Regular City Council and Housing Authority* - Special Meeting

Good afternoon everyone and welcome to the city council special study session meeting of Tuesday, April 28th, 2026. I now call the meeting to order. Um let's all stand together and say the pledge of allegiance. Ready, begin. 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. Uh, madame clerk, would you please do the roll call?

Mr. Mayor, the record will reflect that all council is present. Okay, we have one study session item tonight. Madame clerk, would you please read the uh title? Yes. Fiscal year 2025 2026 midyear budget update and the presentation will begin with our city manager Gallardo Daily.

Okay. So Cecilia, before you start, just for the ground rules, um we're going to go with the staff presentation first and council will ask questions. Then we're going to hear from the public. Public can go ahead and have three minutes tonight. That's not a problem. We'll go to the people in the uh chambers first. Then we're going to be on Zoom. It's more casual tonight. If you wish, you can use first names. You don't have to if you're uncomfortable doing that. Um, and uh, during the staff presentation, if if the council feels like it's important to ask a question at that particular time or context or whatever, uh, just, you know, make yourself heard and you'll be able to do that. As long as we don't interrupt each other, it's pretty much open. We'll have a discussion mode the whole time. And so I'll recognize you if there's more than uh more people that want to speak, but we want to make sure everybody gets all their questions and statements out. So with that, um I'll turn it over to Cecilia to start the presentation.

Thank you. Good evening, mayor, members of the city council. As we review the current fiscal year budget and provide you with a mid-year update, I'm pleased to report that the city remains on steady financial footing and is projected to end the fiscal year in a positive operating position. As you'll hear tonight, this outcome reflects a careful balancing of revenues and expenditures coupled with careful budget management. These efforts have required coordination and cooperation across all departments. I'm very pleased to announce that through the efforts of the police department recruitment team and the human resources division over the last year, the police department is fully staffed in the sworn ranks and citywide the city has a low number of vacancies left to fill. A great success story to tell. While maintaining fiscal stability has been a central focus, we have remained equally committed to advancing the priorities established by the city council. Looking ahead, our approach remains grounded in achieving long-term fiscal sustainability. And this includes not only managing current resources responsibly, but also planning for the future obligations, evaluating ongoing service demands, and identifying any opportunities for operational efficiency. Before I turn it over to the budget team, I want to thank them for their outstanding work getting us to this point and looking ahead to the 2627 fiscal year. They've been working around the clock. So, I'd like to introduce our budget team for my from our finance department. We have here this evening Kingsley Okareki, our financial consultant, Mark Coup, our budget manager, Anna Aosta Reyes, our finance manager, Paige Appel, our senior budget analyst, and Allison Tong, senior budget analyst. So, I'd like to turn things now over to Kingsley to start off the presentation.

Okay. Uh thank you uh city manager. Uh Mr. Mayor, city council members, we do have a presentation for you tonight. Um uh we're going to go through a lot of slides. Uh but just let me give you an overview and then I'll turn it over to our budget manager here, Mark. Uh first uh uh we're going to go through a slide basically uh the general fund budget that you adopted almost a year ago in June. just to remind everybody uh uh what was adopted and uh how we began uh city customers have began the fiscal year. Then we'll look at um all the economic conditions you know since then everything that uh we have identified that have impacted um our revenue earnings to date and our projections on how we're going to end end the fiscal year uh uh in a couple of months by June 30. So we pivot and look at specifically uh uh examine the revenues and and uh some of the things that impact revenues and how we're projecting and uh then we go on to the uh expenditures side of the of of the budget some of the um key drivers that u you know uh impacting the budget and uh how we are going to or how we're projecting to end the fiscal year. We'll summarize all of those and as uh the city manager pointed out um your budget for the fiscal year will end on a positive note. At least you earned enough revenues to cover all of your expenditures. And then we'll pivot and look at next year's budget uh our planning. Uh we we outline for you some of the uh things that we're looking at uh some of the key issues that we think uh will impact that budget. uh revenue projections on the cost side, you know, some of the things that we think uh we need to estimate and uh put into the budget. We don't have any numbers for you tonight with regards to uh next

year's budget, but uh we will be coming back to you shortly uh uh to share some numbers at the um study session specifically focusing on next year's budget. So, with that, I'm going to turn over to Mark uh to go through um the details of uh the presentation. Thank you, Kingsley. And good afternoon, Mayor and honorable council members. Uh, as Kingsley stated, we're here to remind you what the fisc year 2526 general fund adopted budget was. The general fund adopted budget, all-encompassing all funds, total 224.9 million. of that approximately 186.9 million was towards the general fund. Uh the budget last June was adopted so it was structurally balanced without the use of reserves or ARPA funds. Within the current year's adopted budget, 54% of the budget was dedicated to public safety departments which includes police and fire. The budget also includes a partial deferment within for the CAN the capital asset needs in the amount of 1.25 million as well as a partial deferment to the information technology needs in the amount of 1.16 million. The current year budget also included a prepayment to CalPERS for our unfunded liability. uh that prepayment amount was $31 million this year and by preparing a prepayment in July of each year we saved approximately $1 million. So had we not made that prepayment

it would have been $ 32 million. Moving forward to the economic outlook and overview. In late 25 and early 26, economic indicators in Orange County showed moderate but uneven growth with stable labor labor conditions and steady consumer spending. So even as inflation's pressures emerge due to higher oil and uh gas prices driven by the geopolitical tensions that we have currently in Iran. Sales tax was beginning to show some early signs of slowdown, but many industries that we have within our cities, our city of Costa Mesa is still anticipated to grow year-over-year uh based on this uh resilient consumer base that we have here. Moving ahead to the macroeconomic conditions. So macro meaning the larger scale of the economy. Negativity within the larger scale of the economy may have an impact to city's revenue. So I do want to make that note that there may be a connection. Uh how big or how small is yet to be determined. But in 2025, heightened volatility in the US and economy experienced due to shifting federal policies, including new tariffs and prolonged federal government shutdown. That disruption continued onwards to the beginning of 2026. economic instability continue to intensify uh due to the current conflict that we have right now in Iran leading to higher fuel prices and weakened consumer confidence. As far as the policy and market impacts

due to those uh events, we also have immigration enforcements and lingering tariff effects creating uncertainty across different sectors such as the labor markets, the real estate market and the financial markets. An outlook for the cities for this current city revenue and expenditures forecast indicates that the conflict in Iran coupled with elevated fuel prices and shifting household liquidity meaning discretionary spending that the average household have will influence the city's revenues and expenditure in the near and long term. So the economic outlook and overview uh looking ahead the headwinds. So these are the forces that are kind of against our ability uh to generate as much taxes as possible uh to consumers and business continue to pose a risk to the city's revenue and with key growth that may challenge some of our primary sales tax bases. So sales tax in Costa Mesa is unique in that it is the number one driving revenue source whereas other cities typically property taxes is the highest form of revenue source. So what we like to say is when the economy does well and sales tax does well, Costa Mesa does well. But when sales tax and the economy goes slower, uh, Costa Mesa is also impacted by that. And then we also have property taxes that may have a lagging impact uh

because what happens today and the the shortage of of houses that are being exchanged and being sold, you may not see that impact for a whole year till the next fiscal year. So national and state level data may not be necessarily reflective one for one with Costa Mesa because of the composition of uh the businesses. So for example in California there's a big agriculture sector but however Costa Mesa we don't have agriculture as heavily influenced in this city and so that that disproportionatement within the um demographic of the consumer base and the types of businesses may not be fully reflective in our city. So that's what we're trying to say here. And Costa Mesa, we are heavily in the consumer goods business as well as the auto sectors. So those are the sectors that we have to kind of look out for for the trends. So moving ahead to the general fund overview and as we stated the biggest source of revenue for the general fund is sales tax. So sales tax makes up 40% of this city's uh revenue and is received typically 2 months in a rears. Property tax makes us the second largest which makes up 34% of the city's revenue and they are typically received between December and January and April and May which is aligned when homeowners pay their property taxes. Toot makes up 5%. It's uh it's a tax that hasn't been increased in almost two decades

and uh it's received one month in a rears and cannabis tax uh makes up about 2% of the city's revenue and is received one month in a rears. So with all of that being stated, uh the table that is being displayed demonstrates that property tax will end at slightly lower than what was adopted in the budget due to fewer home sales expected. So home sales were relatively flat. There wasn't much growth in the home sales sector uh primarily due to higher interest rates. uh sales tax. We are seeing an increase in sales tax. Uh and the majority of the sales tax for this city comes in December uh during the Christmas shopping season. So that's when a large collection of our sales tax comes in. Toot is slightly increasing to by 200,000 to $10 million. And as stated earlier, cannabis tax remains relatively flat. We are not expecting to see any growth in cannabis tax. So all in all, when you take all of the projected numbers, we are projected to end revenue just under 194 million or approximately 7 million above what was initially projected when we began this fiscal year. Now moving on to the expenditure side, we do want to bring up some key drivers to what impacted the expenditures. And so some of those key factors that have impacted expenditures include pursuing full staffing in our public safety operations, including the police sworn

and firefighters sworn. There were also significant reductions in vacancies. There were approximately 55 vacancies in March of last year and if we move forward to March of this year, it's about 35. So you see a 20 20 position reduction. Uh and as stated earlier, there has been a growing cost to our unfunded liability. So this year we're paying $31 million to CalPERS. We already have the number for what we're going to pay next year. That's going to grow to $33 million next year. So, a big portion of this budget, even if we didn't do anything, would just grow because of the payment obligation to Kalpers. And we also have higher insurance premiums that the city pays uh an amount of $2 million. But I do want to note that these high insurance premiums, these increases, is not subject to Costa Mesa. It's all municipalities. They're facing this higher in premium and charges moving forward. So we we expect an increase in that as well for the next fiscal year. But every municipality is facing that challenge. So when we look at the table for expenditures, the salaries and benefits, we're going to end the year at right under $146 million, primarily due to cost. Operational costs, we're going to see a reduction of 1.5 million from the adopted budget. So, operationally, we're going to end at approximately just slightly above $45 million. We also will transfer $1.2 million to the CAN for the capital asset needs and $1.6 million will be transferred to the IT

replacement fund. So, once you take all of those factors, we're going to end at 193.8 million.

Yeah. If we can stay on on this slide for a minute, I just wanted to elaborate a little bit. Uh when you look at the first item there, salaries and benefits, you see that sign significant growth. And uh as Mark pointed out in the previous slide, okay, right now the good news that uh the uh city manager pointed out is that you're fully staffed in your public safety positions. But at the time that uh this budget was adopted um there were you at you know some vacant positions and uh it's doubtful u you know me looking at it coming from you know prison uh position here looking at what was adopted that it was um it appears that a net budget you know for lack of a better word was adopted. So when you have all those positions filled that all of that cost is what is being reflected in the increase that you're seeing here and as well as um you know uh maybe some of the negotiated labor increases. Yeah, I'm doubtful that all any of those were incorporated in the original adopted budget of 137 million versus the 145.8. When you look at that 145.8, there are no surprises. Those are really uh uh h are funded salaries for positions that are approved and recruited and filled within your organization. Just want to put uh make that point.

Thank you, Kingsley. And so we do have some achievements in this current fiscal year that we want to highlight. The city filled all police officer vacancies. So in the sworn classification uh achieving full staffing we also secured grants funding including traffic enforcement grants, transportation grants and federal earmark. The city maintained its really highly regarded double A+ bond rating. The city also earned multiple governmental finance officers association and California society of municipal finance officers association award for delivering a balanced budget. We project a savings of approximately 100,000 at the end of this fiscal year. So we're going to end in the black. We're also projected to exceed the city council general fund reservance policy of 55 million by 6 million. And so that 61 million that we're going to end at is approximately 31% of our revenue. And so according to uh GFOA best practice, a city should have approximately 16 to 17 mil% in uh in minimum reservance relative to their expenditure and budget or revenue budget which is typically in line and we far exceed that 16 to 17 uh% threshold. So

yeah. So now in summary when you look at this summary schedule just taking it um in that 30,000 foot level summary you look at your total adopted uh budget u for revenue of about 186 million dollars versus the 193.9 that's your pleasant surprise sales tax pleasant surprise you know based on what Mike you know pointed out in that previous slide the increase in sales tax and that's great news uh on the expenditure aside, you know, just what I pointed out in the previous slide as well is just that fully funding your positions and having recruiting and you know really uh um uh um having full swat of uh employees in your public safety in other essential areas to run city programs. So um at the end of the day you generated enough revenues to cover your base expenditures with a little bit of uh change left.

