City of
Orange
June 27, 2023
Honorable Mayor and Members of the City Council:
I am pleased to submit for your consideration the Fiscal Year 2023-2024 (FY 24) City- wide Budget, all funds, of $235.5 million revenues and $254.7 million in expenditures.
Unrestricted fund balance will be used to offset the difference between revenues and expenditures. The FY 24 Budget incorporates the City's firm commitment to fiscal responsibility, effective use of our resources, public safety and high-quality service delivery to our residents, businesses, and visitors.
With most industries recovered from the Covid-19 pandemic and a forecasted recession, the overall FY 24 General Fund revenue projections remain comparable to FY 23 year- end estimates. It is projected that the FY 24 General Fund revenues will come in at $135.8 million with slight increases in property tax, transit occupancy tax, fees for services, and licenses and permits leading the growth; while sales tax is expected to remain relatively flat given the instable economic environment predicted for FY 24. Inversely, the cost to deliver services continues to increase substantially. At $139.3 million, the General Fund expenditure budget reflects the rising costs from inflation, new Memorandums of Understanding (MOUs) with the Public Safety groups, various budget balancing measures while ensuring the multi-faceted needs of the community are met, with a particular focus on the City Council's commitment to public safety and high-quality services to the community.
Although the economy has rebounded from the unprecedented circumstances related to the pandemic, the stability of the economy remains uncertain with volatility in prices and recession looming on the horizon. High inflation rates affecting the cost of goods and services and the staffing shortages across all industries such as food service, hospitality, retail industries, and municipalities are indicators the City will have to be vigilant and proactive in monitoring our fiscal actions so that we are responsive to the economic reality that is ahead. Staff is ready to return in late winter of 2023 to begin strategic planning with the City Council to address these fiscal challenges and to create a prudent and conservative fiscal policy to weather fluctuations in the economy while still balancing the needs of the Orange community.
Orange remains 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.
The budget for FY 24 has been prepared to be responsive to the needs of the citizens, businesses, visitors, and employees of the City of Orange with a focus on public safety and high-quality services while being fiscally conservative.
GENERAL FUND REVENUE
Total General Fund revenues for FY 24 are projected to be $135.8 million. • Property Tax is the largest source of General Fund revenue and is expected to be $54.1 million, a $2.5 million, or 4.8% increase from FY 23 estimates. There continues to be minimal impact on property tax collections, despite the overall decrease in volume of homes sales in 2022. Annual increases in assessed property values and more property tax increment distributed from the County of Orange for the Successor Agency are projected to contribute higher property tax receipts. In addition, property tax in lieu of motor vehicle license fees are expected to be above budget as this revenue is tied to property tax growth.
• Sales Tax is the second largest source of General Fund revenue and is expected to be at $50.4 million in net sales tax, a $400,000 increase, or 0.8% increase from FY 23 estimates. With an indeterminate economic position moving into FY 24, we anticipate little to no growth across all industries in FY 24. Industries that had seen strong performances in past years following the pandemic are projected to slow or remain flat. While fuel is projected to perform well, prices are falling from unprecedented highs in previous quarters and are projected to decrease or remain flat at best. Additionally, County pools are projected to sightly decrease due to corporate changes made by Amazon, shifting significant number of sales from the County pools to the cities where their distribution centers are located within the State. • Transient Occupancy Tax (TOT) is projected to be $5.4 million, an increase of about $50,300 (0.9%) above the FY 23 estimate. Both business and leisure travel are expected to remain consistent in FY 24, with steady tourism expected to continue at nearby destinations. Short term rentals (STRs) also contribute approximately $500,000 to the TOT projection, accounting for 125 licensed properties. • Fees for Services and Licenses and Permits account for a combined $12.4 million, $225,000, or 1.8% above the FY 23 estimate. These revenue projections are set by the Master Fee Schedule. As part of the preparation of the FY 24 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 51% of costs associated with providing services. Increased fees include accessory dwelling unit applications, business license applications and renewals, fire construction permits, encroachment applications and permits, and increases to new construction and building permits. Additionally, some fees have decreased slightly due to minor decreases in cost, as applicable. New proposed fees include Sidewalk Vending Permits and flat-rate Technology Fees for Mechanical, Electrical, Plumbing, and Fire construction permits.
• Fines and Forfeitures are projected to be $1.9 million, an increase of about $41,000 (2%) from FY 23 estimates. Previous years' fines were down significantly as the parking enforcement division struggled to fill positions due the challenging job market. ii
We are hopeful that with further recruitment efforts, this division will be back in full force, which will lead to increased revenues in this category.
FY 24 General Fund Revenues
Property Tax, Sales Tax, $50,438,051
$54,124,851, 40% , 37%
Inter-fund Revenue,
$3,635,631, 3% Transient Occupancy
Tax, $5,350,300, 4%
Miscellenous Revenues,
$1,016,840, 1% _ Other Taxes, $900,000
Licenses & Permits,
$7,040,474, 5% Franchises,, 1%
Fees for Services, $2,852,060, 2%
Use of Money &
$5,398,205, 4% Property, $1,463,069,
Revenue from 1%
other Fines & Forfeitures,
Agencies, $1,899,000, 1%
$1,700,000,
While we anticipate the projected revenue amount of $135.8 million for FY 24, we continue to remain cautious that any future growth in General Fund revenue will be modest, especially considering the indeterminate state of the economy as we move forward into FY 24.
