Fiscal Sustainability Ad Hoc Committee - Regular Meeting

Committee is recommending city council consider any of the presented items. After Steven Alvalos presents a summary of the areas previously presented and the committee has had a chance to discuss, we'll ask the clerk to call the roll. Before I hand the presentation over to Steve, I would like to thank each of you for your service to the community. As this will be my last meeting with you, I would like to introduce formally Kingsey O'Karake, who is serving as the interim director of administrative services. And with that, Steve will provide a brief recap of the topics previously presented and staff are available at any point during the committee discussion to address any questions. And I'll turn the meeting over to Steve.

Thank you, Alice. As Alice mentioned in her opening remarks, I will provide a recap overview of fiscal year twenty four, twenty five adopted budget. I will discuss the city's cost recovery and containment strategies. I'll provide a quick summary of the city's unfunded needs and areas. And lastly, we will proceed with committee recommendations on the budget balancing alternatives.

So this is a recap of the city's financial position, entering fiscal year 2425. So we've covered a lot of information and and gave the committee, a lot of information over the first four meetings. So to kind of revisit and go back to the city's fiscal position entering fiscal year 2425, we will begin the year, at a $27,000,000 beginning fund balance. Operating revenues and transfers in total a 129,000,000, and this is against operating expenditures and transfers out of a 138,400,000.0. And that would leave us with an operating deficit of about $9,400,000.

While the city will achieve this 17% reserves goal target, and this is aided with the use of one time set aside reserves. While we are at our 17% reserves target, this is not sustainable to operate at a deficit position moving forward, and this is also not prudent, budget and financial practice. I won't spend a whole lot of time on these next two slides as these are, charts that we have previously provided you, I believe at the first, ad hoc committee meeting. This first slide is our general fund expenditure budget by department and program area. As you can see, public safety is our largest expenditure area of approximately 72%, 73% of the total general fund budget.

And all the all the other departments and program areas are listed on this chart as well. This next slide is our general fund revenues budget by major revenue source. The main takeaway here is that property tax and sales tax are the city's top two revenues respectively, and these are approximately 70% collectively of our total general fund revenues. Now I will give a recap of the city's fiscal challenges. Number one, expenditures are outpacing revenues, And this is largely due to the financial impacts from the city's labor agreements with all labor groups.

This is to stay competitive and attract talent, retain qualified personnel. The city's unfunded actuarial liability or UAL remains a significant cost and obligation for the city. The city's UAL for fiscal year twenty four-twenty five is at $23,500,000 The UEL is projected to increase again in fiscal year 'twenty five'twenty six and these are affected by external factors such as the discount rate, CalPERS investment strategies and, these factors are essentially external, and are, you know, somewhat outside the city's control. The city's aging infrastructure, as we highlighted over the last several meetings, remains a big issue for the city. Streets, as our public works team presented last meeting, needs are recommended of at least 12,000,000 annually and over $200,000,000 DCP invested in our streets to make substantial progress and improvements.

The city is also a number of deferred maintenance needs for its city facilities and needs much more to to invest than the 800,000 annually as well as contributions from our infrastructure fund. Measure m two MOE, which stands for maintenance of effort. We have highlighted this a few times over the last couple meetings, but this remains a future challenge and ongoing challenge for the city. I will now go over and discuss the city's, cost containment and recovery efforts. Number one, vacancy factor.

The city has relied on an ongoing vacancy savings factor of approximately 2% to 4% annually, to help balance the budget. This has become increasingly difficult, in recent years, and this is due to the city's, now lower vacancy rate, in which we're closer to 10% to 11% citywide. So a few years ago, prior, this number was actually, closer to 20% or even above 20%. Cost recovery. Over the last few years, the city has increased its user fees to a 100% cost recovery for our community and economic development, public works, and fire departments.

Currently, the city is also recovering, uncollected fees for in in our ambulance fees as well. Now this is good news in the fact that, you know, we're collecting a 100% of our user fees, But this is intended to recover the cost of performing performing these services by staff as well as any administrative overhead costs as well. So this is not a revenue generating measure to, you know, either increase our fund balance or even resolve an operating deficit. Cost containment efforts. So due to this, the city's impending financial position, the city, has taken efforts to prudently manage our department operating budgets.

In conjunction with the city manager's office, we have taken steps with departments to achieve a 2,000,000 to $3,000,000 savings for fiscal year twenty four, twenty five.

The goal is to end fiscal year twenty twenty

four-twenty twenty five below our adopted spending levels to achieve a higher to reduce our operating deficit to either $6,000,000 or lower in efforts to achieve a higher, financial position to end the year. Now the $6,000,000 is part of the operating deficit, but if you recall, the original adopted operating deficit was 9,500,000 to begin the year. The fiscal year twenty twenty five-twenty twenty six proposed budget is under is currently underway and in development. But with the exception of negotiated salary increases from labor agreements, we are requiring all departments to maintain a flat operating budget for fiscal year twenty four, twenty twenty five, twenty six. And the goal is the same as fiscal year twenty four, twenty five, which is to achieve, adopt a budget, that achieves its 17% reserves target.

This next slide has the city's unfunded needs. I've already touched upon and discussed a few of these already, so I'll just quickly summarize, what we have on the slide. Number one, Measure M2, continues to rise and the city has challenges in the future to meet its MOE benchmark, which is our city map. Deferred maintenance and capital repair of city facilities is a challenge and unfunded need. Aging city infrastructure as we've discussed, earlier today as well as in prior presentations.

Lastly, we have public safety has has some unfunded needs. In our fire department, redeploying fire engine six and replacement of two heavy fire apparatus trucks are unfunded. In our police department, we have previously unfunded a number of public safety officer positions, so this remains an unfunded need. And across the organization and in departments, you know, there are a number of of other unfunded needs as well. Okay.

So we now go to the important part of the meeting and budget balancing alternatives. As Ellis mentioned in her opening remarks, we are seeking tonight the committee's input on all the budget balancing alternatives, presented before you. So, we'll go through each option and we'll, as we discuss each option, we'll open it up to the committee for discussion. If you have any questions, staff is available to answer as well. So this slide summarizes all the budget balancing alternatives, we presented last week and are before you tonight.

The first set of options center around what we're calling minimal service level impacts, and this includes pension obligation bonds and revisiting the infrastructure fund ordinance. The next alternatives are exploring expenditure expenditure reduction options. The third set of options are the revenue enhancement options, and this includes the add on sales tax measure options as well as the TOT or hotel tax increase option. Lastly, we have other budget considerations, and this consists of the street financing option, as well as the formation of the enhanced infrastructure funding district or EIFD. Now I will go through each option and open it up for committee discussion.

As I mentioned, staff is all here for any questions. So the first option is the pension obligation, bond option. And now I'll defer to the chairman. I don't know if you wanna open it up for discussion this option.

Sure.

Is that how we wanna do it?

I think if we could just go Yeah. Alternative by alternative, it might be the most efficient way to approach. I just didn't know if the committee members would like to discuss amongst themselves, ask any questions of staff. We're trying to get consensus. So I think once discussion amongst the committee is kind of concluded on each item, we'll kind of look to take a vote to see if this is an item that the committee would like to recommend to city council to continue to evaluate.

