Read the February 5 meeting.

Any members of the public that wish to speak at this moment? Oh, we have one. Okay, great.

Jose Tapia, if you can go to the microphone.

Jose?

Good afternoon. My name is Jose Tapia, long-term resident of the City of Santa Ana. I'm here because I'm concerned for the safety and well-being of the residents of Santa Ana. Why? Because in a matter of minutes, you're going to go behind closed doors and have a conference with legal counsel on several matters. The first item is for Santa Police Officer Brandon Sontag for the City of Santa Ana. This is why I'm concerned. Officer Sontag has cost the city $2.55 million in excessive force lawsuits. According to the voice of OC, Sontag was captured on video ramming his car into a fleeing suspect.

And the city had to pay out a $100,000 settlement. And in 2011, the city agreed to a $2.45 million settlement of a case brought by the family of a woman Sontag shot and killed after a high-speed car chase. Officer Sontag was fired by former chief of police, Carlos Rojas, and subsequently appealed his firing to the city's personnel board, which reinstated him. As a resident, I don't think it's fair that we should be on the hook for these lawsuits and these payments. In the last 10 years, $17 million have been paid out for cases alleging police using excessive force.

I hope the court upholds Chief Rojas' decision to terminate Officer Sontag. I believe Officer Sontag is a danger to our community and is a liability to the city. I'm relieved that we have four council members who voted to appeal the city's personnel board's decision. They, unlike Mayor Pulido, Councilman Solorio, and Councilman Villegas, have the interest of the residents of Santa Ana. Mr. Pulido, Councilman Solorio, and Councilman Villegas, When will you start to think about the residents of Santa Ana and stop paying back political favors to Gary Serrano and the POA? Thank you.

Great. Thank you. There is no more comment at this time. I want to read our statement now and then probably when we come back on behalf of Mayor Polito. The mayor understands that tonight's topic is an important one, one that is one of essence in dealing with the issues. Although the mayor had a preexisting conflict for today, he graciously agreed to call for this special meeting when he realized that all the other members of the City Council would make it to today's meeting. He has asked the City Manager to schedule a special briefing for him on the budget when he is available. So that

is our message from our Mayor and we're going to go into closed session and we will resume the public session with our work-study session. Thank you.

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I've been to such a week on I've been to what?

You've been to it. Yeah, yeah, yeah. Oh my God, I have I know, I have Oh my God, I have Look at all these people Oh my God Let me see if I can

You need me really there? Yeah, I think so We'll talk about it, yeah Because we're going to be talking about I'm not allowed to ask you what campus is correct.

No, I'm not allowed to cancel. I get so frustrated.

No, it's not easy.

I know, but they didn't put it on my calendar. Oh, I'm supposed to be, yeah.

For the seventh?

I have a calendar.

No, I have a single word for me, but I'm trying to see cancel on the beginning or second time. Are you okay? Yeah, I'm in cancel. Who's that? I was probably going to have him. I don't think he was going to have it now. He's like, I don't know. That cruel economy. He's like a federal, he's like a man. Well, it's been a national trade. I see that. It's been a national trade. We have 24 countries. Why is that red? We have to go inside the United States and America. Are you with a TPP? Yeah, the TPP. I want to go to TPP. All right, what? This is a longer term.

A secret negotiated trade agreement. So, why did they do that? Trade and services. It has to be a copper on down. We said that.

All right. I like to imagine things in there. Buried in there. And reporting to PBI and probably . Yeah. Poison bill was built. Yeah. There is something like that. Well, think about it. Yeah. Oh, you know what it is?

Okay. Hi, may we please stand? We're going to get this meeting started. We're going to start off with the Pledge of Allegiance. Councilman Sarnyuan, can you lead us in the pledge?

Yes, if you'll all be joining me. and saluting a flag by saying,

I pledge allegiance to the flag of the United States of America and to the republic for which it stands, one nation under God, indivisible, with liberty and justice for all.

Thank you, Councilman Sarmiento. Do we need a quorum to actually start, or can we begin? There's four of us here. Oh, there's four of us. Okay, there's three of us here. And I know someone stepped out. All right.

If we have some council members, can you please have them come in? Great. Thank you. We want to get this meeting started. And so we're going to move forward. And the city manager and finance department to present. And Madam Clerk, do we need a roll call? Or because it's a study, can we just move forward without a roll call?

We had, excuse me, we can do a roll call vote right now.

Okay. um councilmember sarmiento mayor poten martinez here councilman salario councilmember salario

i know that councilmember tina harrow and councilmember benavidez and councilmember viegas are in in the facility i'm just not sure where they're in the building yes just as a point

of personal privilege there's plenty of uh pizza and salad if any of the staff or public would like some pizza or else it's gonna go to waste so don't be shy if you're hungry. Thank

you Councilman Solorio. Madam Clerk do we have any members of the public that wish to speak at this time? I have not received any additional cards. Great and let me just read another statement on behalf of our mayor. He couldn't make it here this evening. We made a commitment that we would read a statement and let me read that really quickly. The mayor understands that tonight's topic is an important one and that this is a time of essence when we're dealing with this issue although the mayor had a pre-existing conflict for today he graciously agreed to call

for this special meeting when he realized that all the other members of the council would make it to today's meeting he asked for the city manager to schedule a special briefing for him on the budget when he is available thank you i did but i would read it when we went into public as well. So we are now moving with the first item, Mr. City Manager. Thank you, Madam

Mayor Pro Tem. Tonight's agenda, we have several items. I'd probably break them up into an introduction and then a pension overview and then we'd have a review of this current year's budget followed by a mid-year report and then a projection looking forward to next year's fiscal year with along with the five-year forecast and I wanted to start off with what we consider governing principles as we start to approach this budget we got together with my EMT the very first Friday of this year at a retreat to try to first make sure that every director here understood the budget and that we could also come together on how we were

going to approach the budget this year. So before you, next slide, we have what the EMT has come up with. First and foremost to be transparent and honest about our situation, to take a comprehensive approach including all funds, establish a vision, develop a budget that promotes long-term sustainability, and implement best practices and utilize a combination of cost reductions and revenue increases. Next slide. Use a multi-year approach to achieve financial sustainability and the fact is it's going to take a multi-year approach. We didn't get here overnight and we're not going to get out of this

situation overnight. As part of our way out we have to really focus on core services and focus on funding those. We need clear direction from our leadership and we have to all of us engage in a very collaborative approach. The reason we wanted to focus on the pension is I just came from a city managers get together on Thursday the League of California City's City Managers chapter was meeting in here in North locally in Newport Beach and on Thursday the opening session was focused on PRRS in fact PRRS was first management was in attendance it was a pretty lively discussion the second session that

morning was sponsored well it was headed up by the league executive director and they rolled out this report that just became public later that afternoon so we were given an advanced copy of it all this to say that as I look at our at our budget and I look at our forecast probably one of the most challenging things we have with us is how we deal with how we're going to be impacted by the by the PRRS rates and so I wanted to make sure that everybody understood what the impact was, how this whole thing works, and what things we have control of, and what things we don't have control of. So with that, I'd like to start this

portion of the presentation by handing it over to our Assistant Finance

Director, Sergio Vidal. Thank you, Mr. City Manager. Good evening, Mayor and members of the City Council. Sergio Vidal, Assistant Finance Director with the City here, Finance and Managing Services Agency. As the City Manager noted, we're going to go through an overview of the pension. This is just an overview of some some really key points and important facts out there to correspond with the information that's being submitted and both at the league and also a media industry nationwide. We'll be discussing the current overview and its funding history for the CalPERS pension, the impacts to the unfunded PERS liability

as a result, and due to the unfunded liability what is that exactly the impact to the city's budget. Also we'll go ahead and miss the city manager will also be discussing that report that was referenced from the League. And finally we'll close related to the pension component or portion of this presentation, potential strategies to address these rising pension costs. Just a quick history for CalPERS. The City's had a partnership with CalPERS for over 70 years. Fast forward to 1998 which is what we would consider probably the golden age of CalPERS. CalPERS were super funded at the time and we'll have a

chart shortly to describe that. And most of the retirement plans or the retirement benefits for folks was a little different than what currently are today. And the contribution rates for employers though was lower. And for the funded status, as you could see there in the during the 90s, late 90s, this was truly the golden age, if you will. Over 100% of the CalPERS assets, so this is the assets for all the cities, municipalities, and the state, were over 100% assets were greater than liabilities, 138%. However, as you could

see, there's been some downturns, some valleys. Part of that strategy during during that golden age was the CalPERS approved enhancing or allowing its plan participants and the enhancement of retirement benefits and subsequently the city adopted those in retirement benefits during the peak of the CalPERS super funded status both in 01 and 2007 for its safety and miscellaneous employees respectively. However you can also see here that the CalPERS funded status coincides with any downturns in the economic so CalPERS obviously is is subject to market conditions or the economic conditions at

the time in both 2001 and 2008 specifically more recently the Great Recession you saw that that that dropped in this funded status for the CalPERS and as a response as one of the measures CalPERS adopted some some strategies of implementing a discount rate but also implementing Pension Reform Act in 2012 for new employees just a quick history here for the current benefits for the city and any prior benefits. The safety plan for the city historically was at 2 at 50 and after 2001 as illustrated during the CalPERS

funded super funded peak status was increased at 3 at 50. For new members it's at 2.7 percent at 57. That's obviously the result of the Pension Reform Act or otherwise known as PEPRA. Concurrently also for miscellaneous plan traditionally and historically it's it's been about a 2% at 60 and at 55 with an increased benefit that was effective in 2009 to the current present rate at 2.7 at 55 PEPRA the pension reform act took it a pretty dramatic decrease as well to at 62% so they've definitely read the pension reform act you can see the implementation there it's drastically reduced the pension formula for new

hires. So what exactly what elements of the impacts the PERS rates? I think you know there's there's a lot of factors going on there's a it's it's this is a complicated but we found this is a pretty good representation of what what exactly impacts PERS rates. The most significant impact is definitely not in control of the city but by CalPERS. So really the investment return for the CalPERS investment portfolio that's a substantial impact and also the the inflation. What the employer or the cities could control are the benefit formulas, salary growth, demographics, and those directly impact the value of

benefits. So these five elements combined is what impacts what is going to be the payout, the future payout to retirees.