Certainly sir. Yes sir. Go ahead.

At some point somebody had to upset the flow here. I'm just curious. It kind of leaps out at me. I don't know if it does anybody else that the adopted budget revenues was 186.9 and the delta that we uh uh our revenue was what about six about 6 million uh in additional revenue and then it does jump out at me that our uh we missed on expenses by about that same amount. And it begs the question, did our uh we achieved the revenue and then found a way to spend it or that it just coincidentally the uh 6 million in additional revenue happen to be consumed by these unforeseen expenditures, the insurance premiums and some of the it just is glaring to me how how they track so closely.

Yeah. And I I have the same reaction as well, you know, when we were looking at the details and um the the it it's a coincidence, you know, if you want long and short answer of it. Uh looking at the revenue side of it, we went through every single revenue, especially the big ones. The big two is what I focused on initially, your sales tax revenue and your property tax revenue. that constitutes um close to uh 70 something% of all your revenues. And then we looked at the other ones, the smaller ones individually. And um those revenue projections that we share with you here relative to sales tax and property tax, those are coming from our consultants. It's not something that we staff, you know, made up. We have uh HDL who we rely on uh their professional expertise to advise the city on on those two big chunks. That's where really the rubber meets the road in terms of uh city of customers revenues. So those revenues uh we went through them you know the rest of it meticulously line by line. Then on the expenditure side as I pointed out you know um I think in my own professional opinion looking at the budget it was more like a net budget that was adopted. There were you know um assumptions that were made in that budget carrying over from a previous year as to level of vacancies that you will have there and those vacancies were filled you know uh and most of them were public safety positions. So when you fill them you know um you're going to basically uh incur that cost you know that's uh uh what happened on the um on the expenditure side there are some attritions on the uh uh uh operating non salary side of it if you look at it you know because uh I guess the message from the city manager and

administration during the year to really yeah everybody tighten their belt you know make sure that you're only spending was essential there some savings that we are projecting in that category of um uh expenditures. So it just sums up that way. When I looked at it the first time too, my reaction was that uh well this kind of fits it looks kind of uh um almost the same. But it is what it is, you know. Um and and and that's how it shaked out. and pivot in on that. I'm sorry, was somebody else?

Yeah, I do want to add if you if you look at the slide uh uh council member Buy for the how it ended in FY2425, the 2425 actual of 190 uh the growth trajectory of the expenditure is within line of what the city would normally traject. But because these budgets were adopted at a time of uncertainty last year there was quite a little bit of uncertainty going on. Um the approach was really being conservative and when you go conservative sometimes you exceed those projections. Uh but the growth the final and year end of this year projected is within line with what the natural growth of the city would be. uh just based on those UAL unfunded liability costs, $2 million and just a few additional staffing and the insurance costs and you'll just get there right there.

And actually, you just pivoted to a a a question I had and it's just part of my education on the unfunded acred liability. Um, I think we had anticipated 31 mil and I think you said it went to 33 million and that that was in July perceptually a lot a larger amount than we anticipated. What's the the cause of that? Just to educate me on what causes fluctuation in our unfunded liability obligations

there there aren't any fluctuations. We actually that's a that's a schedule that we get from CalPERS. Uh that payment schedule is actually built out all the way to uh maybe for the next four years or so. Okay. So they give us a forecast uh the unfunded liability the cost that we have to pay uh for for staff uh it's going to continue to grow. So this is not uh there's there's an actuarial study we have uh from CalPERS that provides us with that number. So it's not it's not a surprise to us. It's something that we have to account for.

But my my I guess then my question is if we had accounted for it at 31 and you're telling me it came in at 33. So then I misunderstood you. That 33 is what we're going to pay next fiscal year. So the 31 is what we're paying this year in FY2526 and 33 is what we're going to pay in 2627.

But you're showing unless I'm missing something. I'm looking at page 12 where we talk about the general fund expenditures for 2526. And I understood when you were talking about how we got that increased expenditures that we hadn't foreseen in 2526 that consumed a good chunk of the good news revenue increase. Yeah. The way I understood in reading page 12 that that uh unfunded acred liability going from 31 to 33 was uh applied or was impacted in 2526. If I all those numbers didn't lose everybody.

Yeah, it we're on this page we're showing both of what the drivers and what the actuals are. And so the the 31 was anticipated. There were no surprises there. However, it does make up for a big chunk of the final year's number. And so that's what we're trying to state here. And that it is a highlight that we did want to highlight that that cost is prominent within this year's expenditure. Okay. So 2526 we had budgeted for 31 and we're paying 31. And what you're showing me here is a big chunk of those expenses but it's wasn't a driver no

of the delta that I I'll call it the the the increased expenses. So then I guess my next question is since I misread this in that the 6 million in additional revenue was eaten up by these expenses. I've just lost 2 million there. Are there any key areas where we had unforeseen increased expenses in 2526 that consumed that revenue delta? Okay. Well, the um going back to unfunded liability, I think what he communicated was that uh we knew what the number was, but we paid we prepaid and saved a million. Okay.

I think that's what uh was communicated here that prepayment of it saves you interest. you can break it up, you know, into 12 u installment payments and pay interest on top of that. At the end of the year, you would have paid a million dollars more. Now um in terms of u some of the other things uh that um accounted for the expenditures uh that we didn't think about uh the only thing I can identify based on my analysis of uh you know as we analyze this budget is the assumptions that were made going in were off you know for lack of a better word we assumed a certain level of vacancies and in the budget that was adopted that's why I said you know most likely it looks like a net budget that was adopted. But when all the positions that are approved were filled, those are the costs that are being reflected here, you know, and so you can adopt a budget um uh you have a gross budget of say 145 and you assume some ridiculous um uh um attrition factor that you're going to have a certain level of vacancies. If you turn around and fill those vacancies, you're not going to achieve those. So that's essentially what's happening here. The positions have been fully uh uh funded and uh spent. So that if that you could that could be a surprise but um you know um but those are known positions and and there was an effort on the council side and staff side to actively go out and recruit and fill out those positions

and yeah. So I guess what I'm coming to the conclusion or the primary uh driver of the consumption of any additional revenues was our success in reaching full staffing in the public safety and a lack of attrition. Uh uh the the estimates or the actuarials had predicted a certain level of uh attrition that didn't happen. Yeah. And then we were successful in filling vacancies.

Yes. Okay. Correct. Then a I guess a question while we're on this has and I don't know if this is staff in general or city manager I I hear a lot that uh we're at full capacity and and we have our full staffing numbers and again since I hadn't been involved and h how are those numbers or when do we go through an evaluation to determine whether we're adequately staffed, overstaffed, understaffed? Do we do that every several couple of years or uh obviously we've got a number that we want to get to and we want to attain and we want to achieve. How do we determine that number and when do we determine that number?

If I could just jump in here. Um every time there's a vacancy we evaluate the position to determine whether or not it's necessary to fill it. whether it's in the IT department, the parks and community services department, the finance department, development services, we um we go through a a a comprehensive evaluation of over whether it's needed. Um I can tell you now that um given the the service delivery um that we provide, we're certainly not overstaffed now in any way.

Yeah. And I didn't mean to imply that we are. And in fact, to pivot off that that last comment, just my personal observations after after being up here for for a year and dealing with members of the public. Um, yeah, when the service aspect of of uh uh of our city operations, I I hear regularly that maybe we're we're understaffed on permitting and code enforcement and business licensing inspection and things like that. So by my questions, I'm not uh uh implying or taking issue. I'm just curious about the process and and do we constantly evaluate and do we constantly review the necessity and do we constantly determine are we properly allocating resources where they're to the most benefit of the community. Um okay. Well, thanks for letting me I've got other questions, but that that's good for now.

Mr. Mayor, yes. Um, can I jump in though because I think this is part of my questions. So, we we have always held vacancy placeholders. We've always financially accounted for positions we might hire. So, I I guess I'm confused about now we're saying that we didn't do that. We didn't do that, right?

Correct. I I can give you some perspective. I actually I actually have some vacancy reports in front of me just to show you the city was heavily dependent on those vacancies to stabilize the budget. Okay. So in July of 2024, there were 73 vacancies in the city. When you move to that same time in 2025, that vacancy dropped down to 52. So now you have 20 that the savings have gone down from those 20. Now when you move to today as of we have numbers as of March that 70 vacancies have dropped down as of March to 34. And so naturally those 40 positions they are uh they're they're helping they're they're helping to keep our response time quicker. They're keeping this this city a first class city. A lot of people want to come here. A lot of people want to live here. You know, we uh a lot of people are priced out of this city because of the high standard of living that our public safety departments provide. Uh when when there's an ambulance call, our fire department responds immediately because of these staffing levels and the success of that. Um, we I mean we we want to point that out, but within a two-year period, you fill 35 to 40 positions, and that's and those are actual costs.

I I understand that, but I'm trying to get to the point where we we adopted a budget that showed $137 million and now we're going to spend $8.5 million more than that on salaries. I had thought that the $137 million budget included some amount of accounting for hires that we might make. Was that wrong? We didn't we didn't count for those hires at all. In my humble opinion, uh those were not fully accounted for. That's why I use how how many of them were not fully correct.

We can go back and drill down and see how many um because what happened here in my look at the budget was that um even pre a year before that there was sort of a a um an assumed number of savings that will you know come through as a result of the level of vacancies. Okay. And those numbers were carried over to the budget. uh in 2026.

Even though there's this plan here that we're going to be aggressive in filling positions and make sure that our public safety positions were fully funded, but the the the numbers here were never really, you know, uh uh uh reduced and the budget expanded to include it. Maybe the reasoning was that as those positions um come in, you go through in some cities um you know come back and say you know uh realign the budget so we can make sure you know um we're accounting for them. So that 137 you know I'm telling you did not include all of that.

What is our fully loaded cost per FTE on average? About 150. It depends on the facility. depending depends on the position. I don't have that number in front of me. It depends on the position for sure. What is our multiplier? So, if someone makes $100,000, what is the cost to the city when you add in their benefits and PERS and all of that? It depends on the classification. So, it it it is it it varies uh it varies depending on the classification because certain classifications have a higher retirement obligation.

Got it. So, $8.4 $4 million, let's call it 250K, right? That's the number I use at work. That's 34 positions. So, we're talking about 34 positions that we basically hired up that we hadn't accounted for in our vacancy rate. Is that about right? I if I could just

I mean if you're doing back up the envelope calculations I don't know that you can reduce this to number of positions because in addition to hiring those positions um some came in at this level some came in at that level you know there may be longevity and and and the fact the load factor on top of the salary could be different for everybody and then you know if there are some negotiated um uh uh salary uh uh that were not maybe previously included that you know that has to be reflected. Um that all of that went into effect.

So do we have that breakout? I mean is some amount of this potentially costs fromou uh that we hadn't previously agreed or that we hadn't previously recognized or accounted for in the budget or is this I guess that's what I'm trying to let me back way up right 30,000 foot view is the $ 8.4 $4 million, which by the way, I I I'm a little surprised that this didn't come to council when we overspent on salaries because typically we would approve that at midyear, but I'll set that aside.

30,000 foot view, is that 8.4 just that we weren't previously accounting for positions that we then hired? Was it a reflection of uh and for the public, sorry, I'm referring to agreements that we make with our employee unions that perhaps we didn't account for earlier. um because those you know those can change. Some of them take effect midyear. Sometimes more people qualify for more different benefits. Um or is it something else?

It's a combination. It's it's a it's a combination of the step increases. So each employee gets a step increase every year. You have increases depending on the bargaining unit. Yeah,

they can range between 3 to 6% depending on which bargaining unit that person or that employee falls under. So you when you multiply that by 600 employees, those are factors that contribute to that $8 million number. Um it's it's not one thing or another. It's a combination of all of those factors put together. So increased increase uh capacity. So filling those vacancies in public safety, you have your step increases, you have yourou increases, and don't forget that this $8 million, if you look at it, take $2 million off of it because $2 million of that 8 million difference belongs to the UA uh the UI, the payment to CalPERS. So when you take that $2 million from there, the difference is only six million because two million off the top of the head goes straight to CalPERS already.