FY24 General Fund Expenditures
For FY 24, the total expenditure budget is $139.3 million. The following are the most significant impacts to the General Fund expenditures for FY 24:
• Clean Orange Initiative: With an increased focus on the Council-driven Clean Orange Initiative, $330,000 has been included in the FY 24 budget to cover the cost of additional staff to address graffiti and debris abatement; increased operating expenses which includes debris and brush clearing in the Santiago Creek, and citywide tree well maintenance.
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• Code Enforcement: As the City continues to enhance its Code Enforcement functions, additional funding has been included in the FY 24 budget to cover operating expense increases as well as personnel costs totaling $215,000. These costs includes materials and supplies as well as additional support personnel and position upgrades to accommodate the heightened level of service. The Code Enforcement program is partially off-set by revenue collected through the STR program.
• Contractual Obligations: City departments continue to manage contract agreements as efficiently and cost effectively as possible; however, as in previous years, contractual obligations are experiencing cost increases and are further affected by inflationary impacts. In FY 24, an additional $1.2 million is expected to impact City maintained contract agreements for Orange County Animal Control, North Net Training, Metro Cities Fire Authority, forensic services, landscape and custodial services, radio maintenance, and audio visual services for special event programming
• Department Operating Budgets: City departments continue to work within their budget targets to provide continued quality programs and services; however, costs and demands for services continue to rise each successive year, making it more difficult for departments to cover these extra expenses within their operating budgets. As such, department requests for increased maintenance and operating totals $220,000, which includes property tax expenses, increased ammunition costs, materials and supplies for emergency management, and required training for field staff
• Labor Negotiations: The City has recently completed negotiations with four public safety bargaining groups, resulting in new three-year agreements effective July 1, 2023. As a result, the FY 24 budget reflects the applicable negotiated pay and benefit increases. Additionally, merit increases, and anticipated negotiation increases for the remaining labor groups have been included in the salary estimates as well.
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FY 24 General Fund Expenditures
Police, $59,237,675,
Fire, $36,704,967, 26% 41%
Non-Departmental, Community
$2,267,540, 2% Development,
$6,009,288, 4%
Community Services,
$11,545,883, 8%
Public Works, Administration, Library, $6,297,602,
$10,465,450, 7% 4%
$10,843,166, 8%
The City is fortunate to have the history of conservative and prudent spending practices.
Over the years, the City has maintained a balanced budget by early implementation of many budget reduction measures, including departmental operating budget reductions, deferred maintenance, underfunding internal service fund allocations, implementing operational efficiencies, and freezing vacant positions. The City has continued to implement some of these budget-balancing measures in FY 24 and has remained vigilant in controlling spending growth during these financial challenging times.
ESTIMATED GENERAL FUND BALANCE FOR FY24
To adopt a balanced budget, we have incorporated the following key budget-balancing measures in the FY 24 budget:
• "Chilling" Vacant Positions - While every position is much needed, some positions may be held vacant as a budget savings measure. After careful review, staff have identified the equivalent of six positions which can be held vacant. The positions, programmed in the City Clerk's and Police Departments, can be held vacant as a cost savings measure without affecting overall operations. Estimated savings total approximately $828,000.
• Use of Anticipated Vacancy Savings: In the past several years, salaries and benefits costs have been a source of year end savings of approximately $3.5 million.
This is mostly due to position vacancies through normal attrition or those intentionally not filled. Coupled with the many recent and upcoming retirements of City staff, it is reasonable to assume we will likely have $4.3 million of unused appropriation at the end of FY 23, approximately 4% of the total budget allocated for salaries; therefore, the FY 24 budget assumes approximately $4.3 million of anticipated vacancy savings that will be used as a source of funds to balance the budget. • Use of Unrestricted Fund Balances: After departmental budget reductions and vacancy savings, the General Fund has a structural deficit of about $2.1 million. At the direction of the City Council, Staff have reviewed the capital projects and were able to release over $4.6 million in the Capital Projects Fund. A transfer-in from the Capital Projects Fund of approximately $2.5 million is the final step to balance the budget for FY 24.
As a result of these balancing measures, the $139.3 million of General Fund expenditure is balanced with revenues of $135.8 million and a transfer of $2.5 million from the Capital Projects Fund. In addition, we propose the FY 24 budget include a $1.4 million transfer of General Fund monies to the General Fund Contingency Reserve, bringing the reserve balance to $23.2 million, in compliance with the City's established policy amount. This results in a FY 24 estimated ending General Fund reserved and unreserved fund balance at just under $24.0 million. When the final results of FY 23 are presented later this calendar year, the City Council will have an opportunity to give further direction including, but not limited to, funding various projects or programs that have been previously deferred, funding positions that had been "chilled" as a budget savings measure, or replenishing other various reserve funds.