Planned demographics. So one of those elements is here's a good slide to show miscellaneous employees so these are our non sworn folks there's 1,300 individuals receiving benefits at this time however there's an active employee so paying into the system 737 I think this was a question that was being asked

yes and also for safety so this this includes police and fire I think a lot of folks probably you know the city still is liable for its fire unfunded liability folks so it's so when we when I when I discuss safety please please remember this is this includes both police and fire there's 923 individuals for the safety plan that are currently receiving benefits and a 292 active employees the separate line is just those are folks who have left the city

and have not yet collected benefits so they could be at other municipalities or working outside so it's there's a there's a lot of factors there but these are the two main components and in terms of source of income so how do we how does CalPERS pay for these benefits for the city as recently as 2015 65% of what CalPERS used to pay retiree benefits came from their investment earnings and we'll have a slide very shortly in terms of what exactly the investment earnings are for the CalPERS funded fund. 22% are the employers are responsible for that and now 13 and now just as recent just current day or

present day 61% CalPERS will be relying on its investment earnings to pay for retiree benefits and consequently 26% will be the responsibility for the employer so that the shift the burden has been shifted to the employers as a result of the some recent action and we'll go into shortly that what CalPERS

has taken. Sergei if I could just jump in here. Sure. So you know the the pot at

CalPERS mainly depends on investment returns and then the other is dependent on contributions together to make up the the total funding source here for CalPERS and you'll see later that what's happening is CalPERS has begun discounting their assumptions basically. They used to assume 8% returns and at some point they you know they decided that was not accurate so that every time that they downgrade their assumption what happens is you have to make up that shortfall on the contribution side if the assumption of rate of return on the investment side goes down then the contributions must go

up to keep everything balanced so that's what's happening here

thank you mr. manager the following slide here it gives you a 20 year annual rate of return and I just want to clarify here 2017 is not depicted here this information is what impacts the city's current unfunded liability which you know the last rate of return that was utilized for that report was 2016 but currently this CalPERS did experience more recently for June 30 of 2017 about 11 percent rate of return so that's a that's they are deaf they're on the upswing but however in the last 20 years I think really that what this chart is showing and what the city manager reflecting is the reality of the

portfolio for CalPERS, they've had some good days or some good years, but in response to market conditions, they've had some some valleys. The dot com in 0102 and then 0809 during the fiscal year Great Recession. During those two years, CalPERS values 30% decrease over those two years. So that's a that was a significant return that we're trying to catch up, if you will, all plan participants, not only the city, but all plan participants are coming are trying to catch up to that part of value. Just to give an example here is, you know, and the unfunded liabilities, it's a critical component, but the rate

of return, I want to just present this, just a quick illustration here. Hypothetically, or for illustration, if we had $100 and we had a loss in rate of return of 50%, the value of assets would be at 50. To return just to back to that 50 to that $100, we would have to or the plan would have to increase a rate of return of almost 100%, so double the rate of return just to get back to that prior pre-recession level, so to speak. So if going back to this rate of return, the city or, pardon me, CalPERS as a whole, it took them two years just to

get back to the level that they were prior to 2008 as a result of those two rate of return, those two decreases in the rate of returns in those two years. However, you do see the upswing that they have incurred after that. But during that time, as the City Manager mentioned, they were expecting to and are anticipating to have a rate of return of about seven and a half, eight percent. So what exactly are those changes in the last five years? The main components are the change in the discount rate. And just as the City Manager mentioned, is what was the expected what did CalPERS expect to earn from its rate of return

from its portfolio they were as high as 7.75 and as of 2016 they've they've lowered that assumption down to 7% so in essence they're saying we're gonna we're more than likely gonna earn less in investment income and that burden to paying for the retiree benefits has been shifted and currently it's been shifted to the employers. So what does this what does this exactly mean in dollars and cents for the City of Santa Ana? And I think you know we focus on the unfunded liability rightfully so but I do want to point out that as of 2016 the

City had a market value of assets for both its safety and miscellaneous plans of over a billion dollars. About 1.2 billion. Obviously it has a liability than its assets which resulted in unfunded liability of 270 million but we do want to point out that the city does have over a billion dollars banked with CalPERS so it's the value of the assets is there obviously as the liabilities are climbing it's they're outpacing the assets and we'll have a graph shortly just kind of depicting that information and conversely our funded ratio has gone down as a result of that increase in that funded liability

Really what we're seeing now or what the valuation reports are reflecting for the city is in the last two years, the city has experienced a 22% increase in its unfunded liability. Conversely, its funded ratio has gone down 7%. So, you know, we're experiencing these details but really we're seeing the impacts of those rate changes that or those those new rules that CalPERS has definitely implemented for its cities and plan participants. To illustrate you know we have a higher pension liabilities but what is exactly this mean and what the

city pays on a percentage basis if you were a contribution rates. For safety again we wanted to break out this is the employer contribution. The police rates from beginning in 18-19 will be at 36.2% and they will be increasing in the next within the next five years up to 52.8%. This is projected as of today that could change it could go higher and it could go lower as well if the market if CalPERS is experiencing higher rate of return than expected but around 7% then we should see a change if other factors remain consistent but right now that is the this is the rates that are being presented to the city as of right

out and in future they may or may not increase based on various factors. Consequently for the miscellaneous plan beginning 18-19, 30.7 percent is the contribution rate that was owed by the city and it's expected to increase to 44.3. So both plans are expecting about a 50 percent increase within the next five years. Quick question so that I'm clear and following the 18-19 percentage on safety, for example, 36.2. That's the collective employee and city?

Or am I missing something now? What's the? Yes, this is the, just to clarify, the question is what is the total rate or? So it's the employer specifically?

It's the employer specifically. So for every $100 I pay a public safety person, I pay PERS $36, a separate check to CalPERS for that.

Okay.

So then.

Yeah, and at the bottom of the slide, Councilman Benavides, we have what the employees are paying. Okay, the employee. Yes.

Contribution. That's so the, just to clarify, the employee contribute, that's the employer rate. But yes, the employee, the total rate includes both the employer and the employee contribution rate. I think this is a lot.

This is just the next five years. Just a quick question. Just what's the ratio of amount of employees retiring to the amount of employees being hired and at a new rate? And so I think that's kind of my big issue is that obviously we're paying more out than people are actually paying into the system. And if you look at the next five years and if you look at this, At this agency specifically, we have faster retirements happening at a faster pace than I've ever seen in my 11 years in office. And so that is going to have some huge impacts on us because of the new PEPRA system and what they're paying in. How do we catch up, I guess?

And what is that ratio to, you know, new employees versus those employees that are retiring?

Right now. Slide 12. Slide 12. This is this year and this is just kind of as a point in time. I think your question is maybe in the last few years, we're still compiling that data. We could provide that information to you, to the council. Okay. Just to clarify the ratio of in the last fiscal year. Yeah, that would be great. Yes. Okay. But if I may, the.

Because that's going to be important information for us as we move forward. Thanks.

I think that it's safe to say that in the past, if you look at a pyramid, the base was wider. I don't remember what the ratio was, if it was 2 or 2.2 and at what point. But over time, the base of the pyramid has shrunk as cities and agencies grappling with budget deficits have gone through reductions in force. So what's happened over time is when the economy bounces back, the organization has not bounced back to the original size. I think we have all lived that here in Santa Ana. It's typical of every city. I don't know what the ratio is at this point, but we can certainly get that information.

But yes, that trend is definitely there.

And I only ask that because forget about the city services and us as we shrink and folks having to do multiple jobs is that there are other unintended consequences, right? Who's going to be paying into this system, right? We're paying more out. We're not going to be able to catch up. And so I think we need to have what those ratios are and what they possibly will look like in the next five years.

Madam Chair, if I could ask. Yes, Councilman. Can we go through the presentation and then go and ask questions afterwards? Otherwise, it might take us a while to get through this presentation.

Yeah. Yeah, next slide. And this is similar to what the city manager was referring to in terms of you know these were throwing percentages out we wanted to kind of give a quick illustration here of what exactly these percentage contribution rates entail just on a dollar basis so for every hundred dollars in salary the city pays thirty six dollars to CalPERS so this is not to the employee this is to CalPERS on behalf of the employee so the total compensation for a would be a hundred $136 that includes salary and pension benefits on all of this. Likewise in

22-23 that's going to increase to $53 in retirement benefits as of the the increase in contribution rate and for a total salary and retirement benefits a compensation package of 153. So that's that's the increase and then likewise for miscellaneous as a result of the percentage contribution rate contribution for this for the for miscellaneous folks non sworn would be $131 projected for next year and within five years up to up to $144. So we've gone we've gone through the we gave the overview of CalPERS we provided some rate of returns

we've also discussed why the unfunded liability has has been at risen to this stage so what exactly does this mean to the general fund budget and really all funds budget. What's estimated right now for 18-19 is 52.3 million for all funds. So this includes all your general fund, your enterprise and your internal service funds. Specific to general fund for both miscellaneous and safety, the projected payment is 38.2 million. Projected in five years or by 22-23, as of the most recent valuation report, the city is projected to incur a

61.8 million for general fund or a total of 81.2 million in contributions to PERS. Again, that's an average increase of about 13.7 percent. This is subject to change, of course. This is just as a point in time if the CalPERS does in fact, you know, experience a higher rate of return than what is expected and other factors that could impact the retirement and I think that's why we're here today, that that projection could change but this is this is the current projection now but it is subject to change it could go higher or lower and if I may jump in

here this was what had all my colleagues on Thursday you know having a very tough conversation with those representatives of CalPERS on Thursday morning this is not sustainable for anybody there's very few cities I think there was one city I think Santa Monica who said they prepaid their pension obligation by 45 million but even that city manager said look my colleagues can't afford that. This is this is a slide that I think tells the story you know why everybody is reacting the way they are with with this and why this was a special focus of the League of California Cities. Nothing is growing at

this rate and revenue certainly aren't.

