 All right, here we go Welcome everyone this is as you know city budget 101 and We are so glad that some of you are here and some of you are tuning in to watch this on community television this evening I just want as a by way of introduction I just wanted to kind of set the context a little bit as you know this city government has kind I Mean there's a way you could break it down a lot of different ways But I see it the city government has two primary roles one is we regulate some things We have city ordinances City laws we regulate through the zoning and planning documents the physical development of the city but then the other thing we do is we have activities and projects we do and That's really what we want to talk about tonight. That's what the decisions about the city budget really Reflect is what activities and projects will the city be undertaking over the next year So and in in making Decisions about our budget in other words decisions about what activities and projects we're going to Undertake we need the community's help we need your help and your input and It's our thought in having this class tonight That you all as community members will be better prepared to offer that input if you have a good understanding of the budget process just what our budget looks like and Sort of the legal environment that the city operates in as it makes budget decisions So in a more specific way, here's what we're hoping. You'll know by the end of our session tonight First what the city does Um Day in and day out what it you know, in other words, what are what are our responsibilities as the city government? We hope you'll understand that we have a lot of different funds In other words different pots of money And what the rules are that regulate how we use the money within each of those funds We hope you'll understand at the end of the evening the environment We operate in terms of the state state Budget crisis that has impacted our city budget for the last decade on a regular basis how the and this also the environment the environment that we all think of as the Limping economy of the state of California, which affects our budget and also the state Constitution which sets a lot of parameters about how the city can raise revenue We can't just the city council just can't raise taxes The state state government a state law really sets the parameters of what kind of revenue We will generate here in the city of Santa Cruz And lastly, we hope you'll end up knowing what your opportunities are in the weeks ahead to participate in our budget decisions So with that I am going to turn the microphone over to our city finance director Mark Pimentel And he is going to start in on one of those topics that I mentioned the those different funds pots of money that the city has to Operate thanks By way of introduction, my name is Mark Pimentel on the city of Santa Cruz's new finance director Just a little over two months here and really enjoying my time here, and I'll have to say I Have a plug for for the city of Santa Cruz This was a no-brain decision to come here because of the organizational structure because of the commitment that the city this organization This council this community has had to keeping Santa Cruz in a very stable And functional position and always trying to look proactively at the future and what's coming And so a little bit that we're going to be talking about that later on this presentation tonight that same theme My job tonight is to turn fund accounting into something interesting, which is a challenge in of itself But I'll talk a little bit in general alities as it City Santa Cruz as any city does receives money from different sources and Those sources are often confused of how it can be used within the organization By and large as our slide talks about there's some major major Operations that are funded through the city of Santa Cruz and like many other means municipalities The big chunk of it where a lot of our discussions will revolve around our our issues revolving our general fund Typically, you'll you'll see a general fund only be about half sometimes less of your total city operations for the city of Santa Cruz It's just a little under half of our total operations But it's where a lot of our discussion is focused because that's where a lot of the main major community decisions are coming from your public safety Decisions your parks and recreation your community outreach decisions There's a lot of flexibility in those funds to apply those in a way that Meets the goals of the community as directed by the city council So that's where you'll see a lot of our energy focused But we do have other funds and other major operations going on certainly within the city Santa Cruz our water fund Waste water and refuse funds are very active Operations however those resources coming in typically through fees through your rates that rate utility rates Users will pay is restricted for only that purpose water funds can only be used for water purposes You can't take water money and use it for another purpose a fund police officers or anything like that type Same with storm water funds golf course special revenue funds And what we used to call a redevelopment fund and we'll have a little segment about that Of course earlier this calendar your redevelopment agencies were eliminated throughout the state of California Which has ripple effects not only on the communities and projects, but also on funding streams going to the future But in a general sense our general fund is where most of our Major decisions are going to be made and the other funds are critical important pieces of our operations But they're really restricted in what you can and how you can use them Because of that I'm going to talk focused on our general fund from a revenue perspective. So once The resources flow into our general fund What type of resources would flow in to fund those operations? And if you look at this pie chart, you can see there's three major components of that if you Did a little quick math that's close to 75 percent of our general fund resources come from property tax sales tax and utility users tax So those are our major components and those from a financial perspective and from a city council community perspective Those are places where we want to pay particular close attention to the impacts of the economic impacts and where and how they're driving the trend lines and and where they're going on that if you have fluctuations in the franchise tax or mission tax or business license Taxes those fluctuations won't