City of San Juan Capistrano Age eport

Transcription

1 6/19/2014 C1 City of San Juan Capistrano Age eport TO: FROM: DATE: SUBJECT: Karen P. Brust, City a Cindy Russell, Chief Financial Officer/City Treasure~~ Prepared by: Michelle Bannigan, Assistant Finance Director ~ Introduction of the Proposed Fiscal Years and Operating Budgets and the Proposed Fiscal Years Seven-Year Capital Improvement Program RECOMMENDATION: Review the Proposed Fiscal Years and Operating Budgets and the Proposed Seven-Year Capital Improvement Program, request additional information from staff as needed, and continue this review and discussions to a second public meeting scheduled for June 23, EXECUTIVE SUMMARY: Overall, the City's proposed two-year operating budget is balanced and our financial outlook is expected to improve over the two-year projection period from July 1, 2014, through June 30, The proposed General Fund budget projects revenues over expenditures of $414,500 for Fiscal Year and $1.40 million for Fiscal Year with a projected General Fund contingency reserve of 50%, or $11.52 million, and $12.40 million, as of June 30, 2015, and June 30, 2016, respectively, which is within the City Council's guidelines of 25% to 50%. Additionally, as of June 30, 2015, and June 30, 2016, total available fund balance (the amount exceeding the 50% contingency reserve) is estimated to be $129,758 (0.6%) and $647,168 (2.6%), respectively. The total contingency and available fund balances are estimated to be $11.65 million (50.6%) and $13.01 million (52.6%) as of June 30,2015, and June 30,2016, respectively. The Water Operations Funds continue to improve with concentrated efforts on local production and containing costs in order to eliminate the current deficit. Based on the proposed water rates currently being considered, Water Enterprise projected revenues, across all operations funds are $20.35 million for Fiscal Year and $21.29 million for Fiscal Year Projected expenses, excluding transfers to capital funds, are $17.63 million for Fiscal Year and $17.62 million for Fiscal Year Revenues over expenses are projected to be $2.72 million and $3.67 million for Fiscal Years and , respectively, before funding any capital improvement project costs. This amount can be used to reduce the operations fund deficit and provide funding for

2 Page 2 of 14 capital replacement projects. After funding capital improvement project costs of $925,000 in Fiscal Year and $2.32 million in Fiscal Year , the Water Operations Fund Budget is projecting a reduction in the water operations deficit by $1.79 million in Fiscal Year and $1.35 million in Fiscal Year resulting in an expected operating fund balance deficit of $779,608 by June 30, 2015, and the elimination of the operating fund deficit with an available fund balance of $571,722 by June 30, Staff will continue to monitor the drought situation closely as well as the achievement of state mandated water conservation levels by Fiscal Year in the event there are significant impacts to the Water Enterprise Fund's budget. As noted in the recently completed 2014 Water and Sewer Rate Study, the Sewer Operations Fund has available reserves in excess of the 50% contingency. As a result, the proposed revenues for the Fiscal Years and Budget project no revenue increase from sewer service charges. Estimated expenses exceed estimated revenues by $98,415, and $166,475, in Fiscal Years and , respectively. In order to balance the budgets for Fiscal Years and , available fund balances are being reduced by $98,415, and $166,475, in Fiscal Years and , respectively. The estimated contingency reserve is expected to be maintained at 50%, or $1.51 million, and $1.54 million, as of June 30, 2015, and June 30,2016, respectively, which is within the City Council's guidelines of 25%-50% of operating expenses and maintains adequate capital reserves. The Sewer Operations Fund's available fund balance (the amount exceeding the 50% contingency reserve) is estimated to be $1.13 million (37.6%) and $932,742 (30.3%) as of June 30, 2015, and June 30, 2016, respectively. The total contingency and available fund balances are estimated to be $2.64 million (87.6%) and $2.47 million (80.3%) as of June 30, 2015, and June 30, 2016, respectively. The City's Capital Improvement Program funds are balanced with the exception of the drainage and water capital funds. Capital Improvement Project costs are projected at $7.37 million for Fiscal Year and $7.58 million for Fiscal Year Transportation, domestic water, recycled water and sewer projects represent 74.3% and 87.8% of the total proposed budgets for Fiscal Years and , respectively. Even with a balanced budget, it is important to maintain adequate contingency reserves as opposed to the minimum; therefore, the City needs to continue to work diligently to improve its financial position looking forward. It is recommended that the City continue to review and evaluate opportunities for increased and new revenue sources, leverage its assets either through sale or lease, increase efficiencies and make reductions as warranted in order to assure that the City's financial outlook continues to improve. Also, the City recently completed labor negotiations with its two employee bargaining groups. At the time of the preparation of this report, the contracts are being prepared for City Council consideration on June 23, As a result, the Proposed Fiscal Years and Operating Budgets do not include the results of the new labor contracts at this time. However, the proposed agreements, if adopted, still result in a balanced budget (revenues equal to or exceeding expenditures).