This concludes my portion. Today there was a major stock market drop. It dropped over 1,100 points historically the biggest one-day crash ever right that

just speaks to the volatility of the market right no but it's not not no but

it's still at the historically worst crash ever it was like a 1500 points

down to 1100 if you you still have more comment mr. city manager it's not just Could I just open it up? Do we have any questions on the prior slides?

Go ahead. You can move forward. Yes.

Okay. Thank you. Madam Mayor Pro Tem. The League of California Study that just came out on Thursday, I just wanted to give a little summary of it.

Basically, we had the director of the State Department of Finance present there, Mr. Cohen, and he made it very clear that the state is not experiencing the same challenges that municipalities are because local governments are more their budgets are more heavily burdened I guess with labor their budget you know Britain labor is a smaller percentage of the overall budget they have more operating expenses in there so it's good it's important to see that about 40% of all CalPERS members are local agencies back in 2017 a bunch of local officials started to voice their

concerns over this these projected PRRS increases and so the message that was delivered was employer just paying more that's not going to work for anybody so following these meetings and all of the testimony the California League of Cities decided to commission a study next slide three key findings rising pension costs will require cities over the next seven years to nearly double the percentage of their general fund dollars that they paid to CalPERS number two for many cities pension costs will dramatically increase to unsustainable levels and number three the impacts of increasing pension costs as a percentage

of general fund spending will affect cities even more than the state that was confirmed by the director of state finance employee costs including police fire and other municipal services are a larger proportion of spending for cities those are the three key takeaways that that came from that next slide coming Going back to this graphic about what impacts PERS and the value of benefits, retirement benefits in particular, focusing on just the ones that sort of we have control, the benefit formula, salary growth and demographics.

So just some ideas and some thoughts here. One of course is we can have, you know, we can ask our employees, of course this is all bargainable and you know not something that can be imposed but we can ask people to contribute more. And this gives you an idea of how much that would get us one percent contribution Increase is about six hundred and fifty thousand for the general fund and overall it amounts to about eight hundred sixty five thousand total For each percentage point that that is contributed Another option is to explore a second tier for classic employees right now. We have two tiers classic employee and PEPRA

Status but we could have a lot of cities have gone to a third tier for classic employees for people that transfer from another city or from other agency who are classic employees they could come in at another tier and that's what a lot of cities are starting to do those are two that I think we have within our discretion and that's about it existing the legal framework for example doesn't allow for much more in fact the governor apparently according to the director of finance was quoted as wanting to do more with PEPRA but he was sort of constrained by the framework but there is a case that we want to continue to

monitor and that's a Cal fire case that is challenging or looking to modify the so-called California rule that is really keeping us from doing some other things and some of the things that for example I would like to be able to do but we can't do presently is for for existing employees we were at one point in this city at 2% of 55 and then we went up to 2.7. If we wanted to next year all agree to go back down to 2% of 55 apparently we can't do that now. We have a new formula under PEPRA for people who have never worked for PERS but for those of us that are currently here we can't do that and that's part of what is at stake in that

particular case. Sonia where is that case or what's the status?

Sonia R. CarvalhoItem —

It's been accepted for review by the California Supreme Court.

What's the timeline? When are they going to hear it?

They took up the case in April.

Sonia R. CarvalhoItem —

So I would say, I'm sorry, it looks like they took up the case in April. And as we know, generally, it could be eight months, 12 months before we get a final answer.

Sonia R. CarvalhoItem —

But the lower court had held that we could make reasonable changes and that's why it got called up So it'll be interesting to see what they decide

Under salary growth because ultimately pers benefit is Determined by in part by an employee salary So strategies there could be to minimize salary growth to consider non personable compensation such as benefits We have something called EPMC. We could maybe evaluate the impacts of that. On the demographic side, I think we're going to continue to monitor the makeup of the workforce pertaining to PEPRA employees versus classic employees. And then under the category of other, we have an opportunity, for example,

for fiscal year 18-19 to prepay our pension obligation. by doing that will actually save money, probably about half a million.

And we also have another option to try to fund, contribute to a pension trust fund. We have already made an initial contribution in years past for half a million. And then the other thing we've got to monitor is the state is looking, I think it's really PERS is looking at possibly accelerating their Our payments that are currently amortized a little bit longer Let's say around 30 years or so to there's a push afoot to try to get legislation approved that will Get us to sort of pay this down in in 20 years Which will only increase our cost maybe save money over the long run

But increase our cost and make us more challenged today the talk at the league last week was TO MAYBE MAKE THAT OPTIONAL. THEY ALREADY HAVE THAT ACTUALLY WHERE YOU CAN OPT IN FOR A 20-YEAR PLAN. AND AS OF TODAY, NOBODY HAS OPTED IN. THAT'S WHY PERS IS LOOKING TO MAKE IT MANDATORY. SO TO MAKE IT MANDATORY, THE LEAGUE IS GOING TO TRY TO FIGHT TO MAYBE HAVE AN OPT-OUT OPTION FOR CITIES THAT ARE HAVING TROUBLE WITH THAT. SO THIS IS PRETTY MUCH WHAT WE HAVE IN TERMS OF ADDRESSING THIS VERY CHALLENGING ISSUE. IF THERE'S NO QUESTIONS, I'D LIKE TO TURN THIS over to our finance director to continue with the overview of our budget

no additional questions please proceed Fran okay thank you very much mayor pro tem City Council so I will be providing an overview in terms of the city's general fund budget as it relates to the adopted budget 17 and 18 I then WE WILL PROVIDE A MID-YEAR STATUS REPORT, PROVIDE A PRELIMINARY UPDATE IN TERMS OF THE 18-19 BUDGET AND THEN GO OVER THE CITY'S FIVE-YEAR FORECAST AS IT BASED ON THE CURRENT ASSUMPTIONS. SO AS A REMINDER, WE WENT INTO 17-18 WITH A $9.3 MILLION BUDGET GAP. OBVIOUSLY EXPENDITURES WERE APPROPRIATE AT 234 WITH

revenues at 224. Now later in the forecast I'm going to talk a little bit about because I know the perennial question is how did we get here so I'm going to try to cover that in the forecast element of this presentation. So just as a reminder included within the 17-18 budget as adopted was obviously addressing the PERS increase of 4.6. We continue to have the OCFA contract annual contract increase and we moved the graffiti abatement program from the sanitation enterprise over into the general fund for 1.1 we took obviously

adopted increases for the health insurance the allocation for the third COPS grant was coming to an end so we're gonna now have to pay for that our portion of the share of the animal shelter construction cost and last year for the first and we've been trying to get our previous city managers to address our workers comp issue for when the worker when the fire department moved from the city to the OC fire we retained a component of their workers claims so if they were injured here we're still responsible for that so if they for example if they injured their back here and then went over to OC fire

injured their back we would be kind of responsible for a percentage of that so So the workers comp has been kind of hurting over the past few years. And so the interim city manager allowed us to increase the rate for the workers comp by 1%, which included 745,000 expenditures in the budget. And then finally, finalizing, financing the 800 megahertz final phase of the backbone for 200,000. But that was part of the adopted budget. In addition to that, there was additional adjustments made to the general fund that I want to also highlight. If you recall, we also came back and reinstituted a short-term

U.S. Marshals contract for two years. So this kind of highlights what the program would entail in terms of bringing in revenues and expenditures. However, I know that the police department is still ramping up, so we haven't necessarily are going to experience all the revenues and expenditures, but I know they are currently ramping up for that. We also added two additional combination expect business inspect I mean building inspectors we added a homeless services manager and veterinarian services for the San Zoo and in addition to that subsequent to the budget adoption we

also incorporated all the salary increases there were some offsets but most were to be born within the existing budgets so because we talked about the PENSION OBLIGATIONS, I WANTED TO BREAK THIS UP IN ORDER TO DEMONSTRATE WHERE OUR COSTS CURRENTLY RESIDE. AND I DID THIS ONLY TO DEMONSTRATE THE LABOR AND OUR PROGRAM SERVICES, THE SLICE OF THE PIE, IF YOU WILL, BUT MORE IMPORTANTLY, WHERE PERS LIES IN TERMS OF OUR COST AS IT RELATES TO THE GENERAL FUND. SO FOR 17-18, IT CURRENTLY IS 14%. SO NATURALLY AS THAT SLICE OF THE PIE BEGINS TO GROW, IT

start squeezing out all the other elements in terms of our what we can do as a city. So in terms of our mid-year now that I kind of highlighted what the development of the 17-18 budget kind of want to review where we currently reside I show this only to remind individuals that most of our revenues actually come in on the back side of the fiscal year so typically we you know we receive about 34% of our revenues in the first part our expenditures tend to be fairly consistent so I and I show this only because I don't want people to panic if they see less revenues when we go through the presentation I'm just just

to clarify via the the adjusted general fund budget 240 and on the last slide that's so that's that's budget that's all expense the 240 am I correct or is that or is that revenue in the earlier expenditures was 234 so that from the 234 to 240 that that's with all those adjustments and we knew and we use and correct and all right do you have something that shows what the adjusted revenue side given the the mainly the US marshals or is that what you were saying that you're you know you're not don't have clarity on because we haven't began

to realize those. Right later on I'm going to show our what our revenues are. If it's coming, sure. The Marshall's contract even though adopted, when you adopt a budget it's really a plan. You hope that's where you're going to land for the most part. Once the budgets adopted our task is really to monitor where the revenues and expenditures ultimately are going to be. Okay. Even on the 240 even though it was kind of like the adopted the adjusted appropriated budget, that can based on what we ultimately do. Thank you.

