactions from the General Fund for 1995/96, is $5.1 million, with a substantial drop during the period of 1997-1999. A rapid rise to a $13.8 reserve (7-10% of the General Fund) is predicted by 2001. Critical assumptions driving these projections include: a healthy economy for the next six years; the retention of existing taxes and fees, with no new taxes; no labor increases unless they are offset by savings; operating expenses held flat. Revenue strategy includes: reliance on the economy to increase revenues; reinvestment in the tourism/convention business; economic development projects that increase General Fund revenues; the adjustment of fees and charges to keep pace with inflation. Operations and expense strategies include: cost neutrality for labor settlements; non -personnel cost stability; reduction of the full-time employee base; alternative delivery approaches where feasible; additional restructuring; joint agreements to maintain services at a lower cost. In response to Mr. Knypstra's comment that significant strides have obviously been made to bring the budget into balance, Mr. Morgan indicated that this year appears to be the best in the last five years. Mr. Sweeney agreed, but stressed the need for continued vigilance. PUBLIC COMMENTS: Mr. O'Malley presented a letter to the Commission requesting written notice of all future subcommittee meetings. He went on to explain that City tree employees, at Mr. Kudron's suggestion, submitted a written proposal for the tree trimming operation, which was not included in the Department's presentation at the Subcommittee meeting on January 10, 1996. Mr. O'Malley stated that he was given a letter at the end of the meeting that indicated that AMEA's was not a valid cost-cutting proposal. Mr. O'Malley felt that AMEA's proposal should have been submitted to the Subcommittee. In a letter to Mr. Kudron, Mr. O'Malley stated that he feels that decisions are being made that could adversely affect City employees. He also questioned the legality of contracting out this service. A grievance on behalf of the employees that could be affected by privatization is in process. Mr. Morgan stated that some disagreement existed regarding AM EA's proposal. Mr. O'Malley said that although their proposal is rough, it is not without merit. He feels that all proposals were higher than current City expense for this operation and that the City could save $50,000 by discontinuing the contract with Central City Palm Tree Trimming, and allow City workers to do the work. AMEA plans to send a letter to the City Council/City Manager regarding this matter. Mr. Morgan indicated that the topic was not on the Agenda for this meeting, but would be discussed at a Subcommittee meeting in February. The AMEA will be alerted to the meeting date. Mr. Sweeney agreed to furnish AMEA with copies of all proposals, and to keep the AMEA involved in the process. AGENDA ITEMS FOR FEBRUARY MEETING: Subcommittees recommendations and reports on street trees, data processing, and economic development. Economic Development Subcommittee meeting is schedule for February 4, 1996 at 4 p.m. i 0 Budget Advisory Commission, January 17, 1996 Page 5 ITEMS BY COMMISSION MEMBERS: Mr. Farano asked for an explanation of the idea that Privatization is important if significant decreases are realized. Mr. Morgan indicated that every project is different. No way to put in absolute standards on privatization; there are innumerable factors to be considered. OTHER BUSINESS The Tree Trimming Proposal was distributed. In response to Chairman Brewer, Mr. Sweeney indicated that bids were received and analyzed. A Subcommittee meeting is scheduled for early February to discuss the bids and prepare a recommendation. ADJOURNMENT The meeting was adjourned at 5:45 p.m., by Chairman Brewer. Res ectfully submitted, C Ii(Cull Secretary to the Commission WP/13AC/MINJAN96/CPM