3 Page 3 of 14 DISCUSSION/ANALYSIS: The Proposed Fiscal Years and Operating Budget and Proposed Fiscal Years Seven-Year Capital Improvement Program is a planning document including the projected costs for general operations, water and sewer operations funds, other operating funds, and capital improvement project costs. Additionally, the projected funding and revenues sources for these City funds are outlined in this document. The following discussion starts with the City's General Fund revenues and expenditures, followed by the Water and Sewer Operations Funds, other funds and lastly, the C~pital Improvement Program. GENERAL FUND OPERATING BUDGET OVERVIEW The two-year budget process for Fiscal Years and began in December 2013 with the projection of major revenue generators for the City such as sales, property, and other taxes, as well as development revenue. Departments were asked to hold the line or reduce their budgets where possible in order to adopt a balanced budget which supports the City Council's Urgent Strategic Priorities and policies. General Fund Revenues General Fund revenues for Fiscal Year are $23.45 million, a decrease of 7.4% as compared to the amended projections for Fiscal Year and $26.27 million for Fiscal Year , a 12.0% increase when compared to the Fiscal Year projections. The decrease in revenue from Fiscal Year to is primarily a result of one-time revenues the City collected in Fiscal Year from the sale of Lot 217 and redevelopment property taxes. $10,000,000 $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 ' $2,000,000 $1,000,000 Actual FY 2012/13 Projected FY 2013/14 Proposed FY 2014/15 Proposed FY 2015/16 $0 l Property Taxes Sales Taxes other Taxes Franchise Fees (Fiscal Year 2012/13 and 2013/14 property tax amounts include one-time revenues from redevelopment property taxes. Transient occupancy taxes are included with "other taxes".)

4 Page 4 of 14 The major revenue categories, Property Taxes, Sales Taxes, Other Taxes and Franchise Fees, provide 79.5% and 75.0% of the City's General Fund revenues for Fiscal Years and , respectively. Based on our projections, the combined increase for these categories is 2.4% for Fiscal Year and 5.7% for Fiscal Year The primary sources of these increases are property taxes, sales taxes and transient occupancy taxes. The City's assessed valuation for Fiscal Year increased by 3.5% due to new residential development projects that were completed over the last two years. As a result, the City's property tax revenues are expected to increase at least 1% per year for each year in Fiscal Years and (Fiscal Year revenues include one-time redevelopment property taxes, which are not included in the Fiscal Years and estimates.) Retail sales Citywide are estimated to continue their upward trend through the next two year operating budget based on projections the City received from its sales tax consultant, resulting in an increase of 3.1% for Fiscal Year and 11.7% for Fiscal Year The one-time peak in Fiscal Year sales tax revenue is a result of the ending of the sales tax and property tax swap the State imposed on the City as a result of certain local revenue realignments that were adopted with the State's budget (also referred to as "the triple flip"}. The City's two hotels, Marriott Residence Inn and Best Western, continue to experience strong occupancy rates, and are projected to increase transient occupancy tax revenues by 7.8% and 1.0% in Fiscal Years and , respectively. (The large increase in Fiscal Year is estimated because the City expects that the Fiscal Year actual transient occupancy tax revenues will exceed the current budget of $575,000.) Licenses, Fees, and Permits are projected to increase by 4.4% for Fiscal Year and 104.0% for Fiscal Year , largely due to the residential development from the following projects over the next two fiscal years: The Oaks, Whispering Hills, Oliva and Pacifica San Juan. Fines and Forfeitures are increasing by 0.6% for Fiscal Year and 2.4% for Fiscal Year , based on the current trend of parking citations. Transfers in to the General Fund are decreasing by 34.3% due to a decrease in transfers from the Gas Tax Fund. The City's goal is to reduce the General Fund's reliance on the use of Gas Tax Funds for funding local street maintenance expenditures in order to provide additional funding for annual pavement rehabilitation. Therefore, the City intends to reduce the annual transfer from the Gas Tax Fund to the General Fund by $150,000 per year to accomplish this goal. This means starting in Fiscal Year , 100% of the City's Gas Tax funds will be used to fund capital improvement projects only. No Gas Tax funds will be used to fund maintenance costs. General Fund Expenditures Estimated General Fund operating expenditures are $23.03 million for Fiscal Year , an increase of 1.3% from the Fiscal Year amended budget, and $24.87 million for Fiscal Year , an increase of 8.0% from the Proposed Fiscal Year Budget. For Fiscal Year , major efforts have been made in order to contain personnel costs, implement cost savings measures on contracts and limit funding for facility maintenance to offset necessary increases related to rising costs and make debt service payments on bonds issued related to a prior year litigation settlement obligation. For Fiscal