So on a high level, before I get into some of the more specifics, if you recall when I showed you the initial how revenues and expenditures come in, from this vantage point, the revenues are pretty much trending as they're supposed to be trending as well as our expenditures. THE ONLY THING IN TERMS OF OUR EXPENDITURES, THEY ARE SUPPOSED TO BE AT 50%, BUT ONE OF THE ELEMENTS THAT WE ARE STILL GOING TO BE CAUTIOUS ABOUT IS THE IMPACT AS A RESULT OF THE SALARY INCREASES. THE POLICE DEPARTMENT STILL HAS ANOTHER HIT BEGINNING IN JANUARY ON THE BACK HALF OF THEIR NEGOTIATED INCREASES.

So if we go into the revenue side, I just want to highlight the fact that our sales tax, our main impetus for the sales tax is really our Christmas sales. And those don't come in until March. And that will pretty much be the driver. But for all indications, our sales tax has actually been clipping along at about 3, 3.5%. So it's moving along pretty good. Our property tax is really doing extremely well and and it continues to manifest the you know the the benefits of the economy the property tax in lieu of VLF

Actually, we actually are going to be or receiving revenue currently as well as again in May So that zero pretty much will match up with what we anticipate receiving The other big item would be the business license tax. We are currently doing the renewals for gross receipts which represents 70% of our business license those are going out this week so we're fairly confident that our business license will be fine and in terms of the hotel visitors tax we had actually incorporated hopefully the Holiday Inn Express that's the old Ramada Inn we kind of included that and that's kind of what manifests that the you know the

slowness in terms of the hotel visitors tax we understand that potentially if They may come in the other part of this fiscal year. We did pull out some of the major revenues since those are going to be our major drivers in terms of our overall revenues. That is in relation to the jail as well as the medical marijuana. To date through December in our jail revenue we've only received 2.6. Again, it's my understanding that the police department is actually ramping up and they anticipate hopefully having additional modules open up in the latter part of this fiscal year so we'll see where they kind of wind up once everything gets fully

operated and then go back in terms of the medical marijuana this only represents four months actually because of the way they report because it's always like it's about a month lag so we the medical marijuana we believe will be fine will be okay overall by the end so this kind of constitutes the 32.3 which overall is we believe is really on track. In terms of our expenditures, most of the departments are really coming in below the 50% mark in terms of their expenditures. Some

of the highlights in terms of non-departmental, that just the reason that's over is because we actually made a full payment to the Civic Center Authority early, which is up. So by the end that should be fine. I think and the other one in the fire department we actually have one more payment in there. We won't have a June payment so the fire department will hit its target at year-end so we're not so concerned about that but on target but overall the general fund coincides with the 50% mark.

Now we I know one of the items that always has come up previously is in terms of our vacancies and what we added here is a column because the current city manager has changed is going to be changing has directed budget to kind of go back to the old style of reporting unfunded positions before if you recall previously it's just it was about buckets of money and how money gets allocated and so we're going to be going back to reporting unfunded positions the old way if you will but currently there are 200 total vacancies I know that the personnel department currently has over 80 recruitments going on so most of

those positions technically may be filled by year-end. Just to pause there,

I know we've had a lot of conversations in the past about some of these terms and some of it is semantics but it's important I think to say that these for example let's say in the police department because you know I focus a lot on that and so party for our city we have 102 general fund vacancies they're in the budget assuming we could fill them all which is really one of the bigger challenges the money is there should be there you know whether we're going to fill them all or the possibility etc is another question but to say that

they are unfunded I don't know that that's the best terminology given that this council voted for that it's in the approved budget everything in the budget is funded it's a different thing if you don't spend it but and we don't need to find the right terminology here today but I'm not sure that it's appropriate to say that they're unfunded positions if they're in fact in the budget director

Gutierrez just very quickly on that so when you look at the total vacancies and I'll just go by based on what Councilman Solorio is talking about on the police department it says total vacancies 102 unfunded 55 which means Lisa Delta of 47 that you that current that that we pretty much have fund is that what's in the real budget is that the money we actually have is for 47 or Or do we actually have the money for 102 positions in their budget?

So the 55 represents the value of the attrition that was instituted by the prior city manager. So in essence, the prior city manager.

So you cut 20% from their budget.

Well, each department was allowed to associate their attrition value to either the labor component or other line items within their budget. The police department chose to basically dedicate the entire attrition value to their labor side. So we on our side, we kind of took the value of the total position, total dollars available to fill positions. Now, if you recall, the previous interim city manager said you can fill all positions. That was her big mantra that you could fill positions. positions. But if you are trying to fill all positions as effective July 1st, I would

say you could not do that. But because of the way the separations and attrition works, at the end of the day, everything will kind of like settle or wash out, if you will. So that's why she said that you can fill all positions. But the value of all 55 positions, if you're trying to do that July 1st, is not there.

Great. So the money is not there.

That is correct.

That's all I wanted to hear.

And I wanted to clarify to Councilman Solorio, that was very hard for us to put together right here to try to figure out what was funded and what wasn't. Apparently the practice was to use an attrition factor of what, 7% or?

It was about 6.7. But it included labor and savings, yes.

So 6.7. Now, while using the attrition factor is not uncommon, Most of the cities that I've worked in, you know, the nutrition factor is usually 3%, somewhere between 1% and 3%, depending on the vacancies. To go higher is a little bit unusual, but what is even more unusual is to then take that money and then spend it in other programs, in additional programs up front. usually if you have that money left over at the end of the year a little bit left over you know you have that little money left over it goes to fund balance and make it reappropriated the following year but that's not what was happening

here and that's why I wanted to sort of begin to do this to show you what we have here what apparently happened the reason you don't see any unfunded positions in the other departments because I asked that question is the cash was taken away from the departments and it was up to the departments to figure out how to do it so a lot of them decided to take uh the hit in some of their operating budgets and still staff still spend the money or allocate the money for for staffing apparently the police department they decided to allocate all of that shortfall to the to the staffing positions

moving forward i will not do that i will make sure that if we have um they'll be very clear what we have going in to the next fiscal year these number of positions are not funded right now this is your operating budget I'm going to probably be a little bit stricter when it comes to discretion given to departments if they're going to make decisions like this but more than anything I want to make sure that everybody is is able to understand this budget

Reveness terminology the other part is transparency I mean it's like saying PD has a hundred dollars but you through hidden mechanisms are giving twenty dollars to other departments or some other debt without telling people where that money goes because people are just looking at it's in the PD budget and yet

city management is spinning it somewhere else without the public or the council

knowing about it. One of the things that I'm directing staff on this is what I call truth in budgeting. I mean we've got to have that fundamental transparency because it is the plan it's the most important plan that council adopts every year so there's going to be a truth in budgeting approach from this day forward and I wanted to try to get that started here but moving forward we're not going to use that same mechanism we're going to try to clean that up right

and I don't concede that this is the reality but I know what the discussion

is thanks and frankly I'm not surprised that you were under a different impression councilman honestly it was hard for me to figure it out in fact when we had to retreat in January was the reason I had that is I wanted to make sure all the directors knew exactly where we were and it was very interesting even some of our long-term directors were not fully aware of

exactly how this worked. It's not very transparent and these are full-time folks and you know this is a part-time council. So I do not blame you in any way or anybody on the council for not understanding what was really going on. But when we get through my first budget you'll be very clear about what we're spending our money on.

So now I'm going to go to look at our preliminary assessment for the 18-9 general fund budget.

So the city operates on an incremental budget model. So therefore, we will assume at this juncture that the 17-18 budget as adjusted will be the base budget for 18-19. And if we add just what we know in terms of additional assumptions for next year, obviously the major element would be incorporating the PERS increase of 5.8 million,

rebuilding back the salary increases into the from the MOU of 3.1, continue funding of the strategic plan, making sure that obviously that we maintain the OC fire contract and then the additional funding for the type 2. When we adopted the Marshall, the US Marshall short-term agreement, it was only for the 10-month period when it first was implemented so this is the additional amount that would be needed to operate the additional two months. And then obviously our forecasted health insurance increase. So the total additions to the bases would be another 15 million. And so the total base budget would be at 256 for 18-19.

Director Gutierrez?

Yes.

Does this take into account some of the enterprise funds that may be taken away from the general fund budget at this moment in time?

Not at this juncture. And I actually highlight them in a subsequent slide. Great. Thank you.

So, again, you know, I showed that first chart for 17-18. And I wanted to show this same chart here for 18-19 on a preliminary view. And if you notice, and the reason I wanted to highlight this is because you notice that the per slice of the pie increased from 14 under this assumption to 15 percent. So that means something else really has to take, you have to lose something in some other part of the organization in order to make up for that additional 1% of the pie.

So here's the preliminary view in terms of our projected revenues. So on top I highlight the, our main categories in terms of our tax revenue, sales tax, property taxes, and those are fine. Those are clipping along, as I indicated before, about 3, 3.5 sales tax we project hopefully to be at 4%. These components actually represent approximately about 65% of our total general fund revenue, 65 to 70%. But the other 30% is really kind of like what either kind of anchors the whole revenue contingent.

For example, the other fees or other sources, we estimate just a 2% growth. AND THEN FINALLY IN TERMS OF THE TWO ELEMENTS THAT WE HAVE IDENTIFIED AT THE BOTTOM, THE JAIL FACILITY RENTAL JUST RELATES TO THE MARSHALL'S CONTRACT. WE ANTICIPATED THAT IN 1819 THAT THEY WILL BE FULL FUNCTIONING AND WE ESTIMATE THAT AT 12 POINT, RECEIVING ABOUT 12.2 MILLION AND WE ADD THE ADDITIONAL USED CANNABIS REVENUE. THE 5.5 JUST REPRESENTS A MIDPOINT. It's a range so we just picked the midpoint in that and Just as a point of clarification we have not

Included the adult use cannabis in the fiscal year 17 18 budget And so they're still probably most likely going to be some dollars coming in as a result of that too Which would assist our 17 18 budget?