As we mentioned earlier with the POBs, obviously, market conditions are not ideal right now. But if that's something the committee is recommending that staff can continue to monitor and we will and is going to be recommended for the city to consider, this might be an option for us to kind of continue to evaluate going forward. And if market conditions are right, we continue to work with City Council to kind of move that initiative forward. I know Steve had touched earlier on some of the cost containment efforts that we've been doing internally. Given the budget deficit that we had adopted for at the beginning of twenty twenty four, twenty five, city manager along with the executive team has been working really diligently with all the various departments to kind of hold down costs where we can without having significant service level impacts to the community.

But a lot of this cost containment is essentially deferring certain initiatives. So it's not really sustainable on a year over year basis. If the deficit is not something that can be addressed with either additional revenue or other areas of reduction, the community will start seeing service level impacts. I think with that then going back to the pension obligation bonds, I think we'd like the committee to discuss to see if there's any desire to make that recommendation or not make that recommendation to city council.

Can I ask a background question before we get into the POBs?

Of course.

Which is if our current budget has a $9,000,000 deficit, and I think I understood your presentation that you're going to be recommending something more or less in the $6,000,000 deficit for the upcoming fiscal year. Did I catch

No. That So right now for fiscal year 2024, 2025, we did at the beginning of the year based on our revenue projections and our expenditure request from that we've made to City Council, we adopted the budget with a $9,400,000 deficit. Because the deficit is not something we would like to kind of actually end the year with. City manager's direction was to see if there's any way department by department we can kind of hold off on incurring certain costs.

I see.

So we're looking right now to with our goal to end fiscal year twenty four, twenty five with instead of a 9,400,000 deficit closer to about a $6,000,000 or potentially lower. So that was an initiative that the City Manager's Office has been kind of working with every department head on. And I think we're on target to try to achieve a $6,000,000 deficit by year end rather than the 9.4. Go ahead.

Yeah. But partially you are partially correct. We are trying to lean towards closer to a $6,000,000 deficit for the next budget proposal too without reducing services. If we reduce services, we could probably bring it down from there.

Right. And so I guess that leads to my real question, is how many how long do we have of running a deficit of this size? And I realize that the purview of our just to make recommendation about how not to run deficit, but what are the state of the reserves such that we can run $6,000,000 deficits year after

So we didn't adopt the twenty four-twenty five budget with reserve excess reserves above the 17%. As Eric had mentioned, we're looking to end the year around 6% at about 6,000,000 deficit kind of leaving a 17% reserve going into the budget development for 2025, 2026. Once you start eating into those reserves, there it's not gonna be sustainable, probably more than another year or two. But I'll I'll let Kingsley weigh in on that.

Million dollars in the reserve, if you do the math, you probably will get a couple more years of reprieve before you've totally run out of money. And even with the $6,000,000 reserve that go for this year, when you think about next year and the following year, you're still going to have increases in the retirement contributions and you're still going to incorporate all the negotiated salary increases and all of that. Inflation is a thing. And I think recent projections is that inflation is kind of coming back. So with all of that factor, what you have currently in your reserve target, you can blow through that in a couple of years?

The reality is costs have escalated beyond how quickly revenues are rising in terms of property tax and sales tax. I think we've all been feeling it. Construction costs have increased. So while we've the proposed budget for 2025 to 2026, we're kind of doing flat operating budgets that also we already have existing contracts. And some of those contracts, the increases are significant.

Construction costs as I mentioned earlier have escalated significantly along with the salary increases. Everything else is kind of flat, but that portion of the budget is relatively small compared to labor costs and other contractual costs that we've already entered into. The reality is salary adjustments were necessary to kind of stabilize operations. I think since COVID, there's been a lot of turnover, both in the private as well as in the public sector. And these increases were necessary in order to attract the talent and to retain the talent within the organization.

So I suppose we turn it over to this body to find if there's any thoughts about the pension obligation bonds, think is the question you're asking.

Yeah. Think we'd like to kind of go down the list. And if the committee has any other suggestions, I think we're looking to get input from the committee on each of these as to whether this is something the committee is supportive or recommending to city council to continue monitoring and evaluating, and or any other options the committee would like to bring forth.

Anybody have thoughts about this?

Yeah. Have some comments on the pension obligation bonds having having followed what was happening here in California over a fifteen year period. I finally gave up in 2019 because we at least we got a 2013 somewhat of a a reform. Anyway, during those years, have a a good friend who's a high powered actuary back in the East Coast. She works in New York City, and and she does a she actually does a Substack column, and I remember but even way back then before Substack, I remember her only comment really about pension obligations pension obligation bonds is that they are of the devil was her observation.

And, again, it there's a number of reasons. But I think probably the the most important one is that it turns what is what is soft debt into a hard debt that you're stuck with, kind of like a mortgage as opposed to the having some flexibility even though CalPERS can be ruthless when they penalize, you know, organizations that don't make all the payments, but at least you would have that flexibility. So I would and what I'll do, I'll I'll see if I can find one of her articles that that I could share with the committee because she did a good job of explaining, you know, why they're not a good idea for for for many reasons.

Well, I'd like to, first off, say that I'm totally ignorant to what a pension obligation bond is. Like, how I've never, you know, been involved in anything like this before. So if you could give me, you know, some information that, like, how does it happen? Where when does it happen? Who makes it happen? How does it how does it work? How

do Yeah. So I I think, I agree with part of what the first speaker said. I I'm not gonna say I disagree, but I look at it a little different than what the first speaker said. So pension obligation bond simply is what he said. It turns a soft debt into a hard debt.

That is correct. Mhmm. In California, because the way California does its pensions, the way they the way they, in my opinion, the way they do the pensions because of the factors they put into it, it continually drives up our pensions. So, basically, there is risk to POBs. I think the risk is a lot less today in California than it was ten years ago in California, but only if you do it at the right time.

So on a POB, what you do essentially is you're refinancing the debt. So I think we have, what, about 300,000,000 in in pension in pension debt. You take that. You you issue debt for somewhere between 0 and 300,000,000. You then pay off that pension so you don't have those unfunded liabilities anymore, but you do have that hard debt then at that point.

But you only I would only recommend you do it if you're gonna get a 3 to $4,000,000 savings per year, which we can't get right now. The interest rates are too high. Probably three years ago, could have gotten it, but today, we can't. So I'd recommend that it be held in reserve only if the interest rate environment was of the type that would be beneficial to Citi. Not to do it today, but to keep it as an option for the future.

I see.

Does that help at all?

Yes. Thank you.

So my thoughts, and not to sort of bury my own lead, but I'm probably more of a revenue enhancer than a cost cutter. POBs strike me as setting aside the interest rate that can be risky if you're running margin with your budget. And so it would seem it doesn't make sense. I think you stated it properly that the rates aren't merit that you're doing it now. They may in a couple of years, I hope they do. But it also may make sense if we have other revenue enhancers that make it that we're not quite running on the margins that when it does become a hard debt, it doesn't subsume the budget. That would be my thought.

This is it says 4.5% interest or lower based on current 6.8% in CalPERS. So I don't really understand why you would do a bond if you're going to get if you're paying 6.8%, it was a discount rate. How does the what is it what do you mean discount So

the discount rate is essentially what PERS estimate over a period of time that they're going to be able to get an investment return. So I think to a committee member of Dean's point, what they're saying is that based on the money that they have in that they have invested their target is 6.8%. So if we were to think of that as your interest rate on a mortgage, right, the per the I think a lot of people describe the POB as refunding that 6.8% for a lower interest rate at 4.5% or lower. Because at the end of the day, the city has to make its contractual obligation payments to PERS on an annual basis, and then they take that money and they're investing it to get that 6.8%.