Got it. Okay. Can I can I just ask a really quick question on that? I I thought with council member Bey's questions, we confirmed that the $2 million is not part of the additional expenditures for this fiscal year. What we're saying is that it's not, but it makes up for that projection. So the projection is compared relative to the adopted budget. So it it's not it's not a surprise. So I want to clarify that that 2 million is not a surprise, but is it is a factor within that difference. It is factored within that difference because that payment is actually part of part of the expenditure. It's part of

Are we paying more for the unfunded liability in this fiscal year than we budgeted for or not? We're not paying more than what we then I don't understand how that's contributing to the difference between actuals and projected I'm sorry then adopted and projected. And to Kingsley point this Kings so that's

yeah to to Kingsley point it's aligned with the natural growth trajectory of what the city would normally assume. So um that's part of it that that 8 million is part of the if you look at the prior year. So if you look at 2324 to 2425 that growth that difference was even greater that that it was it was 125 125 million. The following year it was 138. It was a $13 million delta in the salaries and benefits. And so,

so yeah, let me let me ask my first question again because I I really want to nail this to make sure I've got it right. And this is consistent with the answers that council member was asking earlier. We budgeted in our adopted budget, we had $31 million for unfunded liability. Yes. Yes. In our projected budget, it is $31 million for unfunded liability. Yes. Okay. Correct. So there is no delta. No. Between our adopted and projected budget due to unfunded liability. No. Okay. Because the difference column, the 8.4 and the difference column is a delta between adopted and projected budget.

Yes. Okay. But zero of that is contributed by an in by a future increase in unfunded liability. No, there no because I am Am I missing something? I'm sorry. Am I crazy? I I'm okay. Yeah, I No, I get you. You knew you knew the number of funded liability when you adopted the budget. So there no, that's not part of the surprise. There is no surprise there, you know. I'm not sure. Um, you know,

and to be clear, not only is it no surprise, it is not contributing to the 8.4 contributing to the it's not contributing, you know, what I'm looking at to the 8 million, what I've said earlier, the the the the contributors to the $8 million is that a net, for lack of a better word, okay, the assumptions that were made in formulating that budget were off.

Yeah, I get that. And I I stole the mic from council. I do have specific questions about that. I want to get to the numbers, right? You're telling us um sort of examples of things that happen, but we like we should know these numbers, right? We know exactly how much we are adopting for in terms of salaries and benefits. I'm acknowledging that I'm stealing the mic. Are you okay? Okay. Okay. What is the the vacancy rate is something that's been in every budget since I've been on this DAS. I thought that was about 4%. Is that right? What is what is our vacancy rate assumption that we build into the budget? This is this is referring to this thing you you you saying is unique.

I'm glad you asked that question because u that was the question I asked. Okay. What was the vacancy rate? You know, the attrition factor built into this budget. Yes. And I I looked back over a couple of years. It wasn't a percentage. It was a number. Somebody put in a number $4 million. whether that you know when you calculate it back to total expenditures it amounted to 4% or whatever percentage but you know that $4 million was carried over from year to year. Okay. And and and so to let me I want to make sure I understand um so the $4 million four

is the assumed salary savings acknowledging that not every position that we have approved in the city is going to be filled over the course of the year. Yeah. Okay. So, um Okay. And that was based on the level of vacancy that you had a couple of years ago, including all the public safety positions. If I could just clarify that um number that Kingsley has identified is just specific to one department. There was um not an attrition percentage, but as he stated, an actual dollar amount that was identified for certain departments in the city, but not all departments. But that close to $4 million number was specific to the police department.

What's the number for the whole city? 4.4 million. So 4.4. So in our budget, we have an assumption that there will be $4.4 million of unspent salaries and benefits because we're not um uh fully staffed throughout the course of a year. Right. Correct. A point in time. Is that correct? 4.4 million for the whole city. Yes, for the whole city. Almost 4.4. Okay. So we we overspent by 12.8 million, right?

Well, no. I mean if you if you take numbers in isolation there you know I mean this is a net uh difference because you look at u the way the accounting structure is you know it has your salaries it has your regular swan nonswan part-time overtime uh you know your benefits everything uh your retirement everything is all lumped into salaries and benefits. So when you look at it some you know you include that you know uh salary savings factor on top some you exceed some you don't at the end of the day the net of everything in terms of your total uh um uh salaries and benefits budget which is inclusive of everything you know we're tell we're saying that um you know it's $8 million more than you budgeted.

Okay. So it's it's total. Yeah. Can I So if you try to do the arithmetic backwards, you know, pick this number and that number. It doesn't work. I don't think I'm picking numbers. I think I I think I'm understanding that we adopted a budget that accounted for salaries for people who weren't here. We hired those people and then we kept hiring for another 8.5 million is what you're saying. No, what I'm saying is that you adopted a budget that you know assumed um this level of vacancy. Yep. Okay. And those those vacancies were filled. Yep.

Increasing the expenditure here. And uh in addition, the other elements I want to point out is that I'm looking at some details as well. You adopted a budget that says you're going to spend $10 in overtime. Okay. But you ended up spending, you know, maybe $40 in overtime. So in your stress salary, you may have some savings there that you plan will offset some of that overtime. You know, some are not one for one, but you know, and you have this other factor here. So when you total everything up, that's your difference. Yeah. So

look that I'll just and sir, I don't mean any disrespect. This is my eighth year up here at this point. So we've I've seen a few budgets in mid years. I think what gives me pause and the reason I'm drilling into this is because we we have nothing else to go off of other than what staff tells us they expect to spend. Right? I this isn't my credit card statement. I can check on a monthly basis. This is I I rely on staff that this is what we're budgeting for. And so when we have a pretty significant difference between what we budgeted for and what we actually spent, it is not so much uh understanding what every dollar was, but more what is my level of confidence that when we commit and sign off to a budget, we are going to deliver that within a a margin that I think this council can live with. And so a significant deviation from that, a 6% deviation is is something that I I think we need a little bit more information to drill in on. So that's where I'm coming from with this. I'm not trying to belabor this question.

Yeah, I I'd like to belabor it a little bit. Well, I just I have a few more questions, but I I mean I'm I'm I guess I'm done with this for now. I can I can go to some other stuff, but Mr. Mayor, Mayor, can I just jump in to close the loop on on this these numbers? Hold on one second. Do you do you still have the floor or do you I have other questions but they're about different topics so I I want to let other people get a chance to talk.

Yeah, I just want to follow up on the on these numbers. Okay, thank you. Um okay, so we um into the adopted budget we built in an assumption that we're not going to spend 4.4 million um because uh there's going to be vacancies, right? Um, so reverse that. If we fill all of those vacancies, right, for POS positions that we adopted, if if it's a wonderful hiring year and we fill those vacancies, our budget would be 4.4 million. Our spending would be 4.4 million higher than we planned because we we we ate up that assumed vacancy. Am I understanding that right?

Yes. Okay. But we're seeing a difference of 8.4 for and we have vacancies. Yes. So there's other I'm I we're we're hearing that one of the reasons for the overrun is that we had a great hiring year, right? Which is great, right? But at most that accounts for 4.4 of the 8.4 on our screen. I'm understanding this correctly, right? Yeah. Okay. So there's um but it but it doesn't account for even 4.4 for because I I heard that we still have 34 vacant positions which is out of um 600 positions. Yeah.

Um just shy of 6%. So we still have a 6% vacancy factor and there's at least 4 million of additional spending unexplained. I'm I hope you can do it tonight. If not, I think it's really important for our council to understand exactly the contributors at least at the million dollar level, right, to that 8.4 addition extra spending. Okay, that that's what I wanted to close the loop on. Thank you. And and I want to make sure I'm understanding those numbers, right, because the vacancy thing is confusing. Okay. Yes.

No, I I I get you. And um you know, we're highlighting the big numbers and that attrition factor there is a big one. Now, if I'm looking at the details of it and um um there's also you exceeded uh your overtime budget uh in a significant number as well. What what's what is significant? Is that the 4 million extra? Yeah, that's close to $4 million here. You know, you have a number in front of you.

There are some savings in several other fact other areas. So the biggest two chunks that I can see where you know um was unrealistic in terms of the budget that was adopted is the salary savings factor as well as overtime. Over time over time um you know uh budget was adopted at the very um uh um the adopted budget um you know it's about $4.8 $8 million and uh we're projecting the year end overtime of almost nine. So over $9 million. So but in other areas there are some savings, you know. Um so it's

what was the delta on overtime? I heard you read our what what our adopted was and then what the actual our overtime budget um your overtime budget here it's uh about $4.3 million um 4.8 is it 4.8 4.8 yeah 4.8 correct so comparing projected to adopt it on overtime is 4.8 eight. So that's a huge contributor to the that is a huge contributor as well. Okay. Okay. And then another big one but maybe not quite the full is this um you know more hiring or a higher a lower vacancy rate than planned right.

Um is there another large contributor to the additional spending? Just had the two big ones. Um you know you have I guess that would make sense in the salary bucket. Yeah, you have exceeded and um Okay. And then do we know offhand how that 4.8 in overtime compares to a typical year? It's it's actually in line. So the the overtime spent isn't any big surprise because last year we actually spent in total 10.2 million in overtime. And so this year we're actually scaling back. The the final overtime number for this year is going to be 9.7. So the actual overtime is Yeah.

Okay. If in my humble opinion, we ended last year salaries and benefit at 138.5. Okay, here's here's the here's the easiest way to kind of reconcile this. Okay, in my humble opinion, the salaries budget should have grown to 142 143. uh but rather because of those economic conditions that were faced when this budget was developed. Okay, there were a lot of uncertainties during that process and so the approach was to deliver a very uh meticulous and carefully um budget of 137.3 on the salary side. So that budget adoption in my humble opinion is a little skewed because of the conservativeness of the nature of the environment that we were in last year. And so but had it been reflected to what the actual cost would have been, that delta wouldn't have been that great because we ended last year at 138.4. Just take that as a note. And so if that budget was rightsized to where it should have been, you're going to see at a minimum that budget should have been 142. But what we do plan on doing is when we bring the next 26 27 budget to you, you're going to see a tremendous growth in the salaries. And these are the adjustments of what is going to be the actual cause. And so that's that's what I want to let you know is that those those that growth

factor is going to be factored in. So may I may I um may I ask a couple questions just on this line? So I think what I hear you saying, Mark, is so at at 2425 we're at 138.4 which is on the screen. Correct. Okay. Now, at that time, we we intended to continue to fill our vacancies, right? Correct. Correct. Okay. And and we knew that um there would be step increases. Those increases are not going down. Yeah. Right. Right.

Yes. They're going up. And in each of our memorand memoranda of understanding with our bargaining groups, none of those memoranda call for a reduction in pay. Right? So if you look at all those things, you say we're planning on filling vacancies. We're we're going to have um an increase in step. People are not going to make less. They're going to step up. and our our um memorandum of understanding are are going to come to a higher scale. Logically, you'd expect the adopted budget for fiscal 26 to have a higher number Yes.

than 25. Correct. Correct.

But what we what we did last year is we had a slightly lower number. Right. and and you're saying the reason for the lower number is because we were concerned at that time about certain things that were happening in the economy. Uh this was, you know, shortly after liberation day, you know, uh where we're going to get um I remember talking about that we're going to get tariffs and things of that. was uncertainty. And so we we right-sized the expenditures of salaries and benefits to address a an expected reduction or flattening of revenue,

right? Because of external economic factors. But the but but by reducing the amount of our spend on salaries and benefits, it wasn't realistic because it didn't reflect what was happening within those factors that I laid out. They're and those things are going to happen irrespective of the the the the revenue in in in that we're getting. Yes. depending on what the economic factors are or other factors. Am I right about all that? Correct. Correct.