5 Page 5 of 14 Year , the General Fund is not expected to provide any funding for the City's proposed capital projects. The significant increase in costs in Fiscal Year is primarily related to the following: a 6.8% increase in the City's law enforcement contract ($535, 11 0); increase for supplemental police services and 800 mhz program upgrade ($98,335); cost increases related to the elimination of State funding for San Onofre Nuclear Generating Station (S.O.N.G.S.) ($ ); increased contracted services offset by increased permit and engineering fees for residential development ($528,415); and estimated increases for prevailing wages expected in the City's landscape and other maintenance contracts ($275,740). (The City's maintenance contracts will be formally bid during Fiscal Year The City anticipates contracts for weed abatement, storm preparation services, and landscaping services could increase up to 30% from Fiscal Year contracted rates.) General Fund Expenditure Changes Personnel costs are increasing overall due to an increase in staffing from the prior year of 1.61 full-time equivalent positions for the following positions: Part-Time Planning Intern; Part Time Customer Service Representative; Part-Time Receptionist for the Community Services Department, and increased hours for the Part-Time Recreation Leaders. (The Rate and Administration Manager, which was partially funded by the General Fund, is being unfunded effective July 1, 2014.) This reduction is offset by a projected increase in health insurance costs each year of 8.4% in January of each fiscal year and increases in the OCERS employer contribution rate and workers' compensation costs. This results in an increase to the General Fund of $563,948 (8.5%) for Fiscal Year and an increase of $315,040 (4.4%) in Fiscal Year The increase for Fiscal Year is due to the projected increases in health insurance costs, workers' compensation costs, and OCERS employer contribution rate and no change in staffing levels. Allocated Charges - Allocated Charges include internal service fund charges to the General Fund for the following services: facilities operations and maintenance, information technology, general liability insurance, and fleet maintenance costs. Overall, allocated charges to the General Fund are decreasing by $150,112, or 5.9%, in Fiscal Year and are increasing by $77,130, or 3.1% in Fiscal Year The main reason for the decrease in Fiscal Year is a result of funding certain supplies and equipment costs every other year. As a result, Departments were asked to purchase certain supplies and equipment in Fiscal Year in order to reduce or eliminate the funding in Fiscal Year In Fiscal Year , the supplies are re-budgeted. In addition, the City's general liability insurance costs (based on recent estimates from California Joint Powers Insurance Authority), revealed the City has a retroactive refund due, which reduced the City's total insurance premium estimate. The reduction of the City's total insurance premium contributed to a reduction of general liability insurance costs funded by the General Fund of ($143,861) (17.9%) for Fiscal Year In Fiscal Year , the City's general liability insurance premium funded by the General Fund is expected to increase by $36,480 (5.5%). Debt Service - Principal and interest costs on the Judgment Obligation Bonds issued in June 2011 are $308,730 and $308,580 for Fiscal Years and , respectively. These bonds are at an interest rate of 2-3% and will be fully retired (or paid off) by August 1, The City has the option to pay off the bonds early on or after August 1, 2016.