That what's the list?

Yeah, and the miscellaneous revenues are just like departmental, some departmental programs and fees. Yeah.

And what about the charges for service? What are those?

Well, that's probably another component of the jail. and rental.

Could I get a breakdown of that? Yeah. Actually, we'll provide a breakdown to everybody. Thank you.

So on a preliminary look for 18-19, the current budget gap, given that the revenues come in at only $239 and the base expenditures at $256, currently is looking at $16.9 million.

So here are the other considerations that obviously need to be addressed or will have to be kind of looked at in terms of priorities. So on the top we identify all the internal service funds. Now when we present the annual budget recommendations to the city manager, we actually go over all funds to the city manager. Now it is not uncommon for the city manager not to increase rates or address internal internal service funds only because of the impact to the general fund. So this year we have, you know, so like for example the interim city manager and the prior city manager we review all these elements.

Now the interim city manager was the only one who actually took the initiative to allow us to increase the workers comp by 1%. But most of these other internal funds are trending negatively and what we would and so the task for us, for example, I operate the building maintenance and fleet maintenance. SO IN ORDER TO TRY TO BALANCE THOSE FUNDS, WHAT WE ACTUALLY DO IS LOOK AT REDUCING COSTS. SO THAT'S THE ONLY WAY YOU CAN ADDRESS IT. IF YOU'RE NOT GOING TO GIVE ME THE MONEY TO THE OPERATIONS, THEN I GOT TO LOOK SOME PLACE ELSE IN ORDER TO REDUCE COSTS.

THE OTHER MAJOR COMPONENT THAT WE'VE IDENTIFIED HERE IS THE FIRST YEAR CAPITAL COMPONENT FOR DEFERRED MAINTENANCE. SO WE'VE INCLUDED THAT AS WELL. AND IF YOU CAN TELL, THERE'S, YOU KNOW, FOR EXAMPLE, FOR BUILDING MAINTANCE TO DO ITS FIRST YEAR CAPITAL PLAN, It would cost about 3.2 million for IT Jack estimates about 1.5 million for fleet to replace all PD vehicles. It would be another 1.8 million In terms of the liability this reflects the 1.8 actually for its premium increases related to Increase in claims that we've been having over the past few years and then the workers comp of is that the additional 1% that we were

are asking in order to try to balance out the workers' comp fund. So the total value obviously for internal service funds to make them right is about 13 million.

And then on the bottom, this goes to what Mayor Pro Tem was talking about. We've identified the sanitation enterprise program in the worst case scenario obviously and the value that if we in fact had to address that within the general fund, just as a footnote, the sanitation fund does not sit within the general fund. So right now as it stands, there is no impact to the general fund unless there's a decision to bring all the costs into the general fund. But that value would be about 8.6. We've also identified the refuse service, I mean the surcharge and contract savings and the value of that.

The one thing we've identified here is the continued current PD recruitment levels. So this year part of the issue we have as a result of salary increases is there was 2.6 allocated to the police department in order to recruit police officers. So our concern is that the salary increases may have eaten into that so we wanted to make sure that the police department would continue to hire and

that's what the 2.6 represents. But describe that more what do you mean? You mean recruitment costs? You mean bringing in new folks is more money or what? No

just bringing in police officers at its current basically levels. In other words, whatever they're hiring now that they are able to continue higher as they're

currently doing. Okay, but that but that's a trickier math piece because if you compare the last two full calendar years, last year we actually on the whole net

officers we actually were down one or two. So I don't know what that means but But we can discuss this. Well, one of the reasons, too, is

what we had contracts from the federal government, the COPS program. Now that's going away. We have to incur those other costs, right?

So the 2.6 is kind of like it's a discussion that even the current city manager has brought up whether or not 2.6 is an appropriate number. We've only identified it because that was the previous value that we had incorporated. So this is a it could be less. It could be more dependent.

What I do see, though, and it's in this slide and another slide is we're always really good about talking about PD related increases but for example back to again the even if we could fill an extra 40 police officer spots it's going to be very difficult to do that but yet nowhere do we show an anticipated savings for what that represents. That's a good

point. I think for Director Guajiro is alluding to that the 2.6 that was allocated for for additional police officers previously might have been mostly taken up by the the raises the raises this year were mostly designed to be absorbed within the existing budget and so the value for example on page 33 of the just the salary increases to POA sworn is valued at 2.2 million on that and this was took 2.6 so the point I think he was trying to make is that that this money has pretty much been taken up by the salary increases within their

existing budget okay so in addition now the whole we did incorporate the strategic plan funding within the base 1819 budget but we only bring it up here as a point of reference only to discuss whether or not the entire 2.5 is it would still be the appropriate level that you want to fund a strategic plan we've also identified general plan funding from a point half a million to a million if the council chooses to add additional contributions to the pension stability

fund we're looking at the street lighting financing and what would it cost to fund the first year and then actually and then additional resources needed for cannabis enforcement but in addition to that and the line below we also said there's also obviously will be additional revenue from the candidates expanded uses and that's still to be determined so that you know that's a factor that we also need to consider as well and then obviously we're going through the departmental budget reviews now and so we'd have to compile what departmental supplemental requests may be coming down the pipe.

So if I can just jump in here, all of these numbers that you've been shared, that have been shared with you right now looking into the 18-19 assume a status quo situation, that we keep the same services, the same staffing, and all of that. If you look at that and you add sort of the add-ons, the increase in cost, that's where we'll be. But it's not necessarily what we're recommending at this point. I just want to give you an idea of what that looks like.

Mr. City Manager, I'm going to go back, and I think I've been harping on this, and it's not just because I'm trying to give you or your staff a hard time, but I have a fiduciary responsibility to the voters. When I took an oath of office, I definitely said that I would protect. And when you look at the sanitation, and I've been speaking of that, that could be a potential $8 million hit, and then the refuge surcharge of almost $6 million. and you add that up, that's about almost $14 plus million. I'm not saying that overnight that you're going to take that money. You're going to have to put a plan here.

But if you continue to use that money and keep it in a five-year forecast and not take into account to figure out a plan of how you're going to replace that $14 million, I have a problem with that. And so this we're going to have to figure this out because you cannot ask me to approve a budget knowing that it's not legal to continue to take these sanitation funds. You got to go to the voters and that decision is going to have to be made. And we got to be frank and honest. We talk about truth and budgeting. This is where we're talking about truth and budgeting that I've been speaking of.

And again, I'm not saying that tomorrow overnight I'm asking you to take it out. But please provide me a plan. I've been very patient these past six years asking and we need a plan to wean ourselves off because we need to make sure that we are transparent and that we do go to the voters if the voters choose to want you to keep that money then so

be it but you have to do what's right follow-up question it's probably for the city attorney madam city attorney with regard to some of these funds yes Sanitation Enterprise, Refuge Surcharge. From what I recall, there has been some research and some analysis that we've been doing, the city's been doing with regard to these. In the past, some findings have indicated that some of the costs for some of the services provided there should be covered by general funds.

So we have moved some of those, graffiti being one of those as an example, has been moved over to sanitation, moved over, out of sanitation and over to general fund.

Is it my correct in understanding that we're still going through the process that there has not been a final determination that this indicates worst case scenario, that there THERE HAS NOT BEEN A FINAL DETERMINATION YET THAT ALL OF THESE FUNDS WILL IN FACT BE, ALL OF THESE EXPENSES WILL IN FACT BE TRANSFERRED OVER TO GENERAL FUND AND THAT SOME STILL MAY BE COVERED BY THESE ENTERPRISE PROGRAMS. IS THAT CORRECT?

Sonia R. CarvalhoItem —

ACTUALLY, WE HAVE COMPLETED THE ANALYSIS. I WANT TO GO BACK A LITTLE BIT IN TIME. WE ACTUALLY KNEW WE HAD THREE THINGS TO TAKE A LOOK AT. WE HAD TO TAKE A LOOK AT OUR WATER FUND, SOMETHING THAT THE FINANCE DEPARTMENT HAD ADDRESSED. YOU HAD ASKED STAFF TO GO BACK AND GET A SECOND REVIEW OF THE FIRST ANALYSIS. AND IT WAS DETERMINED AT SOME POINT THAT BASED ON THE ANALYSIS THAT WAS PROVIDED, THE CITY FELT COMFORTABLE WITH THE TRANSFERS THAT WERE BEING MADE. SO MANY OF US WOULD SAY AT LEAST ON THAT ISSUE, WE'VE GOT ENOUGH ANALYSIS TO SUPPORT WHAT WE'RE DOING.