At what percent do we or do we have to get or do we get a guarantee return? There's no guarantee.

I see. So if you I think in one of the previous slides that we had shown, you can see there's like fluctuations in interest earnings, that CalPERS yields on a year over year basis. But that 6.8% is my understanding is that that's what they assume that they're going to overall for like a I think about a seven or ten year period. Overall, that's what their target is, is that 6.8%.

I see.

So when interest rates were pretty much at a very historically low level, if you were able to refund at 2% to 3%, you're pretty much locking in that rate. You're able to pay some of that debt off and then kind of lock in those lower payments.

So it's it's it's locked in then. It doesn't fluctuate.

Yeah. 6.8% does change. The CalPERS has lowered that interest down. But by lowering that discount rate, that means they're earning less money. So that means we end up having to pay more money into first.

Yeah. And it's a little more complicated than that in my opinion. But the 6.8 is what their average is and what you're paying. But then if their investments are too low, then they end up adjusting your unfunded liability even higher, I should say. So, where I see only if you're at 3 to $4,000,000 savings is where I would recommend looking at a POB because at that point, you would have your your annual costs versus with CalPERS.

You don't know from year to year what your annual costs are because they say it's based on 6.8, but it can fluctuate from year to year. And so so my recommendation is that you say not today, but only if it's three to four million dollars savings should hold in reserve. And and it has risk. I would agree. It has risk, but I would say when you look at all the options, all the options have different levels of risk.

Yes.

And none of them are pleasant options, to be honest. So if if you evaluate it within all the options, I think this is an option where you don't affect the taxpayers. And you in my opinion, if you do it right, you don't affect the taxpayers. And you get savings that can replace other types of, if you can get 3 to $4,000,000 savings and then you hold some in reserve, you can then, sustain your budget better.

So the time would have been, like, in 2001 or 2002? I mean

Or even in 2021. Yeah. Yeah. That would

be correct. Interest rates were, like, two point

That would be correct. That would have been a better time. That would be correct.

Mhmm. But it still would have been it's not locked in. Right? So if if the interest rates go up

Oh, no. You you would lock it in at a fixed rate. You lock it in at fixed rate versus

It varies.

Oh, the CalPERS

CalPERS varies. You would lock in the interest rate. That's one of the primary advantages

of it.

The disadvantage is it's a hard debt versus

I see. So if we left A soft debt pay be 6.8%.

Yeah. Hard debt versus soft debt pay. If you try to get out of pensions altogether, which I've been with cities that have at least asked, usually, like, for ours, they would probably charge us somewhere in the 600 to 700,000,000 to get out of the pension system, which is unsustainable. Even if even if and then you have all the unions would not be for it either, but but the 600 or $700,000,000 number is just unsustainable to to pay that.

Thank you.

Tony, I wanna try to explain a little differently. So there's a projected amount that CalPERS is going to have to pay in pensions over time. And so there's a certain amount of money invested in the market to pay those future pension costs. And so what they're doing is they're investing that money and hoping to get 6.8% return in the market. And so if the market does better, then maybe our pension obligation debt will go down because we'll have less to pay because the market's done better.

But when the market goes down, our unfunded pension liability goes up significantly to try to regain those losses. So right now, we're kind of playing depending on the market on what our UAL on fund that liability is. Now depending on the market with the interest rate, it's basically, like, we are taking this fluctuating debt and locking it in if we do a POB at a specific interest rate. So that 6.8% is not locked in. That's CalPERS conservative estimate.

Now a couple of years, we've had really good returns where the market's done on average, like, let's say, 20%, 10%, you know, that doesn't necessarily translate to that same return on our CalPERS investment because they're a lot more conservative in terms of where they're investing their money. I hope that makes

sense.

I think it does. Yes. Thank you. It doesn't sound like it's a a good, thing to move towards the POBs at this point.

Right. So our my recommendation

is keep it on the keep it as an option for the POBs.

Yes. My my thinking is, I see I'm in real estate business, and I I see a lot of things are starting to happen in that market in real estate and we have a lot of tenants that are falling behind on paying rent because their workload is going down. Vacancies are starting to appear more than they were in the past ten years. I kind of see that we're heading towards a down cycle in the market So I wouldn't think that this would be a good time to invest in a POB.

So I think what we'd like is maybe to take a vote from the committee to see if the recommendation is to continue to evaluate POBs. So a yes would be this would be something that we would say that committee is recommending that City Council kind of keep on the radar should the market environment be kind of beneficial to yielding about a 3,000,000 to $4,000,000 savings, a no vote would be not to recommend it to city council to continue to evaluate. Okay. So with that, I have Noah if you'd like to take a role.

Sure. Derek Smith? Yes. Jennifer Duong? Yeah. Tony Boushala? No. Jack Dean? No. Bill Brown?

No. So POBs will not be recommended, by the committee to city council to continue to evaluate. I think the next item was revisiting infrastructure fund ordinance. So a number of years ago, I believe it was 2019, 2020, the city council at that time had enacted an ordinance to create an infrastructure fund. This was done at the time that the city I think had put a sales tax measure on the ballot with the hopes with the eye towards that sales tax measure passing.

But what this has effectively done was take 50% of the increase in secured property tax and 50% of the annual increase in sales tax and shifted that money and earmarking it internally or restricting it for infrastructure improvements. That has in some respect benefited additional general fund money being diverted and earmarked towards road improvements as well as facility improvements. But by that transfer out to that infrastructure general fund. So when we are looking to adopt a budget, you're essentially restricting that portion of revenues and taking it out of I guess general fund thereby increasing that deficit. So right now, I think it's about two two and a half million to three million dollars right now, Steve?

Yeah. So annually on average or the we're contributing 2 and a half to 3,000,000 annually. And then as revenues, property tax and sales tax primarily, property tax as they continue to increase, that number could go above 3,000,000 Mhmm. Into the 3 and a half million dollar range as well.

So what that effectively does is part of that $9,400,000 deficit is because about 2,000,000 to $3,000,000 is being diverted to an infrastructure fund. It takes it out of general fund thereby increasing your operating deficit. So as we had mentioned earlier in the previous meeting that while that does improve some additional money and resources going to our Streets and Roads, it's essentially it's hindering our ability to operate in a sustainable manner.

So So the the option before you is to temporarily suspend that allocation for one year or you could even do it, you know, multiple years, either, you know, two years or even three years. But if recommended, this would require a forfeits vote by the city council to suspend that allocation and essentially allow the city to have more discretionary budget balancing options to address its deficit.

So I have a question. As far as staff, do you

guys have a recommendation of suspending it for one year or a certain amount of years?

I think the initial thought was to do probably at least one year and then kind of reevaluate it. But as Steve had mentioned, the City Council would have to have a four fifths majority vote to temporarily suspend. Given the outlook, if there's no additional revenue generation, I think at a certain point city council will need to look seriously at either extending that suspension or voting to pull back that ordinance.