6 Page 6 of 14 Public Parking Lot Maintenance - The General Fund contribution for public parking lot maintenance of $132,930 for Fiscal Year and $134,450 for Fiscal Year has been included. City Manager- Funding of $30,000 is included in the Fiscal Year proposed budget for the completion of a staff compensation and classification study. City Clerk- The City's General Election occurs in November 2014 at a projected cost of $36,000; for Fiscal Year Law Enforcement and Public Safety - For Fiscal Year , the contract with the Orange County Sheriff's Department will increase by $302,345 an increase of 4.0% over the current contract. For Fiscal Year , an increase of $535,110, or 6.8%, has been projected. In addition, the Orange County Sherriff's Department is upgrading its County-wide radio system in Fiscal Year Starting in Fiscal Year , the City is setting aside an additional $80,300 in order to save the funds needed by Fiscal Year to pay for the full replacement of the San Juan Capistrano Police Services' radios. (The total estimated purchase price for the radios is $240,900.) Public Works/Utilities - Funding includes an overall decrease to the General Fund of $69,303, or 1%, in Fiscal Year and an increase of $866,410, or 15%, in Fiscal Year Funding for engineering costs is increasing by $44,060 for Fiscal Year and $516,420 in Fiscal Year in support of fee-supported development related services. Funding for general maintenance and support costs in the General Fund is decreasing by $72,132 in Fiscal Year primarily due to contracted services costs related to habitat mitigation monitoring for the Sun Ranch Drainage Improvements project that was transferred from the completed project's available project funds to the City's General Fund in Fiscal Year (Any unused budgeted funds will be carried over and requested for reappropriation in Fiscal Year ). In addition, general maintenance costs are increasing by $32,815 primarily due to anticipated increases in the City's contract for weed abatement services. Funding for street and traffic maintenance is increasing by $70,680, or 9.0%, in Fiscal Year and $36,600, or 4.3%, in Fiscal Year The increases in Fiscal Year are to fund additional minor repairs to streets; curbs and gutters and for bike lane slurry seal and striping. The increase in Fiscal Year is due to anticipated cost increases for the City's various street contracting services as follows: 3% Consumer Price Index (CPI) increase for street sweeping, 5% contract increase for street striping; and prevailing wage increases for winter preparation services. Funding for parks and open space maintenance is increasing by $99,170, or 6.5%, in Fiscal Year and $227,235, or 14.0%, in Fiscal Year The increase in Fiscal Year is to fund maintenance for the City's new park, Dr. Joe Cortese Dog Park, which was completed during Fiscal Year In Fiscal Year , costs are increasing to include nine months of maintenance costs for Northwest Open Space Park and for the anticipated cost

7 Page 7 of 14 increase expected when the City's landscaping services contract is competitively bid. (Costs are anticipated to increase significantly due to a significant increase in prevailing wages since the last time the City awarded the contract.) Funding for environmental costs is increasing by $25,120, or 10.9%, in Fiscal Year and $9,975, or 3.9%, in Fiscal Year primarily due to anticipated increases in County National Pollutant Discharge Elimination System (NPDES) permit fees. Funding for storm drain maintenance costs is increasing by $24,840, or 14.6%, in Fiscal Year and $8,940, or 4.6%, in Fiscal Year due to anticipated increases in contracted services for: catch basin cleaning, storm services, storm drain cleaning, and video inspections. ENTERPRISE FUNDS Water Enterprise Operations Funds Water Enterprise projected revenues across all operations funds are $20.35 million in Fiscal Year and $21.29 million in Fiscal Year Projected expenses, excluding transfers to capital funds, are $17.63 million in Fiscal Year and $17.62 million in Fiscal Year The City has strived to reduce the deficit in the Water Operations Funds over the last several years. Since July 1, 2012, the City has successfully reduced the Water Operations Funds' deficit from $5.08 million as of July 1, 2012, to $2.57 million (as projected in the City's Third Quarter Financial Report for Fiscal Year ) as of June 30, This represents a reduction of $2.50 million, or 49.3% in two fiscal years. The main drivers for the Water Operations Funds' budget are water sales, and production from the Groundwater Recovery Plant (GWRP). Operating revenues and expenses are based on the currently proposed rates (5% increase in revenue each year effective July 1, 2014, and July 1, 2015), conservative sales projections (7,347 acre feet (AF)), production from the Groundwater Recovery Plant (GWRP) of 4,187 AF, and a continued effort to contain and/or reduce costs. Water Operations Funds Expenses Changes Personnel costs are increasing overall due to an increase in staffing allocations for the Water Operations Funds due to the following personnel changes in Fiscal Year : unfunding of the Rate and Administration Manager (Utilities); funding of one additional GWRP Operator Ill (Utilities); and funding of one additional Part-Time Customer Service Representative (Finance) for the City's One Stop Shop in Fiscal Year (The GWRP Operator Ill is fully funded from the Water Operations Funds whereas the Rate and Administration Manager was partially funded from other funds. The Part-Time Customer Service Representative position is partially funded by the General Fund.) In addition, personnel costs are increasing due to City-wide increases for health insurance costs, the OCERS employer contribution rate and workers' compensation costs. This results in an increase to the Water Operations Funds of $328,845 (13.3%) for Fiscal Year and an increase of $82,710 (3.0%) in Fiscal Year The increase for Fiscal Year is due to the projected increases in health insurance costs, workers' compensation costs, and OCERS employer contribution rate and no change in staffing levels.