be as critical as say a fluctuation or 2% fluctuation or property tax or sales tax Or utility users tax so you'll see a lot of our energy be spent in in those revenue sources And make sure we really understand what's happening in those and being able to predict the future on those sources in general there's a Collection of different taxes that fund our general fund operations again property tax sales tax and utility tax are the big Players in that but we have some other folks that participate Revenue from parking lot taxes a hotel bed tax also count called transit occupancy tax Those are pretty good revenue sources for the city Our hotel tax is about 7% of our total budget. So that is a particularly one that will pay additional attention to Emission tax that can reach about 4% of our budgeted revenue. So that's also one we want to pay particular attention to But those are kind of the bulk resources of funding flowing into the city And in particular the general fund again that funds our core operations in public safety Please fire parks and recreation and many of our other administrative services that we'll talk about a little bit later I wanted to spend a little bit of time just talking about those particular major revenue line items and where they've been and where they're going and If I had a pointer You we can all look into a point time in 2008 when when this great recession started And you'll see the impacts of that recession and I'll have different effects depending on the revenue streams Property tax is typically a lagged revenue where you'll you'll see the real economy Impacts be about a year and a half in decline and in this example In fiscal year 2008 when the recession you know was on point hitting some major steam going downwards We still had some growth in property tax the next year 2009 There was a little bit of lag in that and it wasn't until 10 and 11 that you saw some decline Fortunately for the city of Santa Cruz the declines here Don't really equate to some of the declines that you might have seen throughout the rest of the state and certainly in the Central Valley So we were fortunate in this community that property values by and large Have held up and you haven't seen the major devastating decline that you would have seen with the other jurisdictions Jumping into sales tax Sales tax is a more responsive revenue source You can see in 2008 we had a peak revenue and then right away in 2009 as the economy was hitting We saw sales tax hit right away a major decline in 2009 and another decline in 2010 And that's very typical of a sales tax trend. You'll see you'll see the impacts of the economy hit that one Quite a bit faster than than you would see otherwise And what this chart is is showing you is total sales tax over our base sales tax and an add-on sales tax And there's often confusion over the eight and a quarter or eight and a half percent sales tax at the city Santa Cruz Consumers will pay Out of that one and a half percent of that is dedicated to the city Santa Cruz The rest of that goes to other jurisdictions the biggest chunk of that five and a half percent Flows directly to the state for their general fund. So sales tax is a major funding source for the state of California But just keep in mind about one and a half percent One and a half of the points of the eight and a half percent will flow into the city Santa Cruz Five and a half goes to the state and then there's some special carve-offs for certainly in this county The library gets a quarter of that County transportation and the transit district get about three quarters of that and then there's a public safety Allocation to fund public safety services particularly for the county That's about a half a percent of that But just want to talk a little bit about again the trends in the fact that we are starting to see some gains going into 2013 we've been Relatively flat the last several years, but we're starting to see a couple quarters of positive growth It's not enough to say we're completely out of this yet, but it certainly is enough to say that there are signs of some strong Potential for growth next year. I wouldn't say strong growth But there's strong potential for a growth rate and we're thinking somewhere in the three to five percent range It's probably where we're going to end up I Should recap a little bit on property tax. We're still projecting a flat property tax growth rate You know we aren't we are not seeing the the growth in the cess values Yet in this in this in this county and let alone in our little jurisdiction utility users tax If you're looking at the Trent the trend line over time You'll see it spike up in fiscal year 10 and 11 and a large chunk of that wasn't necessarily anything driven by the economy because in 2008 it had its peak at that time had a little bit of delay for 2009 and a drop in 2000 a Little bit of a drop in 10, but a big pickup in 2011 that came out of a voter initiative in the city of Santa Cruz To help fund public safety services So there was measure H that was passed by the voters in 2010 that went online in calendar 2011 That brought some additional resources into the city to help stabilize the city's resources to avoid Drastic cuts in some of our police and and other key services and fire and parks and recreation A transit occupancy tax in this community is certainly a major revenue source that we want to track it It's a good indicator of what's happening in the greater economy Let alone day trips from the Silicon Valley to Vacation trips from throughout the country of the world We've seen pretty good Stable growth, you know, this is a revenue trend that typically wasn't Devastated by the economy if you roll back the clock to 2001 you would see the 9-11 impact But not necessarily the the great recession impact didn't have a major hit on this particular line And a lot of that might have came out of Silicon Valley. The day trips were still coming this way There might have been a drop-off in major travel, but the day trips were still coming to our board walking our other amenities in this area And it has been a steady growth in the last couple years. We're projecting Marginal gains next year, but relatively flat There is some positive indicators there with some potential new properties coming online and we're going to be watching those construction timetables and Accounting on some new resources Probably late into this next fiscal year and certainly into our out here That being said I'll kind of yes Yes, so if if you're a particularly Good eyesight or you're at