Estimated Available General Fund Balance
Unreserved Fund Balance Available @ 6/30/23 $2,743,658
FY 24 Estimated Revenues $135,818,481
FY 24 Estimated Revised Expenditures (139,308,309)
Net Deficit (3,489,828)
Transfers Out
Transfer to General Fund Catastrophic Reserve (1,363,281) Total Transfers Out (1.363,281)
Transfers In
Transfer from Capital Projects Fund 2,500,000
Total Transfers In 2,500,000
Estimate Available Fund Balance @ 6/30/24 390,549
General Fund Catastrophic Reserve 23,228,037
Est. Reserved & Unreserved General Fund Balance @ 6/30/24 $ 23,618,586 vi
FY 24 Reserve and Unreserved Fund Balances
Estimated Available Reserves @ 6/30/24
Accrued Liability/PERS set-aside (Fund 760) $6,500,515
Capital Projects (Fund 500) 4,798,612
Information Technology Capital (Fund 790) 5,220,939
All Other Internal Service Funds (various) 9,802,146
Total Est. Available Reserves @ 6/30/24 $26,322,212
Unreserved General Fund Balance 390,549
General Fund Catastrophic Reserve 23.228,037
Total Est. Available Reserves @ 6/30/24 $49,940,798
REVIEW OF OTHER KEY FUNDS
While the General Fund accounts for approximately 55% of overall expenditures, there are several other funds managed by the City. The FY 24 budget reflects a total of $254.7 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 24 with an available fund balance of $5.3 million. Revenue and expenditures are estimated at $45.2 million and $45.5 million, respectively, which includes $5.6 million in water capital projects. As a result, the expected ending FY 24 available fund balance is about $5.0 million. It should be noted that this fund balance estimate assumes all funding for multi-year projects will be spent in FY 24. While most of the funding is budgeted up-front, the project balances are carried over until completion and are included in the year-end fund balance once FY 23 is closed.
The Sanitation Fund, which includes sewer maintenance, tree trimming and environmental compliance services, is projected to begin FY 24 with an available fund balance of $150,000. FY 24 revenue projections are $6.2 million and expenditures are $6.4 million, resulting in an estimated ending fund balance of about $4,500. Specific to the Sewer Capital Projects Fund, the FY 24 revenue estimate is $2.4 million and capital improvement expenditures towards sewer line replacement and maintenance are $2.4 million. The estimated FY 24 ending fund balance is $1.9 million.
The Gas Tax Fund is projected to begin FY 24 with a fund balance of about $146,000.
FY 24 revenue estimates are $4.1 million with expenditures of about $4.0 million, resulting in an ending fund balance of about $300. The Road Maintenance and Rehabilitation Account (RMRA) will begin FY 24 with a fund balance of about $1,300. In FY 24, the City vii
will receive about $3.5 million from the State, which will be fully allocated towards Pavement Management Program expenses.
LOOKING FORWARD
As we look to the future, the City is committed to ensuring resources are available to meet the needs of the community. In this upcoming year, the City will undergo several projects that will utilize technology improvements to enhance the customer experience and increase department efficiency such as the upgrade to the land use tracking and permitting software. Several long-term infrastructure improvements will be beginning or completed in FY 24, including:
• The atrium rehabilitation at the Orange Police Department headquarters • Construction of Well 28
• A new restroom at El Modena Basin
• A new park in west Orange
• A skate park at Grijalva Park
• The Hart Park pickleball and fitness circuit
• An update to the Grijalva Park Master Plan; and
• Replacement of the HVAC at the Orange Public Library & History Center Furthermore, the City will initiate measures to review current policies, procedures, programs, and practices to make certain Orange is operating at the most efficient and cost-effective means possible. One priority area that will be reviewed is the Master Fee Schedule to ascertain whether the City's fees are reflected appropriately. In addition, the City is reinvigorating it's Economic Development Division to engage with business partners and draw a variety of new retail opportunities as a means to enhance our diverse commercial community.
In anticipation of a potentially challenging year, we will immediately begin collaborating on long-term fiscal solutions. While Orange continues to have a stable outlook for revenues, the nation has experienced high inflation over the last couple years with no sign of reversal on the horizon. Following the adoption of the FY 24 Budget, staff will on the status of our current fiscal condition as well as begin the strategic planning for FY 25 Budget later this year.
We are optimistic that with a long-term sustainable and resilient fiscal policy the City will emerge from any fiscal distress stronger and will continue the mission to provide exceptional customer service, high quality of life, and strong public safety to our Orange residents.
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ACKNOWLEDGMENT 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. A special note of thanks to the Assistant City Manager for stepping in to lead the Finance Department and the budget process during the absence of a Finance Director. And finally, the Finance team, who worked diligently to prepare for the budget study sessions and preparing the budget documents for the budget adoption.
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. I believe this document reflects the consensus direction you provided and will meet the needs of our City departments in continuing to keep the City of Orange a great place to work, live, and play for our community.
Respectfully Submitted,
the pat
Tom Kisela
City Manager
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