8 Page 8 of 14 Imported Water Costs - The amount of imported water being purchased from Municipal Water District of Orange County (MWDOC) is decreasing 30.1% from 3, 730 acre feet in Fiscal Year to 3,130 acre feet in Fiscal Years and due to reduced sales projections. Furthermore, MWDOC rates are increasing by 4.1% in Fiscal Year and 3.8% in Fiscal Year These two factors result in a reduction in imported water costs for potable water of $1.06 million or 23.7% in Fiscal Year and an increase of $128,000, or 3.8% in Fiscal Year During Fiscal Year , a number of recycled water conversions took place as a result of the completion of the Proposition 50 capital projects. As a result, the Fiscal Years and budget includes a 752.0% increase (338 acre feet) of imported recycled water from Santa Margarita Water District and Moulton Niguel Water District. Consequently, the cost of imported recycled water costs is increasing $178,995, or 511.4% in Fiscal Year and an additional $6,420, or 3.0% in Fiscal Year Domestic Water Operations (Fund 60) - Overall, total costs in the Domestic Water Operations Fund are decreasing by $1.96 million, or 17.9%, in Fiscal Year and increasing by $1.28 million, or 14.2% in Fiscal Year The primary drivers for the significant decrease in expenses include: reduced capital project funding from $1.37 million in Fiscal Year to $325,000 in Fiscal Year ; reduced imported water purchases from MWDOC due to lower sales projections (although MWDOC rates are actually increasing by 4.1 %); and the transferring of recycled water costs to a newly created, separate fund for tracking purposes. Other significant items included in the Fiscal Year budget include cost increases for: temporary administration assistance; completion of the Urban Water Management Plan; increased valve and hydrant maintenance costs; contracted services for backflow services; and increased pavement work to complete repairs that were deferred in Fiscal Year The primary driver in the Fiscal Year increase is the funding of capital projects, which is increasing from $325,000 in Fiscal Year to $1.5 million in Fiscal Year GWRP Operations (Fund 62) - Overall, GWRP operations costs are decreasing by ($35,972), or 0.6% in Fiscal Year and ($68,510), or $1.2% in Fiscal Year In Fiscal Year , a number of one-time emergency repair costs were incurred that have not been re-budgeted in Fiscal Years and In addition, it is anticipated that there were a reduced number of necessary laboratory tests that are projected to result in a 14.3% decrease in water quality costs in Fiscal Year Additionally, the granular active carbon (GAC) media, which is replaced every 6-8 months, is projected to be replaced twice in Fiscal Year , at a cost of $322,000, an increase of 100%. For Fiscal Year , this cost will decrease offsetting cost increases in other areas. Recycled Water Operations (Fund 66) - The City created a new operations fund, the Recycled Water Operations Fund, starting in Fiscal Year to segregate operations revenues and expenses related to the City's recycled (or non-potable) water system from the operations related to the City's domestic (or potable) water system. In accordance with the 2014 Water and Sewer Rate Study, capital projects funding from recycled water rates is estimated at $600,000 and $820,000 for Fiscal Years and , respectively.