home and you're seeing that there are a couple years where there's an additional bar on top of that and what that represents is additional resources the finance department will routinely conduct audits of its hotel operations and Sometimes those audits are validated meaning their operations are relatively on check And there are times when we find their discrepancies that that we're due additional money So what that represents are additional collections as a result of audits initiated by finance department staff So those are positive gains that were rectified I'll repeat that just for all of our audience and those at home But but we did have some growth in the base in 2011 and certainly that rolls into 2012 and some new properties that were brought online as well as the city council Proactively looking for ways to incentivize Development investment in our community as I said before this council has done a really nice job of Approaching things from outside the box of how can we change the economic status of our community? Can all come through a traditional measures. We have to grow our way out of this in a certain extent so That is certainly is something important to note of the increase in 2011 and into 2012 came out of this some new developments Other than that was a summarizer. There are other revenue sources that will flow into our general fund usage fees User fees those you would typically see those out of your community development and building departments as development happens There are other Sources of funds that we talked about in the beginning of this presentation utility funds will have a fee-based system Well, they'll receive fees that will come into fund water waste water sewer Refuse golf course and other operations that those funding sources can only be used for that operational purpose And of course we're we're now dealing with a loss of what was redevelopment funding and we'll talk about that in a little bit More detail later on in this presentation With that I think I'll turn over the floor to our city manager. All right, so I'm just going to do a quick overview of in general where we we spend Our money are the city's money and then the mayor will go through and more more Specifically outline all the services that we provide in a little bit more detail So again just to give you a broad overview of our budget This is the what's represented here in this large pie is the city's Proposed budget for next fiscal year, which is already if you go to the city's website You can actually see it. It's it's available as of today actually so This will be reviewed by the council next week when they hold budget hearings on Tuesday and Wednesday So there's another opportunity to inform yourself about the The budget in any case and we're going to talk about that a little bit more later on But this is really the city's overall budget And it's a budget of close to two hundred million dollars a hundred and seventy five million dollars in total expenditures That we're projecting for next year A big chunk of it is a general fund is our finance director mark Pimentel explained the general fund largely consists of Our core services that we think of in terms of public safety police fire parks and recreation And there's a contribution there from into the library system as well So those are the core services provided from from that fund and road road road work street lights Some public works functions that are also critical come out of the general fund the the thing that's Again different about the general fund of course is that relies on on Taxes and therefore is more reliant on the economy as a kind of mark Reviewed when he looked at all the different revenue sources for the general fund So it's just it tends to be a little bit more volatile if more volatile So if the economy is down then revenues are down Which is why you hear about deficits in the general fund as opposed to deficits in the other funds the other funds are more Stable because they're ratepayers free for them And it's just easier to track and to adjust those rates And from a long term perspective Then it is the general fund because we can't predict recessions and all kinds of other activities that happen outside of our control The other Santa Cruz is a full-service city a lot of cities don't provide Utilities like we do and so utilities are a big part of our budget as you can see here Large part of it is the water enterprise The refuse enterprise and the wastewater enterprise Though they're pretty significant waters about 30 million dollars that wastewater 20 and refuse is another about 20 as well So those are our big utilities. We also are a regional service provider so We provide water service to a larger service area beyond the city limits about a population of about 90,000 as opposed to the city's 60,000 population within the city limit With respect to wastewater also we we run a regional wastewater treatment facility That provides services beyond the city limits as well. And then the refuse Enterprise we it's a full service. We do both the collection the disposal the processing Which is also why it's large in some jurisdictions the cities Maybe you don't have a landfill. They pay to have it shipped to somebody else's landfill and so on and so forth So for that reason again, because we're full service. We have pretty large funds in this area Then we've got other services that we operate like An enterprise fund that we don't necessarily have to but we do Because we want to track expenses and we want them to pay for themselves The most significant one is the golf course enterprise Which you've probably heard has not completely been paying for itself in the last few years We're working to have that be achieved and there is a gap there and council took some action this year to reduce The the gap the subsidy there. It was about half a million dollars. We're trying to get it down to closer to 300,000 and then hopefully to nothing in the near future But that operates as a as a as an enterprise and it's about two two point one million is the budget for that So that kind of gives you I think in a broad overview of really what we do There's storm water The capital budget is a big part of some of the capital budget is the all the infrastructure work that's done It's all the work to improve and update parks parks equipment. It's road repairs. It's All the Capital projects to replace storm drains and street lights and all that sort of thing. So that's a big part of what we do as well and then This is just a more detailed breakdown