And any given year, Mayor, uh to your point, the the city's bottom line every year, the bottom line, it's going to grow by 6 to7 million. Okay. And that's that's that's just your bot that's the easiest number to follow. It's the cost of doing business to pay for these unfunded liabilities to account for the step increases to account account for theou increases because those overtimes they're they're not the driving factor because they they actually remain flat year-over-year, but it's it's all of those forces that is going to drive your city's budget by $7 million annually. Thank you. Okay. Um,

can I do a quick closeout question on on overtime and and salaries in in these issue? It looks so what I thought I heard 2425 about 10.2 million in overtime. 2526 we saw a slight down tick to 9 million and now what I'm hearing tonight it looks like hallelujah we're fully staffed. Would it be a a fair prediction that being fully staffed going into 26 27 we could expect a downtick in overtime or do I not know how employment works? We we don't have those numbers yet. Yeah.

But would you expect just those factors? You you would expect more overtime when we're underst staffed and so your your your your staff is out of necessity having to spend more time on overtime. you can, you know, that's a fair expectation, you know, that u you know, you will see um a downward trend in overtime when you're fully staffed. But, you know, uh staffing and um in public safety and in other departments, you know, it's subject to um a lot of there's a lot of you know, variances there. So, we we're you know, we're taking a look at it for next year. The point here is that um you know at some point you begin to rightsize your budget and that's what we're looking forward to uh for the next next year's um budget and

uh I think you got my answer. And literally the last thing before we move on uh to somebody else uh that last line of questioning from from John or Mayor Stevens um where you anticipate just natural growth and factors about a 7 million increase across the the budget every year that's factored in when you uh for instance in the 2526. So when we went from the 2425 and then we were starting to propose a budget that we adopted for 2526, it factored in uh that annual cost of living increase for lack of a better term. And then here we are with the actuals. We're still at this 8.4 million difference. Well, what we're saying basically, you know, I think um when you look at it over a trend is that if your budget increases about 7 million for lack of, you know,

Yeah, we're just using that number. I'm not going to hold anybody to it.

Let's assume it increases 7 million every year for the current budget that we're looking at that is about to end in June uh um 2026. the the the point we're making here is that all of that increment we're not taken into account. You know, maybe based on the circumstances when you adopted this budget, maybe based on some of the outlook or what was happening, all of that was not taken into account here. What we're bringing to you here is really a true up of giving you a true picture of how you're going to end this fiscal year. Now, in developing next year's budget, we're going to take a lot of those things into account, knowing fully well where the city situates right now in terms of the number of employees that you have approved and funded and and we're going to make projections, you know, based on

that. Sorry to cut you off. I'll jump in and city manager kind of uh commented in my ear here and I think it was to me it it was succinct and it made it helped me understand possibly what happened in 2526 when we see that dip uh uh it was maybe we didn't factor in the and again we're just using the 7 million number the what would have been the expected general annual year-over-year increase. I guess they were being hyperconservative, if you will, uh, that year or trying to really sharpen their pencils maybe because we had some difficult economic winds we were addressing. And now here we are with the reality. Um, what was tried not to be accounted for actually did occur

and it's showing it's showing itself up now at the end of the year. That's a fair way to put it. and and that and that which is why I said if you're doing back of the envelope for me for it doesn't really you know get you to where you want to get you know um you want to look at the budget and um be comfortable that is right sized based on the level of service that you deliver and the level of staffing that you have and and you know and basically right sizing your budget. you know, you could dwell on um you know, well, you know, if you look at the numbers, um some of the numbers, like I said, I've used the word net were unrealistic, you know, but yeah, I maybe the circumstances around then, you know, when the budget was adopted, you know, called for it. I you know uh there were some issues or whatever uh uh um that that you know being conservative at the time was necessary to to you know uh um but the reality it's what the reality is.

Kingsley I've got one one more question or maybe it's probably for Mark more than anything else because you have the more historical knowledge. So it this this number that we're fixated on the um salaries and benefits historically over time has that tended to go up every year and and and 25 26 was an anomaly. It's an anomaly that number typically goes up. Okay. Yeah. Arless.

Um, yeah. So, so want a clarification based on my my earlier questions. So, I we talked about we our budget we build in this assumed vacancy, right? This assumption that we're not going to fill all the positions that we've approved, which is normal. Um, that 137.4 4 I understood to be the salaries and benefits associated with all of the approved positions minus 4.4 million. Is that not accurate? Can you say that again? I'm sorry I lost your logic there. Yeah. Okay. So, my understanding with how we budget

like what's in the adopted budget for salaries and benefits, we've got a whole table of positions that council has approved, right? That's the 599 positions, I think, right? Um, and we know the salaries and benefits tied to each of those positions. So, we know what the number would be for salaries and benefits if 100% of those positions are filled. And then we subtract 4.4 million assuming that not all positions are going to be filled, right?

Is that what the 130 or the 137.4 represents? the Yeah. Well, go ahead. 137.4. Yeah. The adopted budget. Yeah. Okay, that's fair. Yeah. Okay. It assumes it assumes that uh attrition factor. Uh it assumes that we're going to have 4.4. My understanding from this conversation is that it assumes that there's going to be $4.4 4 million of salaries and benefits not used because we're not fully staffed.

Right? So if you add back that 4.4 to the 137 that's 140 that's almost 142 137.8. Say that last part again. No I mean if you look at it from that perspective that um the 137 you said it's net of that 4 four right? Correct. Okay. If you add it all back and when you're fully staffed, you're going to have about 140 141 142 142. That would be your gross budget. Okay. Right. Yep. That's okay.

But we're not fully staffed. We have 34 vacant positions, right?

Yeah. But remember, as city manager pointed out, that was not across the board. that was just on some, you know, departments like public safety, you know, that was a chunk that u I mean if you look at uh at the time um 16 swan vacancies alone is close to $4 million. Not every department had a vacancy rate assumed because u u they were all most of the other departments was it was tight. There was no assumption unless somebody retired or you know somebody you know quit to take another job. Uh the most you can get out of that is maybe the three months or so it takes to fill those positions. But the actual assumptions that were made was when you were carrying this full uh uh uh uh public safety positions. It was never adjusted. That's that's the point I've been I'm trying to make. And if you look at um that form million is not across the board you know um not all departments were assigned a uh um

an attrition factor most of it was public safety. So if you fill all those public safety positions and we you know back of the envelope calculation here of 16 positions is approximately $4 million. So, you know, if we assume we're going to fill um uh you know, all of it, you know, maybe you need more than the 4.4. Okay. If if you just said if if we're going to fill all of it, we need more than the 4.4. It could be. I mean, yeah,

that's the case. Then my understanding then of this 137 is not right. I my understanding of the 137.4 4 is that it's total cost of all positions minus 4.4. Yeah. So, so if we're spending an additional 4.4 on salaries and benefits, that implies to me that we have all positions filled. No, no, no. I mean, the 137 that you're looking at is um the gross is 142 minus your savings factor. then you adopt a budget a net budget of 137. So the savings factor is quite a bit higher than the 4.4.

So okay, here's the numbers that would be helpful. Um hopefully you have them now or can get them on this call because I'm I'm getting actually more confused through this process. We we we know what the number of approved positions is for the city. Correct. Yes. Okay. And we know the classification of all of those positions and we know the salaries and benefits tied to all of those positions. Right. So if 100% of the approved positions are filled, what is the cost to the city? Okay. I would like to know that number. Okay. And then I'd like to compare that number to this 137.4.

Okay. We can we can bring that number back to you for sure. And and what I heard on on this during this meeting is when we adopted this budget, there were 52 vacancies. When we adopt there are 34 vacancies. Yeah. Today. So we have hired a net increase in 17 people. Those are the numbers I'm writing down and I'm gonna Okay. Is it 18? Okay. Thank you. Provide you those numbers. Um, yeah, we'll go back and provide you those numbers. Okay. Councilwoman. Thanks, Mr. Mayor.

Yes. Address. Yeah. I So, I mean, two things just council member Reynolds, like we never even the vacancy factor that we included never assumed full staffing. It was like what's the most likely to get filled. It was never like projecting all of the vacancies total. And so there would be a fudge factor between like what was built into the budget and then like what was actually So we have two vacancy factors. Yeah. Basically well like we have an imaginary vacancy factor that we never actually use because we never expect to actually get to full staffing. So that was always backed out a little bit. So don't expect the numbers to like match the actual number of vacancies in the city. Yeah. Well, I want to know what those numbers are now, right? Because if we're if we

we've approved positions that we are not budgeting for, that's a whole other conversation.

Agreed. And and then just real quick in response to the mayor's comments, like look, I'm I uh like I said, been here for eight years. Recognize the costs go up. Recognize that we want to hire more people. We would expect salaries and benefits to go up. My challenge is with the with the huge amount of the delta between adopted and projected. And that's that's the part that I'm focused in on. So to be clear, I'm not suggesting that I'm surprised that any of this went up. I just uh want to have a level of confidence when we approve a budget that we're going to execute on it. So that's that's what I'm hung up on. Um I also want to come back to the fact that we so we keep referring to public safety. My understanding is that PD is at full staffing. I do not believe that fire is at full staffing. Can someone

fire is currently not at full staffing. fire is currently in the recruitment process of approximately five firefighters and they're also fire department is currently obviously you have the vacancy and the chief with the interim chief uh position and so but there is an active recruitment out for five vacant firefighters. So to be clear, when we talk about this increase in staffing um and the impact on the city overall, there are still departments that are not fully staffed and some that are and potentially have more staffing than we originally accounted for and net we're close. Is that

there are some but what I what I mean what I can say is when we do bring the study session when we come back to you in study session

in May the second week of May you're you're going to see a tremendous increase in the salaries and benefits and that's this team's effort in trying to capture every single one of those costs. And so, honestly speaking, um, we're we're going to do our best to provide you with the numbers that's going to be true to what this next year's budget is going to end at. Okay? And so, you're going to see that it's going to be reflective. So, I want to I want to bring that up as um just as a a cautionary to you just to let you know that those numbers are going to grow and it's going to be reflective of what those costs are going to be. And so, with this, I have to go back to how this was adopted in a in a unique time. And so maybe there was some conservatism in developing this budget, but we now have to go back to what those true costs are going to be. And they're going to be pretty eye opening when you see the the next year's budget.

Okay. Um do you want to go forward with the um rest of the slides? Yeah. Oh, I thought we were done. No. And then then we'll talk to we'll get the public actually before public. I wanted to actually talk revenue for two seconds. Let's go through with the slides. So we'll see if the council has more questions. Next slide please.

Uh this is a reflection of the fund balance. We ended the audit for fiscal year 2425 just slightly under $61 million. So, even with all that stated, um we do anticipate uh 1 million uh $100,000 savings, $100,000 savings at the end of this fiscal year, meaning that there'll be a h 100,000 more in revenue than expenditure. So,

let me add to this on this slide. Uh the good news here is this you know um that irrespective of you know your budget challenges uh in this current year that your results are intact. in here. Um, you know, the council policy that actually uh calls for a total of $55 million worth of reserves restricted, committed or assigned in these various categories are intact and you're not tapping into it, you know. So, the city on account of this uh the credit rating is solid and and the outlook is solid as well. Just wanted to point that out. it it you know from the previous slide where revenue exceeded expenditures by just uh 100,000 you're adding a 100,000 to this fund balance just

well so just on this reserves thing okay so I this is every everybody says this 505 million we're at 60 we're above and they talk about the council policy in fact the council policy which was set at $55 million some many years ago had a um escalation provision a CPI factor if you apply the CPAPI factor the based on the council policy that was was adopted way back when the the the benchmark or the target should be much higher something in the 70 millions whatever I I'm not do the calculation now

I'm intrigued by the qu by the statement that was made by Mark about the best practices is you cited some source and said it was I think 16% of the overall budget stuff. So my question to you is, do you think it would be a worthwhile exercise for the city council to go back because I I happen to be one of the weird guys that's actually watched that meeting by the city council years ago and again I everybody who's ever come up here I respect. It's just it just didn't seem to have kind of the analytical rigor that that that we have uh established here on on with this seven up here

with all respect to the other folks. Do you think it would be a worthwhile exercise between now and the time that we leave the day is to go back and take a look at the at the at the reserve policy?