Well, if I can add to that, if you do one year suspension, all you have done is just that one year. And unless there's an anticipation there will be some new revenue coming in. There's no revenue coming in, really the most prudent thing to do is to say let's suspend it indefinitely until such a time that we have predictable inflow of revenue that we can rely on and then you can reinstitute it to dedicate a certain amount of money going to infrastructure. Spending it for one year just doesn't buy you much. It doesn't buy the city much.

What it really does is, allow more discretion. You're having any more dedicated amount going for infrastructure purpose. And it could fluctuate every year, 500,000, maybe $2,000,000 in some years, right? So to me, if I'm recommending, I would say, if you want to do this, just to say to just suspend it indefinitely until maybe put a caveat in there if there's a revenue infusion option that you want to pursue. If that revenue comes in then this can go back.

Can you give me an example of some of the projects that have happened in the last couple of years with using the infrastructure fund, please?

Yeah. Bay basically, the infrastructure basically, the infrastructure fund has contributed to our streets program. And so that's about $3,000,000 of what we're doing in our streets program. That's why it's a very sensitive issue politically to do that. We actually the POB is probably the easiest option. I started with the easiest option. As we go further in, you're gonna find that you're gonna have more difficult options that are gonna be less attractive. So I'll just say and this is probably not an attractive option, but we're just trying to tell you this is an option.

Yeah. I I thought you would kind of loaded that in the front.

Well, I'm just saying as you go through, it'll be it'll be interesting to see how you react to each one. Yeah. Yeah. We tried to do it where the impact to residents go from less to higher.

Could I ask a question on the, the last item at the bottom here? I think I'm losing my voice. From the, measure m two, how would you it says potential inability. If you take this money out, will it mean you won't qualify? Or what what did how do you I guess I'm questioning the word potential. What

Yeah. So city council essentially, as as the city manager develops the budget, proposed budget to put in front of city council for consideration. City council would essentially need to include in the budget a certain amount going to road rehabilitation projects in order for us to continue to meet the maintenance of effort required to continue to receive OCTA Measure M2 funding. So when we say potential, it's because now in because the money right now is being restricted to infrastructure. Mhmm.

So it's almost kinda locking that in. But by temporarily suspending indefinitely or or for a period of time, that discretion goes back to city council to decide where to apply those funds. But this I I can't foresee city council making the decision not to To meet the contribute to meet the MOE Yeah. Because you're essentially leaving money on the table by doing so.

Do you is that a a fluctuating number? I assume it is.

It does. It goes up every three years based on general fund revenues. Okay. And I believe it's set to reset when,

After next year.

After next year.

Okay. So,

like, 2627?

Yeah.

Yeah.

And and for context, the city receives approximately $3.3.4 to 3,600,000.0 annually in county measure m two funds.

Okay.

And that goes towards transportation prod street projects as well as traffic signals and and some other operating costs.

And the MOE that we're currently having to meet is how much?

Yes.

So right now the city has to kind of essentially match or put in about $5,000,000 to road rehabilitation projects or maintenance in order to continue to receive the $3 plus million from OCT annually.

You answered one of my questions I think which is about how much money we get with the M2. My second question is how long is that OCTA program? Is it indefinite or does it have a expiration?

I think there is an expiration date,

but it's a few years out. Yeah. I know the exact date offhand, but I believe it's, again, to, like, the 2030s.

And they may continue it, but it's I think it's kind of the program itself is up for kind of renewal or evaluation. So it's going to and that's kind of out of the city's control. It'd be probably at the county and the transportation authority. But I believe it's a few years out.

Yeah. And

Okay. So it's and then I understand it requires a four fifths vote by city council to suspend or to terminate. Even if we decided to do it for a year or two, would it require a four fifths to turn it back on, so to speak?

Yes.

You're both giving different answers.

I think No. Okay.

I think it takes four fifths to turn it off. Mhmm.

I'd have to let them know.

Yeah. We'll we'll have to check the ordinance, but, you know, it's definitely forfeits to suspend. And, you know, I think if the action's for one year, we may not have to take formal action to reinstate it.

But from a just to if I looked at it only through the lens of somebody who cared about infrastructure and streets and all those things, in addition, I would have to conclude, is it accurate that in addition to losing the 3,700,000.0 from the county, we're also losing the whatever the $2,530,000 that we're diverting back to public safety or any number of things that desperately needed as well. So truly, we were communicating a significant lack of investment in infrastructure if we recommended this approach.

It is a possibility.

I wouldn't be supporting this for one reason. I think the citizens of Fullerton, one thing that I hear, you know, people say all the time, we need to keep our streets maintained and they haven't been. And if you tell the citizens there are cities diverting $3,000,000 from the streets to something else, I think it wouldn't be a I don't I wouldn't I couldn't support something like that myself. So I'll be voting no on this.

Any further questions?

So if there's no more discussion, so the recommendation to temporarily suspend the infrastructure ordinance. So yes would be to support recommending that to city council, and a no would be not to make that recommendation. So with that, Noah, if you'd like to call the vote.

Derek Smith? No. Jennifer Duong? No. Tony Boushala? No. Jack Dean? No. Bill Brown? Thank you.

So the next one, I'll actually hand over to Steve and maybe to Kingsley to kind of cover that. Not fresh in my mind. I apologize.

No worries, Ellis. So we we covered this last option and then the last presentation. Essentially, this is what we're calling the ex expenditure reduction alternatives. So, we presented two different options. One option is a reduction, by service area.

As you could see on the top left, bullet on the slide, we've identified the areas of public safety. You have your building planning and public works engineering, permitting costs, as well as development permitting. Also, the third bullets, kind of your your your community community services and preservation. So that's your facility landscape landscape and medians, as well as parks and trails maintenance. And then lastly, you have administration administrative costs.

And then, you know, the the second, reduction option would be essentially, you know, look across the board, across all departments and and do kind of like a fixed percentage reduction across all departments. So for example, you know, either a 5% across the board reduction or two and a half percent reduction. Just for context, 5% equates to about $6,600,000. And then on the right in in the the base chart, you know, we list out the challenges in doing this. So, if we were to do, significant reductions, say, to 5%, whether it's by service area or across the board, you know, we'll look we'll we'll have service level challenges to the community would be significantly impacted.

If we do across the board approach, they're kind of unknown and unanticipated impacts at this point. So, you know, right now, just conceptually of what it would look like, it would likely lead to downsize downsizing and layoffs in the organization. And then it would be very difficult to make significant reductions without, you know, including touching public safety, which as I mentioned prior encompasses the majority of the city general fund budget at 72%.

So just for context, windows, I think back in 2020 or so, the city did do across the somewhat across the board reductions just because the budget position wasn't very strong at that point either. It led to quite a bit of upheaval organizationally, a great deal of attrition. Retention was also very challenging. While it did reset the base budget for the organization, it was very, very disruptive. I'm not saying from a financial perspective without any new sustainable ongoing revenue generation that it wasn't not net not that it was not necessary, but it does create a lot of upheaval and there's significant service level impacts to the community as a result of that.

I think it was probably somewhat necessary at the time, but it did have a lot of challenges. Recruitment and retention has been somewhat stabilized with, city council's determination to adjust salaries, for their various positions across the organizations. But going forward, this is just essentially one option. As Eric had mentioned, these options get progressively less pleasant as we go. But this is an option that the city has undertaken.

But as positions are filled and services are kind of reinstated, this is an alternative should the committee want to make that recommendation.