of the general fund As you can see here public safety in the general fund public safety is the biggest chunk of the pie Between police and fire. That's the majority and this is something actually has changed over time when I first got here in 1997 public safety was less than half Of the pie was close to 40% and 60% with everything else now. It's flipped around public safety is over 60% of the general fund Currently in everything else is less than that. So as you can see the biggest chunks are police fire Proxen recreation and public correction. The reason for that is as we've had to reduce the budget clearly it's been harder to reduce public safety because that's a pretty core Needed service and we've had to make reductions in other areas particularly parks and rec has been in hit hard you know, we closed it the The Harvey West pool we've reduced maintenance costs. We've had to Turn over operations of the museum the community center those sorts of things. So Unfortunately parks and recreation has been disproportionately hit with reductions over the years We also fund community programs It's a small very small portion of the budget here Relatively 1.25 million, but we do do that and then the others are the administrative departments Which is fairly small with respect to the library system The city does a fixed contribution of 1.4 million roughly every year The rest is funded out of the sales tax measure that mark them until Mentioned so it largely operates almost like an enterprise fund with some general fund contributions from the city and Some property tax from the county and cities of scots valley and capitol. It's a regional library system We operate it, but it serves the the county except for Watsonville So that's kind of an overview and I'll turn it over to Mayor Don Lane who kind of actually walked through some of the more details of the different programs Thank you, Martine So now as I was a moment ago this just what I find Is really important to recognize kind of the scope and and range of Services and activities the city budget funds and here's probably the most obvious one our police department and It As was noted earlier, it's almost 40% I believe of our general fund budget at this point and then right behind that Equally important our public's our fire service and And related to that our emergency services Including the 9-1-1 center which we make a substantial the city of Santa Cruz makes a substantial contribution to operate and then of course we have Miles and miles of streets throughout the community and we're it's our responsibility to maintain those streets we Have a ongoing program funded by One of our two measure H ballot measures that the city Community members have approved over the last several years and we have an ongoing program to resurface streets and Then there are not just resurfacing projects, but specific Improvements such as the one pictured here the new roundabout Down in the beach area, but we do you know all the different kinds of traffic improvements that people see Of course, we pick up all the refuse whether it's recyclable or not And then this what is recyclable there's a whole facility at the at our What we used to just refer to as the landfill but now is in fact Recycling center as well as landfill and it's a very comprehensive operation there And then we do operate a landfill for that the materials that can't be recycled We also have a maintain a whole stormwater Drainage system to minimize flooding during the rainy season We maintain We keep clean and see streets and sidewalks as much as possible with limited resources We have a whole parking system, especially in the downtown area, but in other parts of the community as well It's a very complex operation in terms of maintaining parking lots building parking lots and it doing enforcement We treat all the wastewater not only for all the city residents But probably more than half the residents of Santa Cruz County at our wastewater treatment facility And then we not only and then we have all the pipes all over town that collect that material and We have certain very targeted flood control projects we maintain especially in the area of the San Lorenzo River and Then we have a traffic engineering Department that just designs our streets When we make change, you know improvements to streets just to make sure they function at the highest level possible We maintain lights to traffic signals and signs all over town hundreds thousands tens of thousands of signs all over Santa Cruz And then we have this really stellar city park system You know that just it includes You know big and small parks all over town Recreation facilities, you know some of the big ones that people know San Lorenzo Park and a la viega Harvey West Park And then we have smaller, you know neighborhood parks like Garfield Park, and then we have our green belt lands Easily most well-known I think is the Pogonip, but we have ironic Gulch on the other side of town as well And then we operate a civic auditorium Which is a real community center the city owns the Municipal Wharf and that's a complex operation Into it unto itself with all the businesses that are located out on the wharf and all the maintenance It's required so that those pilings don't collapse during a storm And we operate the day la viega golf course and We have a whole range of city recreation programs sports leagues and classes with you know activities especially focused on youth and seniors and then of course we also run a water department and Last but not least The city council itself we we don't use much of the budget in fact We're so cheap that we we didn't weren't able to prove that this is last year's picture of the city council because we Couldn't afford to take a new picture this year. Yeah Oh This a little more of parking, you know new parking program We have that we really think has helped make parking more convenient downtown and then we have just all kinds of Pretty much invisible to the community services that just make the city operate You know the city does get sued from time to time. We enter into a lot of contracts So we have to have a good city attorney. We have seven hundred and seven employees. So we have the You know a human resources department to hire and work with our staff an IT department because we have a lot of technology and computers and phones that need to be served To serve those that staff we may we're required to maintain excellent public records for everything we do and We have a finance department that has to manage and keep an eye