Sonia R. CarvalhoItem —

AT SOME DAY IN THE FUTURE, YOU MIGHT WANT TO TAKE A THIRD LOOK IF YOU WANTED IT TO BE PERFECT, BUT WE'RE FEELING PRETTY CONFIDENT ABOUT THAT. We also knew that we had to take a look at our sanitation enterprise fund as well as our trash fees. And then there was a whole effort by the council to take a look at everything so these things wouldn't keep popping up. So we wrapped everything up into one ball. We were going to go out and do the analysis on the sanitation, the trash, and all the miscellaneous. but a decision was made with your interim manager, Ms. Kurtz, to go ahead and

Sonia R. CarvalhoItem —

pull out the sanitation element because it appeared to be the most risky of all and we've completed our analysis on that. That is completed. It is done. The report is back. Has been for some time. It is the component, the miscellaneous component that has not been returned. So and there's some analysis in there which would suggest that some of this is probably protected and we can probably continue

but not the large majority of it. So there will be likely a larger percentage of this of the this impact the 8.6 on sanitation potentially 6.3 on? Yes and

Sonia R. CarvalhoItem —

initially when we looked at the enterprise fund we knew without a doubt without doing analysis that the graffiti abatement for example was going to be part of this fund that would not be supported without voter approval and that's why there was an effort to move that out last year because we wanted to protect that what we did is we then went to go study the other components of the enterprise fee which includes some tree maintenance I think public right-of-way cleaning and some other miscellaneous services street sweeping that's provided through our Public Works Department and what the analysis did is

Sonia R. CarvalhoItem —

looked at each of those service areas and said can you collect a fee to provide this public service without a vote of the people and that analysis has come

back and given us some direction. So it's something that we will be reviewing here Mr. City Manager, I imagine in the not too distant future to address. So thanks for the clarification. I just I think sometimes there are comments that are made that the city is avoiding, is not trying to address, and we're working towards that. And I think that's erroneous representation when we, in fact, are being very thoughtful about going through taking steps already, as you referenced, the water fund, the graffiti abatement costs. And we're issued this analysis, this study,

so we could come back and ensure that everything is above board. We've been taking steps. and I just wanted to make sure to clarify for our benefit but also for the public as well because oftentimes it is presented that that we're not being responsible we're not we're that we're not being proactive and I just want to make sure that we again correct the record so and have an accurate record

yes you know and I want to support those same statements I mean I'm fairly new to that the council again and I think early last year we all decided to put in a real big focus on this issue but to say that we don't have plans is inaccurate you know we have consultants working on it we have attorneys working on it we've addressed some elements we're not done I mean that part is is true but I think we're dedicated to finishing it and I know periodically we get updates on those studies and and the work of staff and attorneys so I'm eager to see all

this work being done but the work plans are in progress and I guess maybe just the general message is let's let's keep on those schedules and if anything to the extent we can accelerate them excellent and those things that can be handled on our own fine if there are some things that do need to go to the voters well obviously we have some elections coming up and we ought to see if we could tie them in with those coming elections so thank you council member Benavides for bringing that up.

So now I want to go into the general fund forecast. But I kind of want to answer the question, how did we get here? So I'm going to take everybody back to December 2014 when the city manager at the time, we identified this general fund forecast for everybody. We had come out of the recession. Our revenues were higher than our expenditures and there was a margin there that the city manager at the time had basically indicated we could provide half that margin to city employees and the other half to the community so in essence what occurred after this is that there were two two and a half percent increases provided to

the general employees we also were beginning to address our purse and there There were positions that were being added as well. So that margin, in essence, go to the next one.

That margin began to disappear in terms of our, as our expenditures grew, that margin in essence started to collapse onto the revenue line. Now mind you, what I wanted to highlight here in this box, this is prior to us removing removing the water transfer, this forecast anyway, was prior to us removing the water transfer reduction. For recall, in order to ensure that we complied with the study that was issued, we actually reduced the water transfer by another 2.4 million. When we transferred the graffiti, it was about 1.2. So even that by itself, you could see that we were basically

bringing down the revenue line and raising the expenditure line. During this time, in terms of the forecast we were also experiencing the loss of the ice contract and also this was prior to PRRS announcing that they were going to have a discount rate announcement but that was in December of 2016. So when this was done this was prior to these elements or even the COLA taking place. So you can see the pressures that were being forced on the revenue and expenditure lines during this time. So you know so we went from a point in time where we had a margin we provided salary in our cola increases to city employees and we

increased the labor force which I will show in the next slide so here's our labor costs over from 1213 to 1617 we added about 94 authorized positions for a total value of about 25 million but half of that came between 1516 and 1617 in terms of our labor costs so that's a big jump in terms of what

we our labor cost jump but but but using the terminology you like to use of unfunded positions how real is this concept that you went from 808 to 825

for example right so that I'm just the yellow is just the authorized positions and I was just trying to so how much was added to the budget and you're absolutely correct councilmember in terms of there's a component in there that potentially has unfunded unfunded right but in other words positions that

were never filled but promised.

Correct. But the cost component is real. And that's the element I just wanted to point on. But the cost component, our cost didn't go up by 12 and 1 1 million over that year.

And here's an underlying trend. This was something that I was pointing out to the city manager when we did the December 14 forecast. And we were trying to let him know that we were growing too fast at the time and part of the reason is because our revenues overall over the course of this time was growing at little over 2% and our expenditures were growing at 4% so when the lines were flattening upon each other we were informing him that you cannot sustain this growth at that point in time and if you recall that's why he kept saying you got increased revenues

we got increased revenues but and and this was the underlying eminent element that we were basically demonstrating to him is that you needed somehow to move your revenue line up and basically suppress your expenditure line. And I just add this here so because our revenue is growing at a little over 2% and I just kind of wanted to highlight that everything that we're hearing out there in terms of GDP that's growing about 2.5% overall on a nationwide basis. And we added the governor's governor's message here you know and I have warned of an inevitable recession lurking in our

future thankfully has not yet arrived so fiscal restraints are needed more than ever as California approaches the peak of the business cycle so what so what does this mean for us in terms of our outlook in terms of forecasts now this only represents our status quo in other words if we just currently you know maintain our current core I mean not a core but our current scope of services our current labor what does this mean for the city of Santa Ana and what I just wanted to highlight here is the PERS increase so the the one main factor we incorporate the PERS increase over the course of the next four years and if

you notice in 1920 that just represents the termination of the existing marshals contract so that's why you see a dip there in the revenue so overall this just basically says that if we don't do anything and we just leave the status quo that the gap will widen over time. At this I'll turn it back to the

city manager. So clearly that's not sustainable you know to have expenditures exceed your revenues on an ongoing on a go-forward basis. So how do we how do we how do we start dealing with this? I go back to the governing principles which I I do want some feedback on either now or in the future. But again, be transparent and honest. I believe that you can't fix what you don't know. Be comprehensive. In the past, there's been a tendency to focus just on a general fund. We've got to start addressing some of the issues in all of the other funds as well. Of course, the reason that people have not addressed them

in the past is because they impact the general fund. But at the end of the day, we have to address them because we're at the point where we have no other option. We have to pursue that long-term sustainability. We have to use a multi-year approach. To the Mayor Pro Temp's frustration over these issues, you know, we didn't get here overnight. The sanitation fund was developed probably decades ago. I'm not sure when it was first instituted, but certainly it wasn't done in the last few years. It's been around for a long time. Some of these other mechanisms were instituted a long time ago, so we need to start to make those changes.

But we have to do it. We have to do it. we don't have the resources to do it all in one year and I know that's not what I'm being asked to do but as we do this you saw the staff increases in the last few years okay clearly it's not sustainable so we've got to look at core services I mean these people aren't here just to to sit somewhere or to you know drive a car around the city they have jobs to do and this is a city that has a lot of need you know so that's where the pressure was to try to bring more people on because there's a lot of need so but the budget is limited and becoming more limited as we go on so

we've got to really focus on core services we need to have a little session you know more or maybe a series of sessions to focus on what is core and even within core services what elements within the core services are not core we really need to tighten our belts and we're going to be starting that process but this next year will be sort of a bridge year and we've got to provide clear vision and direction you know from the leadership level to our staff and of course we have to engage in a collaborative approach. And just to, you know, give you a little bit, that's sort of the governing principles on how I want

to approach this. The framework of how we'll, you know, start to do this is we've got to prepare a long-term financial forecast. And you've got to start planning, not just for today, not just for next year, but, you know, a couple years down the line as well. Back to focusing on core services. And we've got to be creative in how we deliver these services. Everything, everything has to be on the table. Or I need to know what's not, what's, if there are any sacred at Calus, we need to know that kind of up front so we don't waste time dealing with them.

But, and we've got to identify revenue enhancement measures and engage with key stakeholders. That's sort of the framework of how we see this moving forward. Next slide. This is just a sample of taking this slide here with just a few assumptions. These are not the ones we recommend or anything like that, but just to give you an idea, if you transition back to a holding facility for example you implement full recovery fee study you know we do the cannabis expansion and we look at our development impact fees we can we can bring our revenue up close to meeting our

expenditures and this is again not dealing with the expenditure line this is just in a vacuum just dealing with the revenue side with these these types of measures we've also got to focus on the on the expenditure line and though that line there and so with that I want to thank you for your patience and your attention I know this has been a lot of material here we're not expecting any decisions we just wanted to get feedback and more than more than anything communicate the state of affairs as I seem to have found them

this councilman Sarmiento thank you mayor pro tem and mr. city manager and staff thank you for that you know it's funny for some of us who lived through that great recession that you referenced on that graph we've seen many of these charts right and some of them were accurate some of them weren't and some of them told a story that was much bleaker than this one but you know it is sobering to always see where we go and you know where we are at this point in time you know I wish we had a little bit more emphasis on potential next steps you know so what what what are our options because I think we've always operated

under that premise where you know give us given the worst case scenario giving given things that you know look like they're not trending in our you know in our favor you know it gives us an idea of what the alternatives can be I know one of the things that's missing is maybe going out to the voters on many things you know as we spoke about on the prop 218 exposure which many agencies are going through right now unfortunately and you know all of us are concerned but we are trying to be as as you know as responsible as we possibly can I remember the name Michael Colantino coming up a lot and I know we

you know we hired his services in order to give us some analysis give us some some cover on decisions that were made that we were responsible for but we also believe that we were doing the correct thing so I think you know when those issues come before us you know we'll I think as was spoken by some of my colleagues we certainly try to do the responsible thing there as well but if it's getting pushed to that point what then we should consider putting something on the ballot not only for that, not only for voter consent on some of those monies being spent, but also for maybe going to the voters and explaining to them this is what

we're looking at and we may need to look to go to a half cent sales tax or a full cent sales tax. Something that will give us some relief as well. So I think that needs to be added to your list of potential options. Everything I think needs to be considered. You know when we look at rate of return, look again prior to today somebody mentioned the stock market fell, stock market was increasing at a very, very fast clip. So when we do these, it's a moment in time, right? And it's a very elusive way to sort of forecast because the market trends and is going to continue to trend

erratically. I mean at least from what you know we can tell. But it's been trending, you know, very strong. I think I heard that it was going up at 11% for year to date. So that is a very, very large disparity from what we saw in 2017. You know, where it's going to go further, there's probably a number of experts that'll say it's going to continue to grow on average. You'll have some dips, but it'll continue to grow. What does that do to our decision-making? You know, if we look at this six months from now and the market is trending and, you know, the economy is growing at 4%, you know, how do we deal with that? A

couple of things that we should think about some of our anchor sources of revenue you know you know main place I know a lot of people have spoken about retail and how that's how that's impacting it's not that's not trending well because a lot of people are just buying online and there's just a different way of conducting commerce so I think that needs to be looked at as well as the auto mall I mean that's another source of you know major major revenue so I think that as we as we expend money as we look at your graph and that curve the red curve we have to see as we spend money are we going to

get a return on that money that's right not just spending for spending sake I agree that this whole PERS discussion look it's a difficult one because that doesn't give us a return right there is no I mean it's just having to comply I'll be eager to see what the outcome of the case is as well before the Supreme Court. But look, that's going to be appealed to death. So, you know, we're not going to see anything, you know, on that for a while. So I would just say, you know, let's be cautious. Let's be concerned. But let's also try to give some options as what we can do to offset.