And just to add, you know, with this option, you know, there's no, like, concrete specific plan in place. It would the option would be to kind of explore, you know, expenditure reduction, you know, strategies per se. And then, you know, we would need to work with the city manager to work with the departments to kind of develop a plan in place. So that's kind of like a conceptual option before you.

Let's

Before

you decide, just to take a look at our slide, everything that Ellis and Steve have said, where the cuts will come out of are the ones in bold. If you look at it, dollars 34,800,000.0 fire, 61,200,000.0 to police, community development, public works, human leisure library. That's really the face of the city to the citizens. That's where the rubber meets the road. The general government is only $6,000,000 And even if you cut 10% of that, that's 600,000.

So real cuts have to come out of the, you know, the folks that actually do the work and and and that service the the That's who that's the face of the city. That's where the bulk of the cost will have to come from.

So I'm not in support of cutting, any of the service areas or reducing across board. I think you already mentioned in the beginning that we started the year fiscal year out with a $9,000,000 deficit. You already asked the different departments to try to reduce costs and that's only to defer like is it maybe freezes and just wait on things? So I don't think that's even, like, effective for future. So to recommend this, it wouldn't make sense.

Okay. I'm I'm gonna talk about a touchy subject. A lot of people don't like to bring up. But being a citizen in Fullerton, let's talk about the police department. I mean, they're the highest. They eat the highest amount out, and I imagine they do on the pensions too. And I see us continuously hiring more officers. We keep hiring more officers. And anytime the police department wants something, they get it. They need a million dollars for cameras at a at a intersection somewhere, they get it.

They need, for some reason, you know, dirt bikes to patrol the bicycle trails in Fullerton. I don't, you know, why I understand some of the things that they they tend to always get what they want. It doesn't always seem exactly they need, but they want it. And then other departments suffer. And with the amount, you know, that I mean, I see them consume.

It's it just doesn't seem realistic when the city has budget issues year after year. And, you know, they talk about, we need more police presence. We need more police presence. And in my opinion, the police presence thing is if they wouldn't sit behind buildings and hide out in places while they do their paperwork, whatever, instead park out where people can see them, well, there'll be the police presence. We don't need to hire 20 more police officers for police presence.

So and then another thing is, they probably have the highest liability out of all these departments. So, you know, so they make a mistake. They cost the city a lot of money. And so I I understand why we continuously keep hiring more police officers. I personally have seen, you know, we'll have four police officers for a stolen bike call. You know? And I look at it and I say, this is why we're hiring more police officers. We don't live in South Central Los Angeles. So I don't understand the justification of the rising cost from the police department. So I would think I mean, I'd be in favor somehow figuring out how we reduce all the ones they have.

And do you guys have our budgeted number of officers for the department and how many vacant positions we have right now?

So so I would just caution on a couple of things there. I understand. You're right. They are the highest budget. They have the highest pensions. I would agree on both of those. We haven't added any officers in the budget since I've been here in the three years I've been here. I think they're around a 130 if I remember right. But what happened was they got low. We had a lot of vacancies. So the hirings you're seeing are filling the vacancies that are in the budget. So that those are the hirings you're seeing. We're not adding positions. It's just the vacancies have been hired. And we've had quite a few retirements recently too.

So I just wanted to caution you on that. I'm not, trying to argue anything. They are the highest budget. They they have the highest, pension liability, but we haven't added any positions. I just wanna make sure. The positions you see being recruited tend to be through vacancies that were already there or retirement vacancies.

And even though their public safety is 70% of our budget, it's very comparable to other cities where it is about 70% of the other local city budget.

That's correct.

That's correct. If you go across the state of California, and I've, worked for a number of cities, this is not out of line at all. It's consistent with, what you will see in a whole lot of cities even at the county level.

Here. Oh, there we are. Okay. Not to pick on the police too much, but didn't I read an article? I actually I think what I did was I read the headline and didn't get back to the article about the police station, the building. Isn't it gonna be it's gonna be renovated or torn down and replaced or what? I I I didn't read the the article. I need to get back to reading the article. But

Yeah. It's not gonna be torn. It's about two and a half million dollars. So it's not gonna be torn down

and Good.

And replaced. It's to do renovations to the historic police station. It's about 2 and a half million dollars, and that's all federal dollars. I think Oh,

was it then?

Yeah. It was a federal earmark that was done through I believe it was done through congress member Steele's office.

Okay.

And maybe and also, congress member Correa. I think they both shared in that.

So so that really has no impact on the budget here?

It has minimal impact because I think we have to do a small capital match from, not from our general fund but from our capital funds.

Okay. Thank you.

Question. How many total people work for the fire department, for the police department, for the economic development department, for the public works, the human and leisure services for library and park and recs. Is there does somebody have a number readily available or is that something that we'd have to

It should be available. I think Steve needs to it up. So in the adopted budget it has the total number of budgeted positions for each of the departments.

Just curious how much per person does each department you know, allocate for the budget? Yes. I'm curious.

You have to keep in mind this is the total number of budgeted positions for each department, but the funding sources vary depending on the types of work those positions fill. So there's these are all not general fund. The and firearm. Yes.

Yes. That's correct. So for our police department, we have a 197 total positions, and that includes not just safety position. That also includes non sworn civilian positions. And then in our fire department Yes. One second, please. Yeah. So we have a 132, sworn positions. And it's 65 non sworn. Okay.

And who did who determines the the amount of police officers you need? Is that like a ratio to the population, to the crime? I mean, who determines that? The chief? You know?

I mean Yeah. Most police departments, and probably this one that's similar, would argue that you should have one per thousand, but very none of the cities I've been in do one per thousand, and we don't do it here either. But so it's it's done through allocation of the budget. And we used to have, I think, around a 160 officers, but it has been reduced to a 132. That was prior that was during the recession prior to the pandemic, and we just have never gone back up to that old number because because of fiscal resources. We just don't have the fiscal resources.

Okay. I'm sorry. You said how many people work total for the fire department?

88.

88. And police?

A 197. And of the one ninety seven, 132 are sworn.

And what about fire?

Okay. And

What's the split between sworn and

Economic development?

Fire, we have seven non sworn positions.

I'm sorry?

For fire department, we of the 88, we have seven non sworn positions.

Seven. Okay. And then community and economic development?

For community and economic development, we have 35.5

positions. Five.

Public works?

Public works, we have a 198.5, full time positions.

I I would I would add, though, on the works in particular that a lot of those positions are in other funds such as water, water and sewer, and those other areas.

It's not out of the general fund.

It's not all out of the general fund.

So it's hard to figure out how much each department costs per person. I just try to get it. Yeah.

I I would say as far as costs, police officers and firefighters tend for for your line employees, police officers and firefighters tend to be the highest per paid per per position.

So Uh-huh.

For

Would you disagree with that? No. Okay.

And also for for community and economic development, because a lot of the resources in that department are cost recovery, meaning because they're doing planning and building inspections and things like that. Their that cost, while it's high it's grossed up as an expenditure, they also recover a good portion of those costs and that's what Steve had mentioned earlier. City council, has been working towards full more full cost recovery for those positions providing those specific services to the residents or businesses requesting them.

I see.

And not to overcomplicate it, but in fire, when he lists the 88 positions, that doesn't include ambulance, which is a contract position. So we also have a contract for ambulance, which doesn't show up in the positions.