on that 160 or I think now this coming year more like 175 million dollar budget And another piece we have of course that many people are aware of is is planning and We have we're just in the process of adopting a new general plan But there's many other functions in our planning department just of giving building permits and inspecting buildings and Just looking you know looking after the physical development of our community and and making sure that it's the community Physically the community we want it to be I think I touched on this a little before but we we Maintain a very complex water system that goes all the way goes to mid, you know to 41st Avenue and it's We serve 90,000 customers and we have you know incredible array of treatment facilities storage facilities Laboratories that test the water to make sure that it's healthy, you know, it's healthy for and safe for all of us It's very complex big operation And they're including our reservoir at Loch Lomond We also maintain the city's bike system bike paths all over town What a Piece of the budget that has been diminishing a fair amount lately But it's still important to the community is our community programs funding that Funds a variety of nonprofit organizations that provide important community services We contribute to the financing of the public library and we We also administer it we even though it's not a strictly a city function its County Y or almost Countywide The staff of the library is are essentially employees of the City of Santa Cruz even even those who are working in other parts of the community Or the County We have an economic development department that has been doing tremendous work under very difficult circumstances lately And they you know help us recruit and meet and sustain Businesses and a healthy local economy. They've done some great work on incubating small businesses Bringing the marine sanctuary Exploration Center to our community doing a public art program Within that department. There's some housing some housing assistance for for affordable housing for our residents so with that We're gonna go back Martina is I think Okay, so back to you mark Roving round table of Presentations so again mark Pimentel city's finance director. I'm gonna talk a little bit of a intro for Before Martina Martin Bernal our city manager comes up and talks a little bit more about where we're going So I'll start with just kind of a recap I'm kind of the historian so my stuff's all boring stuff and Martina will get to talk about the great new exciting stuff of Where we're going What this chart is tracking here are our general fund expenditures again our general fund our police public safety parks and recreation community development building public works roads You get the picture 2008 the economy Is not doing well But as you saw in some of our earlier slides our revenue trends were still holding pace We knew they we knew they weren't sustainable And so in 2008 the city started proactively looking for if we got to prepare for this wave that we see coming We see the economy where it's at right now, although our revenues We think are going to last out for another 12 to 18 months. We can't wait for that time to come So in 2009 they started curtailing Some operations Although there is some growth that it was not the growth that would have been otherwise And then you saw the major major drop-off in our expenditures in 2010 In 2011 we had a Marginal growth as we had Ability to fund fund back safety programs federal grants came into the city of Santa Cruz as it did into many other municipalities for both road projects Public projects and to fund public safety Specifically police and fire and received about a million dollars and in grants to fund those positions So you see some recovery, although it's it's grant funded recovery in those in from 2010 to 2011 11 to 12 status quo budget 12 to 13 Essentially a status quo budget with a little bit of of growth in some of our operations and again notably in our public safety areas What I want to focus on as a comparison 2004 kind of pre Precuts and where we are at now. So I'll have two pie charts that demonstrate that this first chart is our 2004 allocation And in pay particular attention to parks and recreation and police so in 2004 City Santa Cruz Parks and Recreation was nearly 20% about a fifth of the general fund budget 18.6% police was 38.2% Combined police and fire were just just slightly under 60% about 58% Police and fire roll the clock forward to 2012 and you see a change you see police going up to 40% and parks going from nearly a fifth to down to about 10% of the city's budget from Almost 19% down to 12% Parks and Recreation was one of those programs that was really squeezed and We were forced to make cuts in that area Strategic cuts as best as possible leave our core facilities intact But you you out of that shift you saw our police and fire Kind of solidify up and and they're Combined we went from just under 60% to nearly 65% of our operations are now police and fire So that's really the the growth that I wanted to point out there Our other services kind of stayed status quo with marginal changes But really the the hit came into our parks and recreation department We'll review a little bit in these next several segments about what the state has done And I this is not a woe was us story But it is just really demonstrating what changes have happened over the the climb in the last 30 years that affects Local municipalities in our ability and what you'll see is the overriding theme is the shift of State responsibility and control pushing that down to a local level Leaving resources intact at the state level and taking the local resources away from the local level And there are political reasons that we can get into on another discussion. Certainly We'll talk about the economic downturns some of the changes that have happened in the economy Both a lot of them on the personal side, of course We're not a manufacturing entity where a service provider and so predominantly our cost or personnel cost And so when you have changes in health care and you have changes in pension systems For whatever reason drove those costs Those impact us an impact is hard and so we'll talk a little bit about that 1978 rollback the clock a little bit for some of us Proposition 13 came into play and really changed the landscape of how local Municipality services were funded it put a cap on what local cities could levy and property taxes To a 2% growth rate that's now controlled at the county level and