Absolutely. It's it's definitely worth looking at because the the CPI if you were to grow it by 3% you have to look at how achievable that that percentage is because every year your increases and revenue needs to keep up just to pay for those those increases. And so when you end the year in the black even at $100,000 it's actually an achievement unto itself. And so when you're saying that you you want an additional 3.5 when that policy was established, you have to look at what operational costs truly are and see how achievable that number is. It's worthwhile. And and another thing just while we're on this in Kingsley, you tell me if you think that this is a pertinent factor is yeah, we've been through the ultimate stress test since the the uh reserve benchmark was made in 2020 2021, right?

Um and we've made all the various adjustments and here we are. So I think, you know, personally I I appreciate you uh agreeing. I I do think it it's something worth looking at. We only have so many more meetings left and so much more so many more hours in the day. But I think it's something that before we um uh fade off into the sunset, which four of us will, uh it's something we should probably take another look at.

Yeah, I totally agree. um you know the the $55 uh million number the way it was set if you look at it and the components of that what it's more conventional today it's if you look in the middle of this slide you see what's labeled economic reserve okay that economic reserve is what a lot of cities will say um consistent with um the uh government finance officers association recommendations that you up it to maybe um 16 17% of your budget and and and that's as your emergency you know uh sort of uh safety net in addition to setting aside money for your you know workers comp or your compensated absences and all the other things that were listed then. So that portion of it that you could say you know perhaps I'm agreeing with you Mr. I think it um if you guys look at it, it wouldn't be um it would be a good thing to look at it again and reset it, you know, consistent with what's obtainable today.

All right. Page 17.

All right. So in summary, the general fund is uh projected to end balance relative to revenue minus expenditures despite of all of the economic and geopolitical volatility. Uh sales tax remains a strong revenue source uh of the city. It's still growing, but at the same time, I do want to state that it's vulnerable. Uh because we have fuel price spikes and tariff impacts that are haven't been known yet. So these these numbers because we're two months in a rears, we won't know the full impact of the conflict that began in March in Iran until later this summer. Okay. and property taxes and hotel taxes toot are performing uh near expectations while cannabis tax are flat. So your our city's go-to is definitely the sales tax. Uh moving ahead to the FY2627 outlook. So revenues, we're we're looking at revenues ahead of when they're going to end on June 30th, 2027. So we're looking 14 months and ahead to see uh where those numbers are going to land. Uh however, with that being said, uh under leadership of the city manager, we are devising cost containment as well. So we're looking from within on how we can tighten our belts. Um and some of what we're doing is we're focusing on core services. We're limiting our expenses. Uh so we're looking at things that are non essential and looking at those and exploring other funding sources such as grants or partnerships that we may pursue um and different entitlements.

So the 2627 uh budget will include a 5% target that we uh had for every department. So departments have been super cooperative in helping us uh achieve some kind of savings. Uh we'll also put in a more true attrition factor to the budget of our size and our current vacancy rate. So we do want to update that in order to be reflective of what that number is going to be. Also considerations for the next fiscal year budget includes the repayment of the CAN. So we're going to fully fund the CAN as well as the IT replacement fund. On top of that, we're going to start implementing the repayment of those deferments. As I stated earlier, there will be an increase to the unfunded liability, the UA. That number is going to increase to $33 million. There is going to be an additional increase to our city's insurance premium of approximately half a million. We're factoring that in. And again, I want to state that this is not subject to Costa Mesa. All agencies and municipalities are facing increased insurance premiums. We are accounting for a one-time election costs that arise every two years. So, we're factoring that in and most importantly, we're factoring an increase to all of the labor costs as well. So, um Kingsley, you want to take the budget calendar in this one?

Okay. Well, uh basically, we're coming to you uh again everything that Mark um outlined in the um previous slide. Uh we're going to be presenting to you a proposed budget that incorporates uh all those factors. And so you can have um a very realistic budget to consider when we come to you. Um um first we're going to present um at the uh finance and pension advisory committee on the 7th of uh May and um uh we have a a proposed budget book that will be distributed uh to the members as well as council members before we go to the u the p finance and pension advisory committee. Then uh the proposed budget study session will be here on the 12th of May. Uh um and um uh the the goal is to um follow up with adoption of the budget on the 2nd of June. And um we've also uh uh um pencled in um the item for the 16th in case council needs additional time to vet the budget uh if it was if it's not possible to adopt it on the 2nd of June. So uh another meeting has been pled in u if needed uh for uh June 16th. Um so that's all we have and then uh we can um answer any more questions that you have. I actually have some questions.

Okay. So, those of those people that have not asked questions yet, get get first dibs. Uh, Coun or sorry, Lauren and then Jeff. Okay. Um, I want to go back to some points that were made earlier, but before I do that, I just want to thank the two of you and your staff for what you've done so far in bringing this to where we're at today. Um I I appreciate the effort that's been put in um especially right here right now. So um you had brought up that 40% of our revenue is in sales. Is that is that correct?

Sales tax. So do we have a way of pinpointing from specifically what types of business or or who is generating this like what percentage say let's use South Coast Plaza for example of that 40% what percent of that is generated directly from sales from South Coast Plaza do we have a way to pinpoint that

so while we can't talk about any specific business we can bring to you a high level of within in each sector. For example, automotive sector, retail sector. Uh we're not allowed to isolate any specific business or one building or one entity, but we can bring to you uh within this sector. Uh there's some growth within this sector, within uh restaurants and dining, uh there's some growth or some pullback. We can do that for you.

I would I would really like to see that presented to us um next time. Another question I have is um when we're talking about budgets and we're talking about um where we get them from um just for example, let's uh let's take emergency services in general. How old are the budgets that were created for them? How how old are they? How how old is the say the fire budget? is their budget 10 years old and they're working with a budget that hasn't been updated or or how how does that work where they go here you have this much money you can you can use

um I think um the whole ideal budget process is creating a budget for every department every year so um to answer your question directly it's a new budget every year however some assumptions could span and a couple of years where maybe you decide uh well um as maybe you know in in some cases well you live within your means you get the same budget you got last year because we don't have room to increase it this year so it's not that old uh it's a annual budget process so you get a new budget every year

so when we do allocations for the different departments I would like to see if there's a way um I don't want to use the word pinpoint but how we allocate those um and it's not just emergency services, but for multiple departments. How old are their budgets? How did we decide what their budgets going to be? Is it based off of prior budgets? What we think is coming? Just something that we can say, "Okay, now we understand." Because I just want to make sure that our comparatives are not something from a long time ago. Um whatever that long time ago,

um would be. And then um I think in general those those were just the main two things that I really wanted to ask about. Um and and like I said, I just I want to close and say I really appreciate this is a heartfelt appreciation of what you've done and what you've came up with so far and bringing this to the council. Thank you. That's all I have. Thank you. Thank you, Lauren. Jeff,

yeah, just a couple questions. under cost containment measures. We talked about non-essential expenses. Um, is there anybody that could tell me what programs are non-essential and can be reduced or examples of them right now?

Um, maybe non-essential isn't the right word to use. Uh but what what we're saying to the department in the cost containment containment um measure is that to look at your budget and see what you could live with you know um as is or without even if it's for one year and and most of those are not necessarily related to program or services to the citizens. It's it's um the non non uh operating uh uh uh component of the budget. If it's training or something that uh perhaps you could push out for another year, let's do that. It's essential because you don't want to push out training for too long. Then you know you suffer the consequences by uh um you know later on. So those kind of stuff we're asking department to sort of uh kick the tires and say you know look at their budget again given the circumstances. Uh what are the things that uh you can live without or suspend for a year.

Yeah. I hope I hope we have a bunch of those because the reason I ask is because we clearly have a structural problem um if you want to call it a problem. 75% of our budget is salaries and benefits and we uh we ate up the cushion we had with filling all our vacancies which is good. We're going to keep make sure PD and fire are staffed but that tells me that we need to go after non-essential programs. I mean there are I can think of a lot off the top of my head. I'm not going to get into it right now because that's city manager and staff's business. But as of right now there there are it's just a it's an idea. We can't point to anything. Have we actually done any reducing or or of programs specifically or and not just discussed it? Have we actually done any red reducing?

Well, in the in the process that we're going through in developing uh the new um year budget. We have been working with departments and looking at um their budget to see what they can actually reduce and we have some reductions you know that have been proposed. Um but the direction from the city manager is that um not we're not looking to cut core services to to the residents or or citizens or businesses um that we serve within the community. So in light of that you know take a a good look at your budget and see you know what you can reduce. And I just want to explain uh or just comment on the fact that uh yes 75 74% of our budget uh the salaries and benefits but that's who you are like every other city city of uh customers you don't produce anything other than offer services and you know to your community

right I agree sorry to cut you off but what I what I'm going to what I hope to see maybe in this next study session would be a I'd like to see a list of what we consider to be core functions which we're not going to touch and and and and non-essential expenses. I'd like to see that in black and white so we could see what fat can be trimmed, not conceptually, but on paper. And last question I have is other potential funding sources. Would that happen to be code for an increase in toot tax, business license tax, or or I haven't heard that brought up at all. Are we still because at one point we're considering that to close some of these gaps. Are we still considering that? because I certainly hope we would go after reductions and tightening the belt before we would ask the public to pay for it.

Yeah, I I can speak to that. I can answer to that question. When we reference other funding sources, we're looking at our partnerships with our state and federal um representatives going after eararks. also um seeking and being um very active in seeking new grant opportunities that will help um relief the general fund for capital projects as well as private and public partnerships whenever possible. If we can partner with groups, nonprofit groups or other private businesses in the community that will help the city meet its um you know objective but also relieving some you know relieving the general fund.

Thanks Alma. So, I'm going to assume we're no longer thinking about tax increases since it's not in here anywhere. No. Okay. So, that's the answer is no or yes. No. No. No. No. No. Yes. No. All right. Mike, that's all I have. Did not make that assumption. Okay. All right. Thank you. Just Mr. Mayor. Well, and and also because this is about 25 2026 like we're not talking about future years. We're talking about a budget we approved a year ago. Understood. I just wanted to Well, there's a lot of conceptual stuff in here about the future too. I just wanted to make sure we're It's not okay. We can forget about that for now. No, there's nothing conceptual about the future in there.

It's it's there's if there what what what you talk what you're alluding to, I think, is whether we put a couple of items on the ballot, but those wouldn't hit the ballot until 26. So, they wouldn't impact either obviously the 26 fiscal year or even the 27 fiscal year.

Correct. And beyond that we are also exploring utilizing our different buckets with that bucket analogy. So we are looking at our gas tax fund for example what what operations are we currently funding in the general fund that can we can utilize those different buckets and by going through this process we've actually identified several different buckets that we are moving general fund expenditures to these appropriate buckets. So, some of those include gas tax, some of those include measure M2 uh for the roads. Other things include capital. So, we we're realigning things that are appropriately that should be categorized into the capital fund. And so, we are also exhausting all of our efforts and not just looking at one strategy, but a multi-prong strategy in stabilizing and balancing this budget. Manuel,

thank you, John. Um, you know, first time budget for some folks. It's all good. Um, first of all, staff, thank you so much for doing this presentation. I really appreciate the effort you put into it, and I appreciate you're answering my my colleagues questions about the um the essentially why we're a bit over um when it comes to the the hiring side. Um, obviously PD being fully staffed is a good thing. That's something we have to account for moving forward because that was a goal we've had for a long time and ensuring if a good public safety is very important for our community. I want to ask a very like question because it's something that really comes to my brain and I think Garos Lauren kind of alluded to a little bit when it comes to our breakdown of our our budget. Are we seeing any ramifications of the so-called K economy? because you know our city does have very high in income residents and also very low-inccome residents. Um are we seeing any effect of that splitting the economies in our budget?

Yeah, the K economy.

Yeah. Uh so the the K economy that you're referring to is that's that's kind of the sales tax portion of it. So that K is stating that the high earning individuals in the city of Costa Mesa is actually insulated from these $2 increases to gas tax. So their spending habits are going to go on as normal. But however, with that being stated, we do have a big base of our demographic here. 60% are renters. So we do have those households that may be impacted and have less discretionary spending and so that proportionate that's the K that you're talking about. Those lower earning households will be impacted by these increases in the economy. However, the districts that are bordering Newport may not necessarily feel the impacts of the $2 increase. And so, um, you know, you you're going to have to look at it from that perspective that people are going to be hurting and then there's a big portion of your city's demographic that are going to still do well.