So economic development has 7,060,000 for this budget year 2425. And so are you saying they bring in 7,000,000? That that taken into account the money they bring in or is that No. Above and beyond what they bring in?

Yeah. It it it is above what they bring in. You know, when we say a 100% cost recovery, it's it's for the services that are when the the positions that are doing the actual permitting, you know, for their or or residents and and and, you know, people making improvements and

economic development doesn't fall into that category. That is not a cost recovery. Those are not cost recovery types of services.

Well More planning and building. More planning

and building.

Yeah. I can the zoning. I you know, I'm not sure, you know, what you're attempting to do. Maybe the better way to do it is we can prepare an isolate general fund funded positions where you can take a look at all the positions that are funded by general fund. And for a department like community and economic development, Ellis is right, they're bringing revenue.

We can isolate the revenue, all the planning fees and all of that stuff versus their total cost, their total burden. I don't think they generate enough revenue to cover all of the cost because all of their cost will include the regular salaries, retirement and all what have you. So depending on what exactly you're trying to get to, you can tell us and we can go back and do that analysis and give you that information. It's not a simple Yeah. Divide the 7,000,000 by a number of, you know, positions that he's reading out to get a number. Yes. That would be misleading. Yeah.

Yeah. Well, when you were talking about across the board cuts at 2.5 to five percent, I'm just trying to figure out

Yeah.

How many people it Yeah. Would impact in each department.

We can do that analysis and tell you for general fund what that means for each one of these departments if you do say 2.5% or 5% across the board.

Thank you.

So setting aside public services or safety public safety rather, it certainly would not be my intent to have our first approach to be to cut the quality of life for folks in Fullerton. It's not why I want to serve on this committee. Confess that I at the first meeting, I think, we started diving in the public safety budgets, I was thinking that I might find something in the way of, like, untoward raises or or, you know, overstaffed. But honestly, I and I really did dig into the numbers. There wasn't was commensurate to other cities.

You made the point. I agree with you that that I don't think Fullerton is is out of line with cities of its size in terms of how many people that it hires. I can't obviously speak intelligently about all the details of the budget, but it it it it didn't feel to me like a fertile place to go and and and book up a bunch of savings. So having said all of that, if we can't agree on more importantly, if the council can't agree on, you know, revenue enhancers, then this is where we end up anyway. I just hope it doesn't come to that.

Does the committee wanna take take a vote on their expenditure recommend expenditure reductions? But I know that committee member Bushal is asking for some additional information. So maybe we can shelve this one to the next meeting and then move on to the next alternative. So the next Do you want or do you want to vote today?

I I would like to punt punt the ball for now. Maybe go on

to I second that.

Okay.

Yeah. Yeah. I was I I kinda like to think about this more.

Yeah. Yeah.

So the next items are revenue enhancement options. The first which would yield the greatest result would be the add on sales tax measure option. I know that we had provided information over several meetings that we're open to ask answer any questions or if the committee would like to discuss anything with respect to the add on sales tax.

I'd like to start out by saying that I would support a add on sales tax if it went if it was a half a cent and it went directly to the infrastructure to the roads in Fullerton I think that would be where I would land. I see the writing on the wall right now is that we're going to be going into a recession and it's probably, overdue, but, President Trump is not helping it much by imposing tariffs on other countries and people are going to start imposing tariffs on The United States And I just kinda see the, you know, the, the good times are gonna start getting not so good. And just today, I had a meeting with my, business partner, and we both were looking at last year and this year where we're at and we both have realized that it's time for us to as he said we need to start tightening our belts and so I wouldn't support taxing the citizens of Fullerton other than if it was a majority I think 66.5% were in support of a tax for the streets. I could support that. But other than that, I don't think I could support recommending anything else other than that.

Well, the dedicated sales tax measure does improve infrastructure

Yes.

In the city, it doesn't address the city's deficit because that money would be directed towards infrastructure projects.

Would the existing funds that go towards infrastructure get used in other ways, or does that you you keep those same funds going?

Yeah. The majority of the money that we get from for that we currently apply to infrastructure comes from outside sources with have restrictions for their purpose, which is primarily road improvements, traffic signal enhancements, things of that.

So if we do a general sales tax, wouldn't the ordinance still be

That's correct.

Applied to it to divert more money to the infrastructure?

Yes. That's a good question.

Yes, it would. That was the that was the intent, I think, at the time that the infrastructure ordinance was drafted and approved was in anticipation of the add on sales tax measure back in 2019, 2020 getting passed. But that measure did not pass, and then it it actually, kind of handcuffed the city a little bit budgetarily.

We go ahead.

I was gonna ask a different question. So if you have

a follow-up on this. Say recently, I I read an article about the city of Placentia. They had passed a general sales tax and they I guess most of it well, the council had said that we're gonna improve some of the roads and I guess some of the roads have not even gotten touched but money kind of got diverted elsewhere. So that's what I'm concerned about happening in Fullerton as more money gets allocated to other departments that have more influence on the city council and then it gets, roads still don't get worked on. It's easy. I mean, it's not it's happening right now. That's my concern.

I think the ordinance as committee member had mentioned, the purpose of the ordinance was to ensure that, 50% of any general sales tax measure would automatically be restricted, as soon as it was received.

Restricted for what?

Infrastructure.

It would be.

Yeah. Based on the way the ordinance is currently drafted. So if if there was a general sales tax measure that was approved by the voters, 50% of that year over year would automatically be restricted for it.

And the other 50%?

Would be at city council's discretion. It could be used to kind of balance the budget, address other city needs. One city council could also direct even more of that to go into infrastructure on a budgetary basis here.

So for context and using your half cent example, half cent would generate approximately $15,000,000 with the infrastructure ordinance still intact and intact. Half of that would be earmarked to 15. So 7 and a half million would have to go towards improvement.

I think the general Right. Yes. Then

100% of that. So the entire 15 would be, dedicated and restricted for infrastructure.

Thank you.

Can you clarify as far as the add on if we just did like a half cent, another entity can then go for the remainder. Right?

My understanding and, Lindsay, and correct me if I'm wrong is there's like a right now, we're at 7.25% for city of Fullerton. We could increase whoever it's kind of like first come first serve. Right? Whoever fills that remaining 2% gap gets to get that money either locally. If the county issues goes out for sales tax measure and it passes, then the county would retain that into perpetuity.

So to your point, is kind of first so if the city was to go out for a half cent sales tax into perpetuity so long as that sales tax measure doesn't sunset, that that half percent would be guaranteed to come direct to the city of Ton pretty much forever. Yeah. But if another agency, county, even the school district floats their own sales tax measure, that that percentage, that two the would

like,

OCTA. OCTA. Because as you mentioned earlier, OCTA's m two program ends

That's a half cent sales tax.

That's a half cent sales tax. If that ends, if they go out again and let's say they do a full percent Mhmm. That would reduce the capacity the city would be able to go out for in terms of our revenue.

So the longer we wait, the longer we lose or the chance of losing the opportunity to Yeah.

The risk is definitely there.

So I'm very much in favor of a sales tax, and I was looking back on when you did the presentation, I think, back in know, we're able that.