based on market values That changed the landscape of how municipalities were funded Between there in 2012 mark May 31st today, there's there's a lot that's happened You can go almost every every so many years The 80s were or kind of a quiet period. There's little stuff going on but nothing significant and changing the landscape 1992 was the first major change since 78 E-Rap one is what some of us have been known to call it Education revenue augmentation fund all that means is shifting local dollars to back to two schools to keep schools funded Which reduces the state's contribution to fund the schools so local local money shifted it up to the state So the state can maintain schools at a level That they needed Nothing wrong with the intent of that but it again another change in the landscape of how municipalities were funded And I'll I think I'll talk to that on the next slide Sales tax property tax shifts those all started occurring in in 92 up and up until February 1st of 2012 Redevelopment revenue shifts that was particular February 1st of 2012 and then there's been some response and By the state voters to say, you know, this has been too much to too many years three decades of taking local resources out of control Given to the state where we have less control and say over the use of those resources So 2004 was a change in the tide that helped at least solidify and slow down the I call the raids but the revenue shifts Actually, I did jump too quickly so if I could just summarize 1978 prop 78 changing the landscape of property tax values 1992 the first of the ERAF shifts taking local money to backfill for schools 1999 elimination of the car tax, which is a local revenue source by the state that then was ultimately backfilled by the state to keep the local money intact 2004 rolling forward Many many mechanisms and the greatest name of all time the triple flip and and I that could be a whole note of Session and of itself of the state maneuvering different revenue sources and our own city revenue sources so they can issue bonds bonded debt and For collateralization purposes, but it shifted around Property tax and sales tax and sales tax became property tax VLF became property tax and property tax. I'm not sure what that became 2005 6 ERAF number 3 came into place again another another hit on local municipalities to fund the state so they can backfill for a school Keep the schools funded 2008 2009 2010 2011 Sequential hits major hits are redevelopment economic development opportunities There are one-time payments at different levels throughout each of those years resulting in in last year's 2011's budget that eliminated redevelopment agencies that went into effect this calendar year February 1st of 2012 our Redevelopment agency the source of our economic development funding the source of our housing funding gone and no replacement yet Certainly the economy's also had a major impact on us The great recessions impacts are still being felt and they're going to be felt for a long time Fortunately, I think this community has a very diverse revenue base that we talked about property tax as a major pair also transdoctomy tax visitors sales tax Utility users tax are some major revenue sources that feed in from different locations and different purposes So it's helped to stabilize the operations We've seen investment rates and earnings that in 1995 a conservative portfolio rate of 5% 4% that was the target That's what you shot for in the mid 90s and now you're hoping for 0.75 percent. That's your new target So that's really changed the landscape of you know our investment portfolio that used to spin off Additional resources that we can use general fund purposes We're still leveraging on that as best as we can but now we're trying to get margins from 0.72 to 0.75 Maybe to 0.9 So that that's certainly an impact of the Great Recession that's being felt In the city of Santa Cruz and certainly health employment costs health rates health insurance rates and public safety And pension system rates have been going up year to year The state is continually tinkering with the formulas that ultimately result in higher costs for municipalities like the city of Santa Cruz There will be some new rates coming on board and in 2013 And I think I as I'll often do click ahead jump ahead So I covered per's retirement a covered health care costs and with that I'll turn the floor over to a martin to talk about where we're going and what we're doing about this Thanks Mark Before I do that. I just thought I'd touch on a little bit about the economic development and the impact to the city Because as Mark mentioned it was this year that Redevelopment agents were eliminated and the major impact there is that a revenue source of approximately six million dollars a year That was spent on economic development purposes essentially gone So that the city now will not have that level of funding to invest in this particular purpose Not and it's not just economic development, but it's also housing 25% of that was set aside for affordable housing so it has long-term implications in terms of the ability to build and support affordable housing long-term and City of Santa Cruz as well as being able to invest in economic development activities in Santa Cruz We've used that money to really leverage Projects and programs for example the tannery art center much of the money that came there was not necessarily economic development money Or redevelopment money some of it was but the vast majority of it was used to leverage state and federal grants to build that facility Same with the sanctuary center. They just opened a big vast majority of the budget for that came from leveraging funds And because we had a redevelopment funds to be able to invest to leverage those it allows that facility to be built It's how we rebuilt the downtown. It's how we're able to try to Keep businesses in town. It's how we're trying to how we try to attract businesses in town So it's it's a really critical function that now we're trying to figure out how to maintain to the extent possible And and over the long run wrong. It'll be a major loss for the City of Santa Cruz So I thought I'd just mentioned that As Mark mentioned, you know the history with respect to trying to balance our budget has really been a long one And certainly something we've been dealing with for over 10 years We had a small or respite there between I guess 06 and 07 But otherwise beginning in 2001 we really have had a series of reductions The most Significant ones have really been in the last