Okay. Thank you. Is there any way for us to like, you know, I know Lauren asked this question, but is there any way for us to really break down where we get our sales tax revenue from? Like I know for a lot of cities, ours probably included like auto sales is really important factor and obviously the plaza has been a big boon for us. We're like a lot of cities suffered during the pandemic because of the high stores there. We kept seeing growth in sales tax.

Yeah, we can definitely break it out by sectors. We can't break it down by individual businesses, but for sure we can show you the changes within the sectors. Uh that's something that we can uh show. Sorry to interrupt. Uh Mark, I think uh on our website we post um sales tax information as well. I think the last one that is on there is uh third quarter July to September. And uh it will be updated as soon as we get the one on um um October to December. And it does um show where we get our money business type. As Mo pointed out earlier, it just summarizes is under, you know, categories uh uh business type, family apparel stores and that kind of information is out there and we can uh provide council with copies of this too, but this is on our website on the city's website as well.

Okay. Yeah. Thank you. I appreciate that. Um since Jeff mentioned future taxes, I might as well just jump on that train. Um, do you guys know what our TOT tax is? Where our tax rate for tot is? Yeah, it's 8% correct. Okay. What other cities around us are a higher rate than 8%. Uh, majority majority of the cities around us are higher. They're in the 10% average whereas our city is relatively on the lower end of the spectrum. There may be just a handful of cities in the 8% but most of the cities are 10%. And then you have the outlier in Anaheim which is at 15% but we do note that they do have Disneyland.

Okay. Do we know where Sannah is because they they're our next door neighbor. Yeah. Santa Anna. We can look. Um do we have that? Do we have that number? So th this is like we're going to have a whole meeting about there will be a study session for toot scheduled for late May. So we can bring all of that information uh to you in May in late May. Yeah, we do have that toot study session scheduled. Okay. Well, in that case, I'll defer my comments till then and questions till then. Thank you.

So I just have one other question. So with respect to um reducing costs uh on I think you know you mentioned non-essential or just reducing costs in general. Uh there are a lot of cities that are um implementing AI um to their processes. Is is that is that something that um we're looking at in terms of implementing in the next fiscal year to your knowledge? Okay, that's something that we can definitely consider and get back to you. we can meet with our IT director Steve Elie

um when we come back to you with the study session. That'd be great. Um to to just I I know it'll be very preliminary, very high level, but um I don't want to be the last city to implement AI. Mayor, um we do plan on coming to the council um in a couple of months with a study session on the next five-year IT strategic plan where AI is a component of that. So um we will have that discussion with the council on how we would incorporate AI into city operations.

Okay. One thing just um anecdotally um on and the TCA in our last budget. So this would have been the 206 20 25 26 budget. We set aside a certain amount of money to work on AI. And even though it's kind of counterintuitive with what we're talking about with going into core services and eliminating non-essential, you know, sometimes you have to spend money to save money.

So in in the context as we're talking about the budget, it it would be very interesting to me to at least set aside some line item and some funding for exploring AI options. Okay, now let's go to the public if that's okay. Any more questions? You got everybody can ask questions after you. Let me ask a few more questions. They um Okay. So um I'm looking at attachment one to our staff report which shows um dollars for an adopted budget, dollars for an amended budget, and then some of the projections we're looking at here. I may have missed the meeting. When did when did we do an amended budget? So

I don't recall the the amended budget can happen. So ideally typically an amended budget happens with council but there are certain times when a the budget can be amended like in the event of a reimbursement. So when you get reimbursements from certain uh areas Mhm. Um the the uh let me just put it this way. You know um you can adopt a budget as the year progresses. If an individual item comes to you and it has a um part of the action there for you to appropriate money that's an amendment.

So when we're we're accepting a an award or grant that we received. Okay. No. Yeah. So, so all of that Yeah. could be, you know, it's considered amendment. It's just an accounting term. Are the changes or then the difference between the amended budget and the adopted budget are because of um maybe one or more council actions to accept funds. Yeah. But we didn't vote. Okay. No, it's not. It's not a formalized uh just we're bringing new budget to amend. It occurs every council meeting. whatever decision you make to appropriate new funds or whatever. That's an amendment. So, it would only be amendments. Okay. So, there there all the changes are still associated with council actions and I I I think my comparison here is that these are all just increases. So, that's consistent.

Yeah. Okay. Um on the revenue side, we're um projecting $6.9 million increased revenue compared to our adopted budget. My understanding is most of that is is from a better sales tax year than we expected. We very intentionally were we're were very conservative. Um but my understanding from the staff report is that that's based on you know real numbers through March. So there's three critical months in the end of the fiscal year where there's a heck of a lot of uncertainty. Yes. Right. So how what is your level of confidence? How confident should we be in that 6.9 million number given the challenges right now faced by the global economy?

Well, and in in real numbers as I understand only through March. So we have April, May and June. Okay. Um the numbers that we have there remember I call it the big two that you have sales tax and property tax. We don't rely on ourselves. We know little to project. We have a consultant HDL. That's all they do for a lot of cities in California. And the numbers that we're incorporating here are based in their informed knowledge analysis that

How confident should we be that this is going to land? I've been I've been in this business for a long time and HDR has been the go-to uh um consultants on sales tax and property tax and every city relies on their numbers and they have been uh um nine times out of 10 correct at least directionally very closely correct. So that

so the 6.9 considers like how recent is it in terms of global news and impacts from our our current the current state of the global economy. I just want to make sure that these numbers aren't tied to actions sort of pre assumptions predating some very significant global changes. No, I think this this um um as a matter of fact, I think there's a a meeting that will occur with HDL later in a few weeks or so u next week, you know, we will have updated numbers as well because we want to use those numbers to inform the budget that uh proposed budget that we present to you in May. So, if uh any of those numbers uh we have any kind of surprising, we will update this as well.

What would you consider a surprise? I would consider any negative downturn a surprise. any negative downturn. Okay. Right now, right now sales tax is buil as being resilient. You know, even though all this stuff is happening with um tariffs and all of that stuff, the the main thing is that um consumer confidence it's you know unsettled but we haven't seen any serious decline in consu consumer confidence. People are still buying, you know. I mean, if you go to Costa Mesa Mall, just anecdotal indication there, the car the car park is not empty. Shopping center. The shopping center. Yeah. The Costa Mesa Mall. Good little thing. Sorry. Sorry if I said the wrong one.

Yeah, the local mall. Okay. So, I'm not hearing you say be confident. I'm hearing you say the best numbers we have and we'll have better numbers next week. We'll have and that and that you'll let us know. Yes. if there's any surprises with the numbers next. Okay, that's enough. If these numbers change, will we be

I do I know my my colleagues know I have a lot of questions, so I'm going to try to get through them um fast. Okay, I'm still on attachment one where um we do actually have data that allows us to drill in a little bit more and understand what's driving the higher than budgeted spending. Um, and I'm I'm um I'm I'm curious what previous years look like and how how different this is, but this parts of this do look surprising to me. So, I'm seeing um in in the police department, $10 million higher than budgeted.

Um in parks, $2 million higher than budgeted. I'm seeing non-departmental $7 million lower than budgeted. So I'm assuming from the previous conversation the police is is about hiring and overtime and the attrition factor. So you have you have to take account the attrition factor in the police. So it's because of additional hiring and 4 and a half or $4.8 million additional overtime than budgeted.

Um so $10 million higher than budgeted in the police department. What's what's driving the $2 million higher than budgeted in parks? So parks has a disproportionate number of part-time and so we are looking at that as well. So there are part-time expenses in parks. They do have a small attrition factor and uh so do we do a lot of hiring in parks compared to previous years? There was a lot of hiring not this prior year but a couple years ago. Yeah. But this is at $2 million in the prior in the current year.

If you don't have that number we can follow. can share a little more um color to the conversation. Um in I believe it was about two years ago, we had um a high turnover in the parks department. So in order to incentivize um employees to stay part-time employees because they were leaving to go to restaurants such as In-N-Out where they were making $20 an hour, $21 an hour. We were paying minimum wage. So, at that point, um, leadership took, um, an initiative to increase the salaries of part- timerrs and we did a job fair that we were really successful and were able to fill those vacancies that were um, vacant for a while. So, um,

so we have fewer vacancies in parks than we used to. Yes. Okay. Um, $7 million reduction in non-EP departmental. What What is that? That includes legal cost. Your your mic is not on. So, there are some legal costs that we we can move out of there. Um, where are we moving the legal costs to a self- insurance fund? We have a self- insurance fund. Okay. Is that not on this page?

And we're also moving it's not on because it's a separate fund. We're talking about general fund. We're also we're also moving out uh cost uh for the fire station 2. So, we have fire station 2. So, that's going to be moved out as well. We budgeted that in non-EP departmental in non-EP departmental and we're moving it to the capital because that that million dollar was set aside for the bond repayment. And so, since we're not making the bond repayment, we're going to provide that budget to the capital improvement fund to fund to pay for the reconstruction of fire station number two. And how are we paying for it in capital? In capital,

how are we paying for it? It's a combination of capital and we're going after a bond currently. So, we're going to see our CIP final budget higher than planned. Yeah. Because we're moving money into that bucket. Yeah. Correct. Correct. Yeah. Those two legal costs and non-EP departmental explains the $7 million legal cost reduction,

non-dep departmental, and uh we'll look at a little bit more. Some of it includes a reduction to um some of our operational costs in there. So, we're finding places to uh there are some small uh operational costs that we're going to move out of uh non-EP department into departments that can handle it or better funded for it. So, within that fund, we do have some Snoopy House cost out of there as well. Um, but we're going to move some of it because we received some uh grants or some sponsorships uh for the Snoopy House event uh from a private donors and so we're going to use those funds um in order to offset those costs.

Okay. Yeah, I think it'd be helpful. Um, I don't know how detailed the information is in our budget book, but I' I'd like to know what was included in the um adopted budget for non-EP departmental that is being moved out or otherwise um reduced. That's a big chunk of change that I don't fully understand right now. Okay. Um Okay. Thank you. Um, oh, uh, Andrea,

thanks. Can we go back to sales tax? So, if I'm understanding, year-to- date actuals is 47 million, but is that with a twomonth lag or is that truly out of March 31st? That that 47 is actually just uh I believe up to February. Just February. Okay. Okay. So, because of the two months in a rears, yeah,

you you haven't seen the picture of what March and April looks like yet. And so, our consultant HDL uh will provide us some better numbers based on uh what they see and what they forecast. However, these numbers do get and so you won't even see June number well until uh the end of the fiscal year. So, they won't come until August, for example. I mean, that's what makes me nervous to be honest, right? It sort of seems like a lot of this is hinging on sales tax being as high as we need it to be. 47% out of 81 million is 58% or so. So, even with that two month lag,

that's um what am I missing? All right the um a better picture uh we could have shown same time last year you know it comes in in that that way there's a two-mon lag but understand that also uh we're c the projections I again this is from our consultants but the projections are such that when we receive it in August they will be acred back to this fiscal year. Yeah. So we make sure we are accounting for 12 months every every year. Yeah. So because I'm assuming the 80 million number isn't 80 million received in sales tax as of June 1st. It's 80 million received including that acral.

It's not proportional as well. Council council member Maher because in June there's also a reconciliation that happened. So the the the retailers that underpay during the year, all of those reconciliation comes in a big drop in for the June as well. And so you're going to see that and so it's not going to come in evenly throughout the year. Yeah, it still seems like we're Yeah.

expecting it to increase but currently lagging behind. So yeah, to Council Member Reynolds point, it might be helpful to see what that was in previous years, too, at this point in the year. Um, okay. Uh, and then we've mentioned self- insurance a couple of times. I mean, I And then slide 16 shows self- insurance sitting at 2 million for the last couple of years. Um, my understanding was that we had effectively depleted self- insurance the last couple of years due to lawsuits around, I'll just say various lawsuits that we've incurred. So, I thought all of that had been coming out of self- insurance. Are we are you Did you say earlier we're using non-EP departmental to top up self- insurance? Is that the swap?