I that's

is it's going to be what it's going to be. I I think point. I'm not in favor of a dedicated sales tax because I'm quite certain it's going to lose no matter what you do it for infrastructure or anything else. I just don't think there is an issue that you're going to get two thirds of people forced to vote on. But a 50% in and when I went through the cities that have passed it, you know, it's range of cities that are more conservative or more democratic or what have you.

I don't doesn't seem to have much bearing. Moreover, whether it was a quarter percent or half a percent or 1%, it still didn't have a whole lot of bearing on success. Ultimately, voters are gonna like a sales tax, but not gonna like it. And whether it cost them a quarter or half cent or a penny, they're still gonna vote the same way. I'm pretty confident about that.

But we should get the money that we need to have a solvent budget. And this seems like the very best way to do it. Ultimately, I think it would be helpful if there was consensus amongst the council because the one thing that does tank sales taxes if it gets divisive amongst council, and then you've got factions fighting each other, and then it will likely fail. But if but I think that this is probably the the most the cleanest and solution that is actually gonna super address our problems, really address our problems rather than just kind of kicking the can down the road here.

If I if I could slightly disagree with our chairman. I think that because of the condition of the roads and because of the number of years we have heard people from all parts of the political spectrum complaining about them, I've got a feeling it probably would pass a dedicated tax because people are getting really concerned about that. That's just an an observation. I I think this is still something to look at the ins and outs of.

Mister Dean, would you support that? A half a cent sales tax dedicated sales tax measure?

I'm not sure. I think this is another one I'd like to think on, especially when I was not aware that if you do a general that that you've already earmarked part of it to go to the the roads. So I guess the question would be, you know, how much would be going to the roads and how much would be helping the the the the general budget?

So So the infrastructure fund was drafted, so 50% of any increase in sales tax and or and property tax would be automatically restricted for infrastructure. That number has kind of grown over time as sales taxes stabilized post pandemic as well as property tax assessed valuations deficit because we're automatically restricting what would have normally come into general fund and earmarking it off the bat for infrastructure. So the way as committee member Duong had indicated that if even if we went for a general sales tax measure because the way the ordinance is drafted automatically 50% of whatever received in that add on sales tax would be restricted for road improve for infrastructure improvements.

And then would council be able to just update the ordinance if they feel a greater concern to, you know, divert more funds

to Yes. They could do that. So they could do an amendment to the existing ordinance if they show so chose. And I think that requires

sales tax, the last time the city attempted it, do we have, like, polling information or anything like that on on that last time?

I don't recall, but I don't know if this is manager's office. Yeah. They can present it.

I looked at it two years ago and

I had a point of Okay. Yeah. Yeah. That would be helpful. Okay.

Were you were you you wanted to see that information, didn't you? Yeah. Yeah. Okay. So you still have that. Right?

Yes. We do.

Oh, good.

Okay. So I've been I think this one will continue to bring back at the next ad hoc committee meeting. Mhmm. The next item for revenue enhancement options was the TOT or the hotel tax option. I think the city council, I did not know the last time to put this one on the ballot. But this one is the city's current TOT rate is 10%. The increase I think that was initially looked at, a year or so ago was to increase it to 12%. Think Steve is that the 600,000 or is that $400,000 I

believe that's the lower end, the $400,000 Yes.

If we increased our TOT rate an additional 2%, that would yield about $400,000 depending on hotel occupancy year over year. But it's not recommended to do any type of sales tax measure and then do another sales another tax measure on the same ballot initiative. No.

I would say if we're considering more so the sales tax than the TOT tax, I would not be.

I mean, think as a matter of course, should increase the TOT cost. Mean, Fullerton is not in line with other cities on this. It's low. It's not a lot of money. So I think the sales tax is a bigger priority for me than the DOT, obviously. And, you know, I suppose there's a political concern for how we would package them and package them together is disadvantage to sales, and we shouldn't do it. But that doesn't but I would still recommend council explore this at some point or another. I mean, it's an easy thing.

To me, it's not enough money to go after for, let's say, $05,000,000 a year to I mean, if you're going get 50 plus 1% of the vote for any kind of tax, I think it should be at least meaningful to the citizen. Well, something like this, they're going to think, well, we're not paying for it. So it probably would get more than 50%. But it's low hanging fruit, I guess.

Does the committee want to discuss anymore? Any questions? Or do we wanna vote to recommend or not to recommend tonight? Or do we wanna kinda shelve this to after the add on sales tax discussion?

Yeah.

Yeah. We could do that.

And

you may have already given us this in the materials, but do that the what the other cities are charging.

Yeah. Do you wanna run through that really quickly, Steve?

Yeah. So Daisy was correct. And Anaheim is at 15%. Another higher city is Garden Grove at 14.5%.

Mhmm.

Most cities in Orange County are either at 10 or 12%.

Mhmm.

And then Laguna Beach, obviously, they're a big tourist city, but they're at 12%. Buena Park is 12 as well. That's correct.

Yes. Yeah.

Sort of.

So then I think the recommended motion is for the City Council to continue to evaluate this but not at jeopardize the City Council council look at an add on sales tax. Is that kind of the recommendation that we want to vote on tonight? That work? Okay. So yes is to recommend to city council to continue to evaluate it, but not at, the risk of hindering a potential add on sales tax measure. So no one.

Derek Smith? Jennifer Duong? Tony Boushala? Jack Dean?

Yes.

Bill Brown? Thank you.

So the other budget considerations, and these are a little bit unique because they're not they're somewhat standalone and somewhat not. So the street financing we did present, I believe, is the last ad hoc committee meeting. This one, I think the risk mitigation for this one would be is if we were to successfully pass an add on sales tax measure that would generate sufficient general fund revenue. We could potentially look at issuing debt because there's a lag in time between the sales tax measure passing before the city actually starts receiving those debt sales that add ons and transaction tax. If we were if the city was interested, we could look at also doing a street financing to kind of front load receipt by issuing that debt knowing that that additional revenue generation is going to be able to sustain those ongoing debt service payments so we can start making those street improvements earlier than actual receiving and on sales

The other approach would be if you wanted to, accelerate certain street improvements, you could do this, and use the infrastructure fund as your so not adding any tax, but use the infrastructure fund to pay for the debt service for doing this so you do more streets up front. The problem is you have, you don't have the money after about five, six years. You won't have any the infrastructure fund would be paying for the debt for the 35,000,000 and wouldn't have any money to be putting new streets in at that point. So that would so if a sales tax hit, a dedicated sales tax, then you would then have that continuation. So the the advantage is you front load 35,000,000.

The downside is, if you don't have another revenue in about five years, then that infrastructure fund's gonna be paying this debt instead of doing other, project other projects. But if you are of the opinion, well, let's get more done now, this might be an approach. No. The actually, this would actually be a match to the m two money.

For a period of time.

For a period of time.

Yeah. But then I think back if based on when we did the analysis, I believe starting in, like, '28, '29, or '27, '28, the debt service payments would not constitute a match for MOE funding. So there would be risk without additional money. General fund discretionary money is being dedicated towards road rehabilitation, of losing measure m two, but it pushes that out further.

That that's true. But even with our current infrastructure fund, we're not gonna meet the

That's correct.

M two in a shorter time period than that.

That is correct.

Yeah.

It's It's just just something we had done some analysis with, kind of front load, some street

purpose of this one, people say, how can we do more street improvements? And this is a way to get there. There is that risk after about five years. That's the downside. If you don't have a dedicated self sack or something.