year and a half. I would say but more often than not in the last 12 years or so we've had Reductions and so we really have had 12 sets of budget reductions since 2001 as mentioned out here We've reduced the number of employees by over 100 positions at one point We had over 900 employees in the city and now we've got 770 so We've had to make considerable reductions and most of those are in the General fund not in the enterprise funds We've had to ask employees for quite a few concessions Particularly lately when I became city manager about a year and a half ago We were facing a budget deficit of about 8 million dollars, which was pretty huge and quite frankly We had to do a number of things to be able to address it It wasn't something that we could do simply by cutting services They would be unacceptable level of cuts in the service area So we couldn't do it by just cutting services. We couldn't do it by just taxing That would be tremendous tax increases in a recession just was not doable So we couldn't do that alone So we had to do everything that we could we had as employees for concessions We had to see if we can get voter approval for increases We had to look at our operations and become more efficient modify them adjust them shrink wherever we could So it really was a multifaceted approach to try to achieve fiscal stability moving forward With respect to employee concessions We've made some really significant reductions in the last set of concessions what we did was ask all of our employee groups to Essentially reduce their total compensation at which includes pay and benefits by 10% And of that 8% of it had to be structural meaning that it was ongoing reductions in total compensation pay in addition to that we asked them to implement a secondary Lower lower cost retirement system. So on the employees now hired by the city. I'll have a lower benefited level of Retirement program and in additions they contribute more to retirement programs and in addition they contribute more to their health care. So You know, we simply had had asked employees to help us in trying to address the structural problem moving forward and they have They stepped up all of our bargaining units police fire all of them came to the table And we're able to negotiate that level of of support from them. That saved us about five million dollars That's how we addressed eight mil out of the eight million dollars five million of it came from concessions, which is significant We had some we've had some tax increases over the years To also get us through in the form of sales taxes the form of utility user tax more recently again to support public safety in particular and We've also looked at the variety of other revenue sources to supplement the city's budget so The other thing that's important to recognize that even though we faced and you mostly when you you know, when you read the paper and when you hear all the Over time all the news you tend to see all to hear in all the all the bad news All the the deficits every year after year after year after year and that gives you I think can easily give you the impression that the city Is really maybe not well managed or fiscally Is is not sound but despite all the the the fiscal deficits And things that we've had to do the city's always has had sound fiscal policies And we've always have been in good shape in that respect And I have to attribute that to just really having a city council that really makes that a priority And so we've never have allowed ourselves to get into position where We are on the verge of bankruptcy or on the verge of not being able to make payments or pay make payroll or borrow money Just simply to be able to make payroll and that sort of thing a lot of agencies get to that level We've never have done that the council has always been proactive about doing that a lot of people Are surprised by that because they tend to think the sienna cruise is a liberal city and therefore sort of spend thrifty or spend thrift but in fact we have One of the highest bond ratings of many cities and I was talking to some consultants a couple years ago who Were had worked with some cities in Southern California in terms of issuing bonds. We should issue We had just issued bonds and so they asked me What kind of bond rating did you get and what kind of interest rate did you get that's important because the better your bond rating The better the interest rate is and the better You know the more you save in terms of paying off that debt and I told them we had a double a bond rating And they were just floored. They're like we just came back from you know conservative Southern, California And they've got you know double B triple C bond ratings over there. And so I think we've been We've always balanced our budgets. We've never spent more than what we had It sometimes we do predict deficits and I'll explain later on in terms of our even our current budget but we always have sufficient reserves to cover that if necessary and We always have sufficient reserves to make sure that we can pay all our bills that we don't have to borrow And that we can maintain our all of our ratings and our accounting practices are all sound I've kind of touched this on this already But you know again, we've really taken a strategic approach to balancing our budget and a proactive approach moving ahead It's balance looking at all the options And at the same time we've really had have had to look closely at what our goals and priorities are when we make these decisions And of course, they really are set by the city council And and and as we look at all of the different options those those things have to be taken into account What are the the community's goals priorities of values? Because of that the council more recently adopted a set of strategic goals with a number of Objectives within those goals and these are up here, and I think they're important to note One of course is to enhance community safety Santa Cruz is a is not your typical suburban city. We're more of a central Cosmopolitan city and so we tend to have many of the big city issues That cities of our size don't tend to have and so public safety is an issue that we have to deal with all the time Is as anyone who lives here is aware of that and it's important and so we've definitely have made that a priority Attracting and maintaining businesses and jobs also again is important for quality of life for people to pay here To to I'm sorry to work here and live here to the extent possible and also to preserve our tax base and to increase