And, you know, again, we've been down this rodeo before many, many times. And the problem is that we don't know whether the data is correct. Sometimes we're given data and it says the sky is falling. Then we're given data saying we've got surpluses. So we've been on both sides of the spectrum and sometimes it's been very, very difficult to decision make under extremes. So to the extent we can get just as clear a fact pattern as we possibly can, understanding it's a snapshot in time that may change. that's what makes it difficult for us to do but I don't think anybody is you know

has done the wrong thing has abrogated their responsibilities we're all fiduciaries nobody wants to be reckless and and you know irresponsible but I think that we also have to decision-make you know in a sort of a realistic

context as well. Councilmember Villegas. Thank you. I want to thank the staff for the presentation the City Manager for all your hard work and I concur here with Councilmember Sarmiento that this is something that we should consider taking to the voters for a decision on how to remedy this and also I stand corrected I refresh my phone and council members correct Councilmember Sarmiento Salario that the Dow is down 1,100 points it went down and went back up and then that's where my phone stopped so but anyway thank you again yeah yeah well thank you Thank you, Mayor Pro Tem.

Council Member Benavides.

Thank you. Question I have for staff. I'm assuming that one of the recurring expenses that we have right now is the San Nana Police Department Headquarters debt service. I'm assuming that that's been addressed and eliminated. At what point, what year do we end that obligation? I believe it's 2024. Okay, so that's... Six more years. Okay, so then that's not within actually this five-year forecast. So at some point that will go away and that will close a little bit, help some of that gap. That's correct. What is the obligation annual, do you recall offhand? It's about $9 million.

Okay, so that'll be a significant help at that point. One of the other points just with some of the measures that we have been taking to correct some of the issues with regard to Prop 218. I want to go back to the fact that the UUT a couple of years ago, a few years ago, was coming up that the utility users tax, right, it was coming up as something that needed to be addressed and corrected and I believe was that the in the 2016 cycle we went to to the voters on that and we're able to correct and address that. So again the council has been acting responsibly to address study,

address to do what we need to do to be able to do right by the community, right by the voters. I just wanna make sure that we're keeping track of that and sharing that information as well. Your city manager, what I see here, obviously, that the projections and the graphs here are not,

painting the best picture of where things are, where they're going, and that there are a number of different ways that we can work toward addressing. One that was mentioned, going out to the community, the voters, I think it is incumbent upon us and our responsibilities, both as policymakers, as staff, to look at making, creating fixes without necessarily burdening our community that much more. At the end of the day, we're all going to be, have to come in to address some of these gaps.

But what I, the main thing that I see here is a need for us to look at, in a very serious way, economic development. And I had written down some of the key points that Councilman Sarmiento brought up as well. What are our revenue generators? Where does the city typically look at and receive its revenue? To provide for those budget expenses, where, again, is our revenue coming in from?

from you know main place small being one of those the property taxes to real estate development you know what are we doing to at the end of the day going back to what are we doing to be as business friendly as a city as we can ultimately we can do do again burden some of that the community but but I think it's more critical for us to think outside the box be creative and and make Santa Ana the place to do business, the place to invest. The auto malls is another example where we have this major revenue generator there. Hotel development and we have other cities that are they have this this bed tax,

you have visitors coming in and they're reaping the benefits of that. When was the last time that we were proactive to go out and to market ourselves as a city? We're right in the heart of the county. We have freeways you know touching us at every edge of the city we have, we are and should be promoting ourselves as a destination place as well.

Mainedly small, again, public-private partnerships. What are we doing to, again, tell the story that Santa Ana is a place to come and invest and do business? That I think is really the charge before us. We may have to go out to the voters, but I would want to make sure that one is that that's a last resort, but two, if we're having to do that, that we're demonstrating five other ways that we're being very aggressive and assertive and creative about bringing

revenue in and not just shouldering the voters with having to be the ones to create the fix. It really is incumbent upon us to be able to do that. So that's some of my feedback. And to some of the points that Council has made, other colleagues have made, is that I hope that in some of these solutions, we come back with some of those ideas and that not just an idea, but plans toward that. Thank you.

Councilman Tinejero.

Thank you, Mayor Pro Tem. First and foremost, I want to thank the staff and my colleagues because my schedule was ridiculously crazy. I think we had to reschedule this about three times. So I apologize to you, Mr. City Manager. It's just right now is crunch time for me at the school district with students and traveling out of town and the whole bit. But I want to thank you because you continue to work hard. you everyone made time including my colleagues. I do have to make a you know there's there's the elephant in the room and that is that this is a very big

deal that we discuss our our economic game plan here where we're at to to have an absentee mayor not show to this meeting just shows you can't say you care about this community and then not attend meetings. It's something that I'll tell him personally but this is just too important and it happens too many times this is not the first time that we've had a meeting of this type that has this type of impact and it goes back to direction and leadership and where are we going and who's at the helm and I know that we've always worked as a team and this group right now is starting to work as a team but one of the areas that

I think is pretty interesting that you mentioned mr. city manager is that some organizations have a three-year plan of a three-year economic plan I know that when I was with the school district the state of California the the county has to approve your budget and you have to you have to show that you actually have a budget that you can you can pay your bills for three years we don't do that because we're not required to do that but I think it's in our best interest as a city to really have that game plan in place so that other people can also see where we're at. As we go forward, we talked about economic development and

there were some ideas that were brought to the table. We're going to talk about, we've talked about where our shortfalls are but then again where, what are we doing to execute and this is where I want to ask all of us to think about these things is we would, I would like to have our staff start to bring back reports a while back we talked about vending trucks vending trucks have have sat with both Jose and I am sure they've sat with me Jose Sarmiento up comes with Sarmiento and I and Councilman Solorio regarding they're

willing to pay a very large business license per year to green stripe to green stripe not only to green stripe an area that they can work out of on On top of that, they're asking for us to help them so that they're willing to pay for electrical sockets to be placed on the street so they can plug in and not contaminate the air by using electrical power versus their generators. I've yet to see anyone move on this. And that's the thing. If we were running a business today, we would not sit on our hands and not move on these

things to explore other ways to generate revenue. It would be something that's urgent, but it's not our money. We're all getting, everyone gets a salary, but where's our motivation as a group, as a team? We're better than that to go find and think outside the box and say, let's go look at, let's go take a look at that.

Second is manufacturing cultivation. Imagine everything we went through to bring in medical cannabis to the city. We were the first ones. It was something that no one else was doing. It actually felt rather uncomfortable. The voters wanted it. We brought it in. Where would we be? We'd be in a worse situation if we didn't have that already working in our favor. The fact that we've gone to adult use in the city of Santa Ana, our finance person just said, we still don't know how that revenue is going to change, but we can predict it's probably going to be more. So let's not stop discussing manufacturing cultivation.

even if we have to approve one over the other because one is easier to approve than the other and it's not going to affect the quality of the life of life of our residents let's move forward because we're missing out I remember I think there was something that was brought to our attention if I'm not mistaking it was about a potential 20 million dollar increase am I wrong on that number it was like 11 to 20 it could be 11 to 20 million dollars in in revenue increase. Again, why aren't we jumping all over this opportunity? We need to start moving forward in that because we can't just sit back. We need to move.

I've brought this up and I'll say it again. So I just went to Europe for the very first time. My brother lives out in Sweden and he's been out there. So I said, I felt safe because I knew that he knew where to go. right? And he did. He knew the trains, he knew everything. So when we got out there, he told me how to get to Paris. He's the one that chose the Airbnb. He chose the Airbnb in London, chose the Airbnb in Italy when we were in Rome. And he took us to all the locations that he was familiar with. I bring that up to you because the National Forensics

Association, all the college speech and debate students are going to have their tournament here in Santa Ana. Let me tell you where a lot of these colleges come from. Wisconsin, Minnesota,

Virginia, Oklahoma, Tennessee, the great state of Kentucky. Why am I bringing this up to you? A thousand students are going to come to Santa Ana. They're going to stay at our hotels. They're going to go to our downtown. They're going to go to our restaurants. These are college students who are going to receive a college degree one day and one day they're going to want to vacation here again. Instead of looking at hotels near Anaheim, they're going to come back to where they what they're familiar with and especially if they have a good experience here. We hopefully,

we do such a good job that they want to come here every other year and if that happens and that's what you're talking about a destination point, it's little things like this. It was a small idea that was constructed by a very small group of people but now it's really moving forward and what ends up happening is in this decision we've had to partner with the Chamber of Commerce we've partnered with the school district and the college and the city because as a team we build that economic development and we rise and fall together

Councilmember Villegas and I spoke outside and we're going to be looking into something that could potentially bring us more revenue. Again, it's not just sitting back and being chicken little here, but it's also what are we going to do about it? Are we going to go find avenues to bring in revenue? I agree with Council Member Benavides. We need to create a more efficient business department. There is no reason why if you have someone from the main place small who has to talk to someone here in our staff that that person should wait in line like everybody else. That's your largest revenue generator. The same goes

with other businesses that bring in a tremendous amount of money. You see what happens is when they have to go through that we wear them out. Their frustration, they get out of frustration, they wear out and instead of thinking about investing more in our city they decide to go somewhere else where they do offer that VIP treatment, where it is easier to start another business because they don't have to go through the bureaucratic system that we have. We've talked about this. We've talked about creating appointments so that people don't have to sit here and hope for the best. They have an appointment.