So maybe I don't know if the committees wants to discuss themselves or if you want to vote to either recommend in conjunction with an add on or recommend without an add on. I just don't know. My

thought my desire would not be to do this unless we were considering an add on. I'm happy to formally punt this until we have the discussion next meeting when we sort of adjudicate or figure out the sales tax and how we wanna approach that, but I would not be comfortable doing this unless we were at least assured of some kind of revenue coming down the road. Second?

Okay. So we will defer this discussion until after some additional information is provided with regards to the polling information for the add on sales tax measure. The last item that we had presented to City Council was an EIFD or an enhanced infrastructure funding district and I probably let Eric speak to this one a little bit more.

Again, this isn't a budget savings item, but this is a different way. If we wanted to try to redevelop an area of Fullerton and we wanted to create a district, this would be a way to do tax increment financing in that district. The caution would be I think there's about 30 cities in California that have this, maybe give or take one or two cities. I think there's only one, maybe two cities in Orange County. Orange County has a a policy on this because what an EIFD is is both the city and the county would put their funds towards this district instead of for their general operations.

That's what it does. The only city I'm aware of is Placentia, but there may have been another city that's done it since. And Placentia hasn't done the any improvements yet, but they they set up this fund.

Eric, could you, you know Fullerton, well actually, probably not, don't know Fullerton as well as I do because I've been here longer than you, but can can no. You know?

With you 100%.

Could could you kind of imagine, like, what like, if you were to do an EIFD, like Yeah. Where would the first, like, area be? Like, for

example So two areas I would perceive. One would be maybe over by where the Walmart is over off at Chapman. That might not just that area, but that oh, Walgreens. Yeah. I said Walmart. I'm at Walgreens. Sorry about that. Walgreens area, that area over off at Chapman maybe has some potential for redevelopment.

From that area north or south? From Chapman North or Chapman South or both sides?

I just conceptually I I I mean, that would have to be something

Is it a ZIP code? Would you do it by ZIP?

No. Not not necessarily. You would draw a border. You would draw borders. And then another area could be down the Orangestorpe corridor down towards down towards the Brookhurst area. That would be another area I could see to try to create more commercial viability there. Those would be just off the top of my head, those would be the two most likely. But like you said Southwest Fullerton.

Yeah. Southwest Fullerton maybe would

Yeah.

Support something like that. Right?

Yeah. And like you said, you know the city better than I do, so which I agree a 100%.

Yeah. I can see something like that maybe Southwest Fullerton because it's kinda built in the same era, probably, like, in the sick fifties, sixties. And whereas, like, maybe Sunny Hills is probably from the sixties, seventies, I think.

Yeah.

And then you've got the downtown area from the twenties twenties and thirties, but I don't yeah. I don't know. It's kinda hard to figure out what to do on this EIFD.

And why this one I can't seem to wrap my head around. But, the local property taxes, are they the commercial property taxes or residential or who's the who who put who pays?

It's both. So whatever properties are in that border for that district. So once you kind of form that the infrastructure district itself, you almost set a baseline of what that property tax base is like. And then as those improvements go in, they're going in with the understanding or the hope that the assessed valuations continue seen we've And then that tax ink that increase in the tax is supposed to make that those cover those debt service payments.

So if you did that to the entire city of Fullerton, it'd be like a giant redevelopment area. Right? And the tax increment?

It's a tax increment financing. It's exactly what it is.

Easy. That's the new

New environment went away.

Right. So the schools probably wouldn't like that, though. Right? And the school districts? Yeah. But this money that was the increase in sales tax and increase in property tax.

Not under this. Yeah.

They still keep their percentage?

It just what would The watered down version.

Got it. That sounds not like a pretty good idea to me, actually.

It's right.

The whole city. So we don't send the money to the the increase in increment doesn't go to the state or the county. It goes to the city. Right? Excuse me?

It would be the county and

the city. The county and city. So you cut out the state.

Based on

Well, they get theirs they're they're under the with the basis below it. Right? But the increment, they don't get any of the increment?

They would get their portion of the

Oh, they do get an increment?

That's why. Yeah. So if the evaluations in the in the district continue to increase, the school district would still get what they were would originally get. It's just the city would not receive the portion or the county would not receive the portion that would be attributed to them because that would be using to fund the financing.

What would be the drawback to doing something like this? What what's the the reason why you wouldn't do something like this?

The debts yeah. And when that happens, then general fund has to subsidize by making the

Oh, it's a property taxes don't increase, you're saying? Yeah. I see. Okay. Thank you.

Excuse me, Eric?

It won't go for other operators. Yeah. It wouldn't go to

Oh, I see. I see. It just goes to the infrastructure?

Yeah. Thank

you.

So for this one it's, I think we're looking for committee consensus as to whether or not they're recommending that the city staff and council, continue to evaluate this, or not.

I think it's worth evaluating myself.

Do we wanna take a vote if there are any other questions? Noah? So the recommendation is to continue to evaluate PIFDs as a possible way to do some additional tax increment improvements in certain areas of the city.

I'm sorry. Question. And I know you've answered this, so forgive me. But this is about redevelopment, but it really it's not structurally addressing any problem that we have with deficit. Right?

It's good. Yeah.

It's a nice way to do redevelopment in area or city that might need it. Yeah. But, ultimately, it's not addressing the real problem. That's correct. Right.

Sure. Okay. Sure. Alright.

Derek Smith?

Yeah. Yes.

Jennifer Duong? Tony Boushala? Yes. Jack Dean?

Yes.

Bill Brown? Thank you.

So based on just to recap kind of where we're at right now, staff will bring back what some of the expenditure reductions would look like for general fund positions. We'll also bring back pulling information on the add on sales tax measure that was looked at back in 2020 as well as recently. I think those are the only follow-up request from staff from the committee to staff at this juncture. Is there anything else that the committee would like information that the committee would like to request? Yeah.

We're gonna if not, then, I'll have Steve go through the, available dates for chambers for a future one or two ad hoc committee meetings.

Okay. So it's it's on the PowerPoint presentation. So the first is the week of ape the April April 2, which is a Wednesday or Thursday, April 3. The second option is Thursday, April 10. And then the last option is the Tuesday, April 22.

Can I ask what what is what is the target date? In other words, when is the when is the the budget going to be adopted by the council?

We're looking at doing a study session sometime in April, and I don't think we have oh, May now. It's May 13.

Oh, it's May.

Study Okay. Session with budget adoption in June.

Okay.

Yes. Okay.

I'm only available on April 10.

April 2. April Thank

you, Eric.

Thank you, Lucinda.

I'm available on the tenth and the third.

You're available or not available?

Available.

Available. Okay. Two on the tenth. Anybody else not does the tenth not work for anybody else?

Tenth is fine for me.

Okay. Thank you. Yeah.

Okay. Thank you, committee member Brown.

Seems like that Thursday is a good day for the committee.

So committee member Bushala, does April 10 work for you as well? Okay. Perfect. So then we're looking at April 10 for the next ad hoc fiscal sustainability committee.

Okay. The meeting for the fiscal sustainability ad hoc committee is adjourned. Our next meeting is scheduled for Thursday, April 10 in the Council Chamber. Thank you.

Thank you.

Thank Thank you. You're going to you're going to give us all your cell phone number, right, so we can call you?

I did put a note. I know. Did did they did they tell you?