9 Page 9 of 14 The following is a summary of the Proposed Fiscal Years and budgets: Water Operations Funds Projections FY FY Proposed Proposed Total Revenues Total Expenses (excluding transfers to capital funds) Revenues over Expenses (before transfers to capital funds) Transfer to Capital Funds Revenues over Expenses Beginning Fund Balance- Operations Funds 11 ) Ending Fund Balance- Operations Funds 11 l Reserves: Debt Service Reserve Total Fund Balance- Operations Funds $20,347,070 17,627,995 2,719,075 (925,000) 1,794,075 (2,573,683) $ (779,608) $ 1,296,425 $ 516,817 $ 21,292,600 17,621,270 3,671,330 (2,320,000) 1,351,330 (779,608) $ 571,722 $ 1,296,425 $ 1,868, )- Amount includes contingency reserve and available fund balance. Sewer Operations Fund The Sewer Operations Fund projected revenues are $3.42 million per year for Fiscal Years and Projected expenses, excluding transfers to capital funds, are $3.01 million for Fiscal Year and $3.08 million for Fiscal Year The Sewer Operations Fund is expected to provide $500,000 to the Sewer Capital Replacement Fund each year for on-going capital replacement projects. The main drivers for the Sewer Operations Fund's projections are sewer service charges and treatment costs from the South Orange County Wastewater Authority (SOCWA). Sewer service charges are based on the current proposed sewer rates effective July 1, 2014, which include no change to the revenue from rates in Fiscal Years and Treatment costs are $1.90 million in Fiscal Year and $1.96 million in Fiscal Year , an increase of 2.6% and 3.0%, respectively. Sewer operations funds are projected to end Fiscal Years and with an expected fund balance contingency reserve of 50% and an available fund balance of $1.13 million, and $932,742, respectively. The current level of revenue from sewer rates and the available fund balance are sufficient to cover operating expenses and the transfer to the Sewer Capital Replacement Fund.

10 Page 10 of 14 The following chart is a summary of these projections: Sewer Operations Funds Projections Total Revenues Other Sources- Available Fund Balance Total Revenues and Other Sources Total Expenses (excluding transfers to capital funds) Revenues over Expenses (before transfers to capital funds) Transfer to Capital Funds Revenues and Other Sources over Expenses Beginning Fund Balance (Available)- Operations Funds Amount Used for Current Year Operations Transfer to Contingency Reserve Ending Fund Balance (Available)- Operations Funds Reserves: Contingency Reserve -maintained at 50% Total Fund Balance- Operations Funds FY FY Proposed Proposed $ 3,416,080 $ 3,416,080 98, ,475 3,514,495 3,582,555 3,014,495 3,082, , ,000 (500,000) (500,000) $ $ $ 1,133,248 $ 1,133,248 (166,475) (34,031) ~ 1,133,248 $ 932,742 $ 1,507,247 $ 1,541,278 $ 2,640,495 $ 2,474, % 80.3% OTHER OPERATING FUND BUDGETS HIGHLIGHTS Parking Maintenance Fund The Parking Maintenance Fund expenditures are $193,265, an increase of 11.1% for Fiscal Year and $445,665 for Fiscal Year , an increase of 130.6%. The increase in Fiscal Year is due to the reallocation of Customer Service personnel costs to fund the staff time spent addressing parking permit issues. The significant increase in Fiscal Year is due to the Parking Maintenance Fund providing $256,000 of funding for the Multi-Modal Parking Lot Pavement Overlay, Slurry and Striping project included in the City's proposed Capital Improvement Program budget. Internal Service Funds Facilities Operations Fund The Facilities Operations Fund expenses are $2.33 million, a decrease of 5.0%, for Fiscal Year and $2,166,000 for Fiscal Year , a decrease of 6.9%. Ongoing facility maintenance and repair costs have been reduced to the bare minimum. In Fiscal Year , the Facilities Operations Fund is expected to provide $232,000 for a variety of buildings and facilities capital projects, which are discussed in the "Capital Improvement Program" section of the agenda report. Insurance/Benefits Fund- Funding is increasing by 4.3%, or $239,471, for Fiscal Year as a result of increased workers' compensation costs and employer contribution rates to the retirement system. In Fiscal Year , costs are projected to increase further by $391,81 0, or 6.9% for the same reasons.