They can see someone and move in that direction.

The arts. If you look at every city where there's been dilapidated areas, you bring in the arts and then the rest follows a good example of that is our downtown I think we also need to take a stronger look at the arts there are things right now that are happening with the San Antonio Fight School District and the arts there's several programs that they're going to start to utilize the downtown but we have the street car coming let's take a look at that as well because if you have the arts it also makes us more of a destination point we the streetcar here and so at the end of the day we have to partner so I'm just asking our staff

these are the moments honestly that scare me a little bit but I'd rather be a city council member at this time to help get get us out of this I honestly the last time we had to go through this the last time we had to go through this I wore that as a badge of honor as a group that was one of the first times I saw us work together cohesively because this city was not going to go under under our watch. We're all at this table together. This is the new team. This is the new team. And if we focus on working together and making sure that these things that we talk about tonight, we move on, our best days are still yet to come. I do believe

that wholeheartedly, but we need to go ahead and start making a move on those things that we know that we can be successful at. Thank you.

Councilman's lawyer yes that thank you I want to thank the staff for putting this together and especially our city manager for recognizing that we need a special time you just for this but also to thank the staff here around this table and in the audience because in past years staff always presents these charts that show negative projections at the end of the year a lot of red but yet historically we do end up balancing our budgets by and large and I know we're gonna do that again. I also know that SCIU has been excellent and this idea of a budget commission and whether that's something formal or informal that they do or another

bargaining units do I think we ought to have our employees who are there doing these jobs and knowing their areas of work that they tell us what some areas for Cuts are areas for growth areas for reform I really want to encourage our city management staff to to work with our bargaining groups on that type of concept in terms of Planning and again being business friendly. I think we've done some things to streamline things But more needs to be done and I know in many of these areas these Developers or business owners they're willing to pay extra for expedited services

And so when we don't create expedited services or we don't realize them, we really are leaving money on the table as well as delaying their efforts. Also, we have some areas in the past where we've made promises, but we don't really keep up with them. And so oftentimes we'll do a mobile food truck ordinance or an enforcement mechanism for a variety of things that involves code enforcement or attorney services. Yeah, we don't staff up for that and so then that creates frustration because you have these ordinances You don't staff up for them some of these things also do generate revenue by the form of

Fines or just more growth and just better Operations and we need to make sure that we don't shortchange those Entities in particular code enforcement because we've asked them to do a lot of things For example in the area of cannabis, you know, we've grown that Market greatly and the revenues are coming and so out of that pot of money out of revenue No pun intended to pot of money We had really made commitments that we have additional attorney staff and code enforcement staff Police staff, but I don't know that they're there And so we really need to kind of revisit that and make sure that we step up correctly

And I'm really glad also that councilmember Villegas when we were adopting the adult use stuff as well as Councilmember Benavides that really said hey let's let's even be a little bit more serious and say of the revenue that X amount needs to go to enforcement and X amount of money needs to go to youth programs and as we continue to develop this cannabis industry we need to reflect that through positions in the budget because if not I know some people like that we're moving in this area some people do not like that we're moving in this area in a very big way and part of

the mitigation was that we're gonna have enforcement and youth programs to follow so we really need to keep that promise in in the area of the police department I believe that doing more technology will be helpful everything from security to lighting things like shot spotter better technology for recruiting intelligence all those things could be helpful that then reduces the need for labor also and I know we've slowly have started to do it in areas like in park rangers but I think we also can

reclassify more positions so that everything does not require an officer that is post certified I know in the past for example we've had traffic officers that weren't all post certified or investigators that aren't all post certified park rangers we're word and that the county that this council knows because I know you said in the past this is the only city where we have park rangers where you have to be post certified and carry a gun all these other cities don't have something like that and I'm not saying that none of them should have that but we ought to

look at just more flexibility there and not only will that allow us to hire more folks because there's less requirements but it also save us dollars because you can hire those folks at a lower at a lower rate finally yeah this person issue is a very real issue we need to address it and I think the city through cuts and reforms needs to do its part to pay more as an employer but we are going to need to have the employees step up and and do their share as well and That may be uncomfortable, but it's real and we got a begin addressing it

Finally, I agree that as we continue to make reforms and we need to make real cuts and other adjustments as councilmember Benavidez Said then we can have a conservation about revenue measures whether that be for June or November or beyond But we need to begin that work as well

Yes, thank you. I actually had a question for staff the projections that you've presented to us for 18 and 19 or the 18 19 year what assumptions are made there with regard to to salaries and contracts we have a couple several of our bargaining unit MOUs are due to expire at the end of the current fiscal year and then I think mid of next fiscal year and so so what

what assumptions basically are made we do not any value for any contracts in

the future at this juncture it was basically a status quo what we have today moving forward and just having the things that we know like the OCFA contract is a contract obligation PERS is a contractual obligation the things that we don't have any control we went ahead and and and put forth but in terms of labor we didn't factor anything and you can see the situation is already pretty significant okay we also at this point did not include say the the sanitation fee or some of these other things so okay I just wanted to to

clarify and better understand if we've made any provided any assumptions there on adjustments increases what you're saying no you're you're you're projecting a flat status quo in order to even keep us where we're at okay thank you great

thank you councilman of ease and I'll be sure because I know I wanted to get everyone out by 730 and just just very quickly I think you all know my position on the budget just believe that we need to move towards a sustainable path we need to make sure that we move beyond you know having more expenses in revenue coming in and I certainly agree with my colleagues that we have to figure out a strategy of how to build up those revenues so that we can move towards a sustainable path and to do so you know i i do want to thank our staff and our new city manager for really um having an

honest conversation about this budget and um and i thank you for understanding my frustrations um you know as i've spoken to you in the past about you know the budget situations year after year and not having um you know really an honest conversation not just with this council not just with the staff, with the employees that work here, but more importantly with the residents of this community that deserve to know where we're at financially. We do work for them and I think we need to remember that, that we do work for the voters of this community and the residents.

And so what I do want to talk about is that we look and management partners, when they came in a couple years ago, they gave an amazing report and I kind of use that as my Bible. I read it about two times a year because a lot of important and really great information. And when they talked about modernizing, you know, city government, one of the big things that they said for us to move towards a sustainable future in regards to our finances, that we needed to do a couple of things. And one was to modernize government. And we haven't done that.

You know, when we talk about our HR department and not having, you know, a system in place that can move us towards the 21st century, we have antiquated systems. You know, we need to make the investments so that our employees can shine and do their job efficiently, effectively. And so we do need the technology to move the city forward. And that is an investment that is well deserved, that is going to bring efficiencies to city government. Another thing when they talked about modernizing government, about possibly consolidating certain departments. And I'll give you a great example.

You know, you look at code enforcement and you look at the work that the sanitation department is doing. A lot of the work that they're both doing is one of the same. How do you merge, you know, sanitation within, you know, planning and code enforcement to be more effective and efficient? And I could go on and on with a lot of other examples. But when we talk about, you know, jobs and economic development, you look, one of our largest employer, the largest employer here in Santa Ana is government. One of the second largest employer here is still manufacturing.

And look, we take a lot of pride about being here in the USA. But if you take a look about all the clothes that we have, where is it made? Certainly not in the USA, right? And so here with manufacturing here, we have amazing manufacturing companies that are building and creating technology that's being used all over the world. we have to move towards the maker movement. You know, there is a maker city movement where they are embracing new manufacturing within high tech and manufacturing just in general and starting to brand and saying, what is being made in the city of Santa Ana?

I'll tell you a great example. One of our biggest manufacturers that does the heart murmur, you know, that is here, you know, the cataracts for, I, McTronics is here and it's used all over the world. We should be having a brand campaign. This is made in Santa Ana and how can we attract more manufacturing within this community? Because those are good high paying jobs. We also have to focus not just in public education, but how do we move, you know, those that don't want to go off to college and working with our trades. Let me tell

you being a carpenter you can make very good money and so we you know moving towards providing economic opportunity not just for the city to succeed but making sure we put people first so that they succeed we succeed and and more importantly I and I just want to leave you all with this and I believe that as we move this city forward and and and people hear me you know they're like you're always harping on technology and I believe it's innovation that can really move this city

forward and when I talk about innovation government's a little slow moving towards innovation obviously because of the of the bureaucracy that we that we have in all levels from the federal level all the way down but you have the private sector that is innovating you look at Orange County and the high tech, whether it's medical, whether it's in manufacturing, they are in our backyard. How do we recruit those folks? We submitted this Amazon, you know, proposal. The reality is, you know, we need to make changes to land use and zoning. And we've been, I

think now here 11 years, David, and we've been trying to update our general plan and zoning and we're probably not going to see that day but if you make changes to our land use and our zoning you will see a different day here but we're functioning on a 60 year old zoning code and a 30 year old outdated general plan those are the plans that will dictate our future will dictate our economic development and so i just want to encourage us to to make that a number one priority because if we want to be business friendly we're not going to be business friendly

if we can't update our general plan and you have developers come in here frustrated day and night and wondering why they have to go through variance changes you know why do they have to park 2.1 cars per unit in a house you know i could go on and on i think we've heard all those stories and so we have an opportunity to do great things but we need to make sure that we have a game plan and a game plan that's bold, that's visionary. And I believe that general plan can be that document. And so those are just my comments. Thank you all very much. And if there's no more comments from our staff, I guess this study session is adjourned.

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