So, let me let me clarify. Non-EP departmental is used to pay for legal fees. Legal fees for sober living. Okay. So, that's the unique uh non-EP departmental budget item. That amount is budgeted at $1.5 million. When a settlement payment happens, it's paid out of the self- insurance fund. So, legal fees are paid for

for the attorneys and the legal fees are paid out of non-depal the settlements are used by self- insurance fund. However, within the self- insurance fund, we do account for cost at the end of the year. uh we put we create a reservance at the end of the year uh to capture not the full cost of what the city outstanding payments are but the most likelihood of what we're going to pay out and so that is accounted for at the end of the year.

Okay. So, uh, council member, if I may add, um, the $2 million that you see here, uh, within the general fund reserve, that is, uh, in addition to whatever is situated in the self insurance fund. Okay. Uh, because you have the, uh, workers comp 2 million there. um in the internal service fund, the risk uh management fund. It's a separate fund and um it has some balance in there as well. But this $2 million is was captured um in the uh council uh decision at some point to set aside this $55 million reserve and this 2 million is a component of that. So this is this sits in the general fund as an additional reserve.

Yeah. And same amount Yep. We're not going to end the year with $2 million still in it, right? Because we've had to pay out of it. This is what I'm not understanding. It's going to budget 2 million at the beginning of the year, but then we we spend it, right? No, this this $2 million just sits here, but for budget purposes, you budget uh within the non-EP departmental and you transfer that into the internal service fund from which you know um uh uh the insurance premiums and all the risk management expenditures are paid and tracked. Okay. Yeah.

All right. That's it for me. Thank you. Thank you. Okay. Public, you get three minutes. I'm tempted to give you four, but you have three. All right. Hold on a second. Here you go, Ralph. Thanks.

Good evening, Mayor, council. Uh, I want to thank staff. A lot of work put into this. Uh, and I especially liked the comments from Mark, especially with his um, conversation with Councilwoman Reynolds. I like the idea, and that's what I should be done is you price out the 599 full-time heads and then you deduct out whatever you're going to use for vacancies. Actually, over the last number of years, the vacancy factor has been used to balance the budget. That $4.4 million has stayed pretty steady for the last four or five years. You could never equate it to a number of people, number of employees, and that was part of my frustration. How many heads is that? You couldn't do that. So I I would hope that uh in this next year you work out what you think the vacancy is going to be the number of heads and then you do the math and come up with a vacancy factor. Um overtime that's been an issue for years. Uh yes the overtimes have been remaining steady at 9 8 n 10 million. Problem is the city's been budgeting what four or five million. So, you have a built-in overrun. I didn't never understood that. Um, also, I know council's probably tired of hearing about pensions, but there's a there's two halves to pensions. There's the unfunded portion and that's what staff talked about that $31 million and there's a funded portion and that's what gets paid to Kalpers every pay period from all the employees a portion of their salary goes to to Kalpers for pensions that I believe and and Mark tell me if I'm wrong but the 31 million was forecasted and budgeted that's not overrun but it's the funded portion of

the pension that is overrun that's the $2 million that Mark mentioned as part of the 8 million total salaries and benefits. Um with that oh um the fire station number two, okay, that million dollars is going to capital. Does that mean the bond is going to be reduced from 12 million to 11 million? Question. Um, and I guess that's it. But I uh some of these questions I'll have more questions in our five pack meeting. Thank you.

Thanks, Rob. Anybody else from the chambers? Anybody on Zoom? No, Mr. Mayor. Okay. Close public comment. Are you sure you don't want more time, Ralph? Yeah. Okay. Mayor, can I jump in? Hold on one second. Let's just go down the row. Okay. And then you all can make uh comments, questions, and then we'll adjourn. Go ahead. Uh Mike,

thanks, Mayor. Thanks, John. Um yeah, just a couple comments and then one little area of uh curiosity inquiry. First off, uh Kingsley, I you commented on, well, we have some good news and you guys sounded a little dejected down there. I just want to say there was a lot of good news tonight. We're It looks like we're heading towards a balanced budget. It looks like, yeah, we have some areas we can drill down on and look into. And I know these conversations aren't pleasant, but they're good conversations to have. They're they're good questions to ask. I like the response, and I I don't think we need to have any hang dog uh attitude about it. I appreciate you guys stepping up. I appreciate you guys being prepared tonight and and I appreciate everybody's input. So, I just wanted to to make that comment. And then just a couple observations, you know, on 19 uh slide 19 where it says uh it just occurred to me it says it needs funds. It when I first read that I thought it was it needs funds. I think they definitely needs funds. Um I also appreciate uh city manager and the department also on 19 and kudos need to go out for I think it's the forward thinking of getting ahead of this and going to the departments and asking to to drill down and look at where we can make up to 5% deductions. Kudos to that and I think that's kind of long overdue. I think often times we come here and uh I've only this my heading into my second year but uh we get in here we find out holy holy you know what we missed the mark and we're looking at a $9 million budget now how do we fill it how do we fill it it hasn't been a proactive approach so I appreciate uh this foresight and I just wanted to commend city manager and staff for that um and then just uh philosophical thought this is sitting around having a beer with somebody and and throwing this out there. And I happen to have some some smart uh accounting people. When we look at the

the revenue side of the ledger, everybody just kind of looks at property taxes and and you you you enter that column and you move on as though it's a static and not changing thing. And it just seems to me uh and we got HDL and maybe they've done this when they project out or whatever, but Costa Mesa in particular seems to be a a community where we have a large asset portfolio in in regards ownership and and real estate and you derive your your property taxes based on the valuation of the these homes at the time they were purchased. some of those homes 10 years, 20 years, third, 40-year homeowners. And you can imagine the step up and there's a lot of these people who've been living in those homes for a a great deal, a lengthy amount of time. And it occurs me to be curious to see what's the total value of that asset portfolio as currently valued. And what would be the value of that asset portfolio if everything stepped up to market rates? and you look at the current age of of of some of the homeowners in there and what's the likelihood has somebody done an analysis is what's the likelihood that there's going to be turnover is there going to be a two or 3% turnover in the next two to three years or uh I love my folks and I don't want to sound dark here but they're 85 86 and and we have a lot of uh older community is it unrealistic to project out what's that turnover going to look like going 10 years out and I just wonder if that type of analysis has been done rather than we just check the box on steady regularly uh property tax revenue and and and is there a potential for a tsunami effect in the next two three five 10 years and we're going to see substantial revenue generated when

those property values uh change hands and and they get up to market rate. So those are just observations. Thank you guys for all your work. Thanks Mike Lauren.

Yes, thank you. So um I do want to bring up a few points um that were brought up during the evening and the study session. Um the first thing is um my understanding is that all departments are willing or trying to target 5% in reductions. I think that's a very big deal because one of the other things that was mentioned is that we're fully funding the can and I want to uh I believe Mark you brought that up. So, um I want to thank staff that you're you're willing to um take some hits and some losses and and and like the term says, tighten up our uh our belt straps. Uh that 5% goes a long way and um I want I want you to know that that does not go unrecognized. Additionally, um a point was made that I thought was uh very interesting. One of the metrics that we can judge a city by by which we define a high standard of living is the fact that we have a funded emergency services um police and fire department. And I'd like to add to that public works as well. Those three things when someone wants to move into a city, they look at those types of things. So, I just want to uh also bring that um to our attention and uh say thank you because uh because of those things, we we do have a great city that we live in and and you guys have taken on a uh quite the task here. So, thank you and good job. I appreciate it.

Okay. Can I go real quick, John, before Arless and No, please. We're going to go down the road. You have to leave. No, no, no. I just wanted to get in there before. Well, let's go. Let's go down the No, let's go down the road. Okay. Go ahead.

Uh yeah, I mean, look, just following up on the last council member's comments to be clear, I said this before, like the police department is fully staffed. Fire is still not public fully staffed. So, we're going to talk about like wave the banner that we've now fully staffed public safety. I just want to be clear like one of the two departments is fully staffed. So, We should be careful in our language there. Um, things we didn't talk about tonight. Uh, cannabis is projected to be down this year. We basically put our planning department on hold for a year and a half so we could get cannabis through and we're seeing fewer sales tax come out of it now that we've got more permitted shops. Concerned about that. I don't know that we have a plan or we can actually do anything about it, but it's something we should probably talk about in the next study session. Um, during the last council meeting, we approved the two-year extension to our ambulance provider contract. I'm going to meet with the chief to talk about our our current model. That was something that we rolled out right when I was first elected. Um, I don't know that we've kind of brought it back for any tweaks, revisions, opportunities for improvement. It's something I'd like to understand. Um, we are we are making a profit on it. It looks very positive. Um, I don't I don't I think it's increasing slightly year-over-year, but it's something we should dig into a little bit more. Um, I do get nervous when we start using language about non-essential expenses. I think my definition of non-essential is probably not the same as every other council members up here. Um, I think some would say that like our parks aren't essential, right? So, how do we how do we define those things? And again, how are we careful about our language such that the things that we are supposedly cutting and reducing are not actually the things that make this community what it is. Um, I look forward to the next council meeting or the next study session because I I do think it's going to be really important to explore toot and business license and some of these

levers that we have as a council, as a city that we have not exercised in the last eight years. Um, and should look at those opportunities fairly. Um, and then last but not least, and I will not harp on this anymore, but you know, I do expect I was looking back through previous budgets online really quickly. There are times when we have come in pretty differently um from what our adopted was or yeah, our adopted and then what our final year end is. In most of those cases, I think we reconciled it midyear, right? We said, "Hey, we actually want to add a bunch of positions and we think we've got extra sales tax to do it." Or we said, "Hey, it's not looking good. We're l nervous. This happened during COVID numerous times. We're really nervous about what the overall economic condition is. We're we're going to step back, right? We're going to say maybe we pause on some of our hiring." And that's when we've made the adjustments. Um to do that in miday nervous. I know some of those circumstances were outside of the city manager's control. Um, but like I said earlier, like I don't have the ability to check on the budget regularly. This is what I have. This is what the community has. And so I think we need to do a better job of that level of confidence. The numbers are what they're what we say they're going to be that we come in close or we've got really good explanations about why they're not. And I don't know that we were quite there tonight. Um, look, I know this is hard. I know we don't have the systems in place to make this any easier. That is something that if you wanted to talk about during the next study session, I think might be helpful because I know we were in the process of trying to roll out some new software and some new mechanisms. I don't know where we're at on that if you're still working off of spreadsheets that crash on you regularly or if we're close to having a system that works well, but I'd like to understand that because I do recognize for staff that this is not an easy process and and we need to continue doing the things that again are not

sexy, right? But make your life easier and make it such that we can get that data that we need more instantly. Um and maybe some people would call that not essential but I I think that is essential. Um and then I've talked about this from the dis before um as we think about future budgets the capital improvement projects the can sometimes gets lost in the conversation. either we spend a whole meeting just focused on it or it's like part of $180 million and so we're not focused on the four or five million that we might dedicate, but we have to think about our facilities. We have to think about how we're going to maintain just the brick and mortar of the city for the long term. And the report that we got, correct me Ralph, but I think showed a need for 10 to 11 million a year to maintain the facilities that we have right now. Um, and so we don't have the budget for that right now, but it would be nice to think about a long-term plan that put us in a position where we were better able to maintain what we've got right now.

That's it. Thank you. Thank you. Do you want to go last? Oh, okay. Uh, no. You you you Why don't you go Manuel and then we'll go Arless Jeff and I'll Sounds good. Um, wrap it up.