11 Page 11 of 14 CAPITAL IMPROVEMENT PROGRAM Capital Improvement Project costs are projected at $7.37 million for Fiscal Year and $7.58 million for Fiscal Year This represents a decrease of 73.4% for Fiscal Year as compared to the Fiscal Year amended budget and an increase of 2.8% for Fiscal Year as compared to the Proposed Budget for Fiscal Year The majority of the reduction is in transportation, water and sewer projects. This is mainly due to the significant prior year carryover funding as staff has been completing older projects. In the Transportation category and in support of the City Council's goal to create a plan for and implement infrastructure improvements that benefit the residents, is the Annual Pavement Rehabilitation project that provides much needed repairs and maintains public streets. In addition, staff is recommending the funding of an Annual Arterial Rehabilitation Project starting in Fiscal Year (This project was previously funded in the City's Capital Improvement Program every other fiscal year.) The project will focus on rehabilitation work on sections of Camino Las Ramblas and Camino Capistrano during Fiscal Years and Other transportation projects included in Fiscal Years and include traffic calming projects and traffic signals, as well as additional funding for current projects that will be ongoing over the next two years such as: Regional Traffic Signal Synchronization Project; Citywide Sign Replacement Program; El Camino Real at Don Juan Retaining Wall Project; and Verdugo Street Beautification Project. The Verdugo Street Beautification Project will be funded with Successor Agency bond proceeds per the bond expenditure agreement between the City and the Successor Agency. In the Parks and Open Space category, there are several projects that will enhance the enjoyment of our City's natural open space environment including funding for various trail improvements, improvements to neighborhood parks and sports fields, and planned park and improvements to the Northwest Open Space. The City has also secured $353,000 in grant funding from the Orange County Transportation Authority for the East Open Space Trails/Bikeway Gap Closure Project (CIP 11203). In the Buildings and Facilities category, the proposed Capital Improvement Program allocates $1.09 million in Fiscal Years and for a variety of City facilities projects including: resurfacing various parking lots, exterior painting at the Library; City Hall exterior siding and roof repairs; Trabuco Creek Footbridge renovation; resurfacing Camino Capistrano athletic arena court, and an ADA self-evaluation and transition plan. These proposed projects will be funded by the Facilities Operations Fund, Parking Maintenance Fund, General Fund, and reimbursement from the County or Orange for a portion of the costs related to the library repairs. In the Drainage category, $408,950 has been proposed for spending on drainage improvements for Fiscal Years and Since the City's Drainage Fund is currently in a deficit situation, drainage improvement projects are limited based on community safety and necessity. These projects will be funded from Park and Recreation Fees (Los Rios Park Drainage Improvements) and Systems Development Funds (all other drainage projects).

12 Page 12 of 14 The Public Works/Utilities Department will be working on projects that are contractually obligated, required by legal mandate or health and safety, or will ultimately improve efficiencies thus reducing costs. These include projects for the capital rehabilitation of the Joint Regional Water Supply System (JRWSS) pipeline that brings imported water to the community; the City's capital contribution share to the South Orange Cot,Jnty Wastewater Authority (SOCWA); the replacement of water and sewer lines as part of the Interstate 5 interchange project; the annual replacement or repair of water and sewer lines; Hydraulic Capital Project No. 5; and Groundwater Recharge. Unfunded projects represent project submittals that cannot currently be funded based on projected revenues. The unfunded projects include the following: Capistrano Villas Alley Rehabilitation Project- $115,000 Ortega Highway Widening, Calle Entradero to East City Limits- $25,573,000 San Juan Creek Rd. and Calle Cartegena Traffic Signal- $475,000 Budget Workshop/Hearing Calendar: The following is the budget workshop/hearing calendar for the Fiscal Years and budget process: June 19,2014 -Introduction of the Proposed Fiscal Years and Operating Budget and Proposed Fiscal Years Seven-Year Capital Improvement Program. June 23, Continued review of the Proposed Fiscal Years and Operating Budget and Proposed Fiscal Years Seven-Year Capital Improvement Program and public hearing to adopt the Fiscal Years and Operating Budgets and Fiscal Years Seven-Year Capital Improvement Program Budget. FISCAL IMPACT: General Fund The proposed General Fund budget projects revenues over expenditures of $414,500 for Fiscal Year and $1.40 million for Fiscal Year with a projected General Fund contingency reserve of 50%, or $11.52 million, and $12.40 million, as of June 30, 2015, and June 30, 2016, respectively, as of June 30, 2015, and June 30, 2016, which is within the City Council's guidelines of 25% to 50%. Additionally, as of June 30, 2015, and June 30, 2016, total available fund balance (the amount exceeding the 50% contingency reserve) is estimated to be $129,758 (0.6%) and $647,168 (2.6%), respectively. The total contingency and available fund balances are estimated to be $11.65 million (50.6%) and $13.01 million (52.6%) as of June 30, 2015, and June 30, 2016, respectively. The General Fund also maintains a reserve for future capital projects. For Fiscal Years and , the reserve is expected to be maintained at $2 million.