our tax base Mentioned fiscal stability again. That's been the practices of having a good fund balance You know council has never wanted to draw down or and spend all of our reserves They've always kept them at minimum levels or better And so having good fiscal policies is very important and is a goal that the council has adopted specifically Protecting the environment, of course is a value that Santa Cruz has had for a long long time And so we have a number of objectives with respect to environmental sustainability including Adopting a climate action plan to reduce emissions and so on and so forth. So there's a whole host of objectives in that area And then we have a large infrastructure and facilities as the mayor Showed you earlier that we have to preserve and protect and maintain We've done some deferred maintenance early in the last few years as the budgets have shrunk But we do need to invest in many many facilities Some of them are very old particularly the water system. For example, it's been around you've got pipes from the you know 1800s and that's what I think so We have to continually have to maintain we particularly invested in I think as I mentioned earlier also in roads with the passage of the 2006 measure H for roads We're doing a lot of that we've been replacing a lot of street people have noticed a lot of street lights in LED street lights and so on and so forth Again just to kind of cover the strategies here on the revenue side of things We've tried to reduce to the extent possible subsidies that the general fund provides to other funds at times the general fund has covered expenses and other funds and We need to make sure you know we made sure that that doesn't occur the general fund provides administrative services For example to the enterprise funds We don't need to have two finance departments one for the one for the water department and one for the general fund department And by having one obviously it's more efficient for both Operations for both funds, but we can't have the general fund subsidize the water fund So we make sure we don't do that. We leverage grant opportunities. I've mentioned that There's been a particular focus on economic development Activities in the city the council has approved quite a number of hotels new hotels in the last few years Some have come online some we expect and hope to come online In the near future that'll help our long-term long-term fiscal stability And I mentioned the utility user tax on the expenditure side Again, we've really tried to be as efficient as possible through using technology You know we do a lot a lot more with technology now in one area in particular for example is the electronic records Yeah, and we used to have a lot of document clerks to file Documents and to track them and that's really technology has allowed us to really reduce paper now We have paperless agendas and so on and so forth and there are other areas where technology has allowed us to not necessarily Shrink but allow us not to need to grow as much You know we don't for example need as many garbage trucks because we have automated trucks now We used to have more routes and more trucks that are needed to collect garbage and recycling We've had we definitely had to make some service level reductions and delay Replacement of equipment and you know our computers aren't replaced as often as they used to be our vehicles aren't replaced as much We've delayed infrastructure improvements, and then I've already kind of covered the employee compensation reductions So just really briefly I think I'm supposed to cover this yes to discuss the budget process and give you a little update on the next year's budget Essentially the budget process starts with the city manager Essentially putting in the departments preparing a proposed or recommended budget for the city council And we really start that process at the beginning of the year When we start looking at the revenues our expenditures our trends All the various factors that might affect the budget and departments start putting together All the data and then really it's the finance department who takes the leads putting it together in the finance director And then we come up with what the next year looks like we also do a five-year forecast So we update and look ahead at what the future might bring And then we develop a proposed budget that is really a preliminary or draft budget for the council to consider This is a per the requirements of the city's charter There that's a requirement that the city manager is one of the core responsibilities of the city manager In that proposed budget includes a capital budget which is also prepared in advance And that actually is considered by the council's Separately and earlier than the main budget, but it's incorporated into the proposed budget And that includes The one thing I wanted to note that one of the things we've had to do over the years with respect to the capital budget To get us through as we used to dedicate a lot more of our hotel tax the to here To capital project at one point we used to dedicate two-thirds of the total to to capital programs and over the years As we've had to maintain operations that number has really reduced Considerably so we don't invest as much in capital as we used to we'll need to do that But we've had to make those changes in order to get through and just be able to provide our core You know day-to-day services now we are looking at you know an improving situation overall Are we have a pretty healthy fund balance our reserves aren't in pretty good shape We expect it in this fiscal year with actually a surplus a small surplus, which is really Really great because we when we adopted this year's budget. We had expected about a two and a half million dollar Deficit and we're going to end the year actually with a surplus Oh the question was what was the the dollar amount of the surplus. It's about 1.2 million is what we're projecting We'll end the this fiscal year, which is about 2% of our budget Thank you. I was reminded that in addition to attending council meetings People can always watch on community television all of our council sessions and we encourage emails City council at city of Santa Cruz comm and one other thing that I should note that same address city City of Santa Cruz comm that is our webs web address And that is where all the budget documents can be found and we encourage anyone Who'd like to delve deeper into the budget issues that there are many exciting pages to see there on our website of City budget items