Thank you, John. Yeah, I'm trying to pull I don't know. It's all good. It's a busy day in my head. Um, couple quick hits. Nothing really in order in particular, but just want to say a couple things that come to my head. First of all, staff, again, good job on this presentation. Um, really appreciate the fact that we are going to be a balanced budget. Um, and again, it kind of demonstrates in some ways um the rising cost of things this past this past year. Um, having much more sales tax very luckily coinciding with rise in our own costs internally. So, just to begin with that framing, I agree with the mayor that we probably should we look at raising the revenue aside the reserve amount. It just seems very fiscally prudent. Um 55 $60 million, it's nice, but in a real budget situation where we have a sharp decline in sales tax, that probably won't be enough to get us through the year. So, for that point alone, I think we should be looking at raising that number up. Um I do think the K economy analogy I mentioned earlier is we are starting to see it. I think cannabis is actually an example of that because it has declined um from last year. Um one thing we've seen when looking at cannabis throughout the country and throughout California and really Orange County is the sales tax percentage of it kind of stays the same. It might shift to certain cities if new cities open up cannabis dispensaries, but generally speaking, you don't see a real growth in that number. And it kind of makes sense. Most folks use cannabis use cannabis. Most folks that not not a lot of numbers are going to start using cannabis per se. So that to me is an indication that we are probably going to start seeing the lower quadrant or lower half of our economy in Costa Mesa tighten the belt a little bit. And I see all the time in my district when I when I go put gas, it's common to see in the stalls that someone may put $20 instead of a full tank of gas. So, I think we should start preparing ourselves for the long-term applications of the global the global

state of affairs. Um, and alongside that note, I don't think we're really going to see the impacts of that in Costa Mesa probably until after the holiday season. Um, a big part of our budget is sales tax and a big part of that is Hakos Plaza and Kakos Plaza out of respect for the fact that this is a center that gives us much money to our communities. And as I told my res all the time in in my district, we need CO Plaza to succeed because that that's what funds our parks and our community. That's what parks that's what funds the street sweeping and funds the the quality of our roads. So I don't think we're going to get the full picture until after a majority are off council because we're going to see those numbers real raw effect after the holiday season. And that's why I want us to start looking at raising the reserves while we have a chance. um because I don't want to be caught flatfooted when I'm no longer here and dis is brand new with new council members. Um on the PD portion like I think we had a really good robust conversation about them being fully funded and and whether that's good for the community. One thing I have I will share when speaking with with chief is that um it seems like we have not followed best practices in terms of accounting for police overtime. There is going to be times when officers to maintain the level of service our city requires and demands need to do overtime. And I think it'd be really smart for us to just really understand that and put it in our budget somehow because um again as we are having less attrition rate, we're not going to have those savings anymore. And I do think we fall in a habit in using that attrition rate or those vacancies to not show the real picture of the budget. Um, so that to me is something I think we should do moving forward. And then finally, and I know we're not talking about sales tax right now or any tax, but I just want to stay off my chest right now. You know, most city budgets have always been historically overhead costs of

employees. 70% of our budget is employees. Um and we've seen today that um you know I guess the expectation of our number of employees is that every year we need to have six to $7 million more just to pay for the increases to the employee cost. Um I also think to to Andrea's point like let's just be honest we're either going to find more revenue or we're going to find find ways to have less staff to to do the same amount of work. And I just want to be very frank about that because when we had this conversation about no taxes or or cutting back in employees or cutting back like like um services, we're really saying is employee headcount. And I think that should be stated firmly. So I'm not going to say no to any new revenue sources because I know if you don't get that, that's probably going to be us not hiring folks in park and wrecks and us maybe having to prioritize not doing street repments. Um, we've seen this past year how a lot of facilities are not up to date. Um, so that's probably the first thing we're going to cut in terms of like saving cost measures. So, I want to be an adult in the room and understand that we need to have hard conversations and that little slogans are are nice for campaign trails, but when it comes to governing a budget, looking at at looking at a certain situation, we have to be pragmatic. We have to start saving money. We need to be realistic about modernizing ourselves to make sure that we're not subsidizing other businesses through our own taxpayers dollars because everyone in Coast Mesa wants a new park. They want it in New Park, they want in Brettwood, they want in my district. And the reality is we're either going to be helping those folks get new equipment or going to be subsidizing businesses that could be paying more. So, thank you.

Thank you, Manuel Arus. Um yeah, I'm um looking forward to the next budget very much. Um there are some fundamental questions about the current budget that I'm stuck on and and will be following up on for answers to. We council adopted a budget that was $187 million from our general fund. And what we have in front of us is, hey, we spent or we're projecting to spend $194 million. It's a $7 million difference that never came to council. I'm I'm concerned by that. Like I there, how could that have gone higher? I'm I'm I'm concerned about that. We we we spent a lot of time on council looking down to the like $10,000 here and $10,000 there, but there's a $7 million swing that we did not have input on. I'm I'm concerned about how that happened. I'm concerned about um whether controls were not followed or whether we don't have controls in place. We got lucky that there's also $7 million coming back in through extra revenue. This would be a very different conversation if we did not have positive extra revenue, which we're counting on and we'll know in a week if that's still projected. I think I just think that I'm stuck there. Um and so um I do if you can answer tonight, great. Otherwise, um I want to know what controls are in place because those decisions $7 million in extra spending need to be council decisions. I'm assuming that's money we can't undo right now. Um, so that's one and I think that's critical if there are policies in place to make sure that there's daylight

on that spending and council approval and public input on $7 million of unbudgeted spending. We need to get those policies in place. Um, when we look in the numbers, we can see that there's, you know, higher overruns in some places that are being compensated by reduced spending in others. We talk a lot about the importance of streamlining and supporting our development services department, but this budget is showing $400,000 reduction in their budget. I don't know if that's consistent with the needs that we have to support that department and all of the economic activity that is um I think council member Chavez made this point in the last time or previous conversations. The sooner we can get permits out, the sooner we get revenue in I would hope to see extra spending in in that department if anything. So, I'm concerned about the the um the swings that we're seeing here in adopted versus projected or even adopted versus actual at this point. Um if those swings net out, okay, but those swings are adding up to $7 million extra spending that council did not approve. Um I do I've mentioned this uh earlier. I I do want to understand um what is in our budget especially that that non-dep departmental what is what was in our budget that we are not funding or that we're moving somewhere else um to compensate for that $7 million net increase in spending or I guess more than that right because some of that's compensated by our um our additional revenue. Um and then you know the the flip side of that is is you know we've often um despite previous difficult economic times we've often you know been at this point in the year where you are bringing to us nice

surprises to say hey revenue was better than expected. Um and and I and I wish we were in that place where we said hey we budgeted really conservatively. We have $7 million extra revenue. What is what do you want us to do with that council? Right? like we we why are we not in the position where we're saying $7 million great we can fully fund our can we can invest in some additional park projects whatever right that's a c but that should be a council decision $7 million in extra revenue compared to an adopted budget that the council or the public don't have input on I I I think that's a problem and I'm I'm actually a little bit surprised that that's not um uh more um concerning and more part of the conversation here so um my biggest takeaway is is what controls need to be put in place um to make sure that this doesn't happen again. Um it doesn't mean we don't decide to spend more than we budgeted, but that those decisions should be made by our council um with transparency and with um public input. I'll stop there,

Jeff.

Yeah, I heard some good things from everybody up here tonight. You know, I I I think I'm I'm with you, Aras. I I think that the we're being told that we balanced the budget or we're balancing the budget, and it was really just a lucky break on on the sales tax. You know, 75% again, I've said a structural issue with 75% of our budget being staffing, salaries, and all that good stuff. To me, that's not flexibility, that's exposure. And so, what do we do? we have uh our our major part of our revenue source is what 40% sales tax 30% property tax you know I I think it's a I I think one one thing we didn't one thing that doesn't come up a lot is we aren't passive um observers of how sales tax and and property tax is going to come in we're we're the city council we run policy we can impact those things and we should impact those things through the policy we put forward you know I look at the property tax I drive around my the east side and I see all this development taking places, houses being torn down and built, Trinity Broadcasting, we should be killing it in property tax. So, I agree with um Council Member Reynolds when we talk when we look at staffing, maybe, you know, I don't know, temporary hires in the in the economic development um department if we're if we're falling short on permitting and things like that and getting stuff built and through the process. Um, you know, I when I brought up this the the toot and the business tax, I understand that's not um something that's going to impact this current fiscal year, but really what I wanted it to I wanted to bring it to the four because it really goes to my bottom line that if we do not control spending now, we're going to be forced to raise taxes later. and the responsible approach is clear. Reduce, prioritize, and stabilize before we ask the public to pay more. I'm just bringing that up now. Um, so I can sleep

at night. Thank you.

Thanks. Thanks, Jeff. So, yeah, a good job. Very good job. Thank you very much. It's not easy um to deliver news of any kind financially, expenses going up and and uncertainty in the world and how that might affect us. And I thought you did it really well. Um, you know, I think one thing to consider is if you look at Fullerton, Orange, even even the great Irvine, uh, Santa Ana, the county of Orange, they're having much different conversations. They're having different conversations because they're they have, in fact, a deficit. And so they're seeing that. Um, as um, Mike said, there's a really lot of good news in here. I mean, we've been I have personally uh been uh ever since I got before I got elected. So, this is what I when I knocked on people's doors in 2016, I said we will increase the number of cops. I mean, you know, I've still got the flyer that I handed out to people and we're this has been a goal of mine for 10 years and now we're fully staffed in the police department and doing great things with technology and to no surprise, crime is down. So, that's great. and and it takes money and decisions by this council and then a ton of work by HR and and the police department and then the community, each person in the community to to show appreciation and uh support for the PD and having recruits see that. And one of the things that's embedded in this report is one of the things the council did in working with the POA last year is we put in an incentive program. So a lot of the recruiting came uh according to

this report from within the department. So thank you to every single rank and file person uh in the police department that brought one of their friends or family members in. This is an extraordinary achievement and when you think about where we were with the image of PD after George Floyd and where we are now. Um it's amazing and so thank you. Great news. By the same token, I somehow I got uh uh I I'm on all these Instagram whatever feeds and and one of them I have is from Fullerton and they had uh one of the council members was talking about with one of the staff members. Now imagine this they're talking about their condition pavement condition in index which again is the PCI something I talk about a lot. Ours is the third highest in the county which and and the county is the highest in the state. So we're among the top three or four or five uh pavement condition index in the state. Our public works department is rightfully very proud of that. You could see that as you drive even from Newport Beach to Costa Mesa. Even when you drive from the great city of Irvine to Costa Mesa, you see nicer streets in Costa Mesa. offbudget Fullerton, according to this crazy reel that I'm on, $200 million that they have to put into their streets to increase and improve their roads. They can just maintain their roads and they're going to continue to deteriorate. In part, that's the can, but I think that that's has nothing to do with it. I think it has to do with um the uh department that we have and the leadership we have in our department and people that we have working every single day. When we talk about um sales tax going up, I don't think this I don't think you

know there there's an old saying that luck is uh oper uh opportunity meeting uh preparation, right? And when I think of all the people that put their feet on the ground in the private sector when they wake up in the morning every day and they come here and they work their butt off, right, to to generate that sales tax, you know, Costa Mesa, we have 112,000 people on any given time during a day. There's 300,000 people in the city of Costa Mesa and those are people that are working and spending and working and spending and working and spending and then often going home to the crappy streets in their city. Um, but thank you to them. Thank you for the visitors. I mean, Travel Costa Mesa, are you kidding me? The hotel years. Uh we had a presentation recently here by um uh Travel Coast to Mesa uh Pette Lombardi Freeze that that said, you know, something like uh $4.5 million a year is generated just just on tourism. And I'm on the board of the of Travel Coast and Mesa. I know how hard they work. I know how diligent they are and they work again every single day to bring people into the city. So, thank you to them for that. As for cannabis, my reading of this is that cannabis is not going down. It's actually flat. I'm not um satisfied with that. I think though, if we're going to have a conversation about cannabis, it should not be about just complaining about cannabis and that we should have never done it in the first place and the 65% of the voters that voted for it were not right. Uh and it was a total waste of time. I think the the conversation should be how with that those members of that industry who again put their feet on the floor every day, go in and work at those cannabis places and how could we improve their revenue? How can we deal with smoke shops that

are selling uh uh you know, and this is again, thank goodness we've got our our PD here that's fully funded. Let's and our code enforcement. Let's go after those smoke shops that are selling things that shouldn't be sold at smoke shops. What can we do? Let's engage the cannabis retailers and see how they can improve their sales. And I promise to do my part. I in the next fiscal year, I will consume more cannabis. So, if nobody has anything else, we're adjourned.