13 June 19,2014 Page 13 of 14 Water Enterprise Based on projections, the Water Enterprise Operations Funds project a reduction in the deficit by $1.79 million in Fiscal Year and $1.4 million in Fiscal Year resulting in the an expected operating fund balance deficit of $779,608 by June 30, 2015, and the elimination of the operating fund deficit with an available fund balance of $571,722 by June 30, 2016, based on the proposed water rates to be considered by the City Council on June 17, The proposed rates in the 2014 Water and Sewer Rate Study are sufficient to provide required debt service coverage; however, the deficit cash position leaves the enterprise without the required reserves. Additionally, funds made available from rates are not currently sufficient to completely fund critical and/or obligated capital costs. Sewer Enterprise The Sewer Enterprise Operations Fund's revenues include no increase from sewer rate revenues as proposed in the 2014 Water and Sewer Rate Study. In order to balance the Sewer Operations Fund's budget for Fiscal Year and , available funds in the fund balance of $98,415, and $166,475 will be used in Fiscal Years and , respectively. The Sewer Operation Fund's contingency reserve level is expected to be maintained at 50%, or $1.51 million, and $1.54 million, as of June 30, 2015, and June 30, 2016, respectively, which is within the City Council's guidelines of 25%-50% of operating expenses and maintains adequate capital reserves. The Sewer Operations Fund's available fund balance (the amount exceeding the 50% contingency reserve) is estimated to be $1.13 million (37.6%) and $932,742 (30.3%) as of June 30, 2015, and June 30, 2016, respectively. The total contingency and available fund balances are estimated to be $2.64 million (87.6%) and $2.47 million (80.3%) as of June 30, 2015, and June 30, 2016, respectively. The City's 2014 Water and Sewer Rate Study identifies that the Sewer Enterprise Operations Fund's available fund balance will be used to mitigate future sewer rate increases until Fiscal Year ENVIRONMENTAL IMPACT: Not applicable. PRIOR CITY COUNCIL REVIEW: Not applicable. COMMISSION/COMMITTEE/BOARD REVIEW AND RECOMMENDATIONS: The Seven-Year CIP for Fiscal Years was approved for consistency with the City's General Plan by the Planning Commission at its April 22, 2014, meeting. The Commissioners would like the City Council to consider the amendment of the Seven-Year CIP in the future to include funding for additional trails projects. The Utilities Commission began its review of the Proposed Water and Sewer Enterprise Funds Budgets during a Special Meeting on June 10, 2014, and continued their review and discussion to a Regular Meeting on June 17, It is anticipated that they will have a

14 Page 14 of 14 recommendation regarding these budgets for the City Council's, budget workshop. NOTIFICATION: Public notification is not required for the budget workshop; however, the Proposed Budget document is on the City's website and is available for public inspection at the City Clerk's Office. On June 12, 2014, the City issued a notice of the Public Hearing that is scheduled for June 23, 2014, for the adoption of the budget. ENCLOSURE: Proposed Fiscal Years and Operating Budgets and the Proposed Fiscal Years Seven-Year Capital Improvement Program Budget.