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Minutes 2007-02-05 3~3 - MINUTES OF AN ADJOURNED REGULAR MEETING OF THE CYPRESS CITY COUNCIL HELD February 5, 2007 An adjourned regular meeting of the Cypress City Council was called to order at 5:01 p.m. by Mayor Luebben in the Executive Board Room, 5275 Orange Avenue, Cypress, California. Members present: Mayor/Agency Chair Phil Luebben Mayor Pro Tem/Agency Vice Chair Todd Seymore Council/Agency Board Member Doug Bailey Council/Agency Board Member Leroy Mills Council/Agency Board Member Prakash Narain Others present: Acting City Manager Richard Storey Chief of Police Rick Hicks Public Works Director Doug Dancs Police Captain Mark Yokoyama Police Lieutenant Jeff Kepley Assistant City Engineer Kamran Dadbeh Building Official Bob Decker Recreation Superintendent Dena Diggins Administrative Services Manager June Liu Finance Manager Matt Burton Redevelopment Project Manager Steve Clarke Associate Planner Doug Hawkins Interim City Clerk Denise Basham ORAL COMMUNICATIONS: LIMITED TO ONE-HALF HOUR. (THREE MINUTES PER SPEAKER, SPEAKING ONCE.) Mayor Luebben asked anyone who wished to speak on any topic not included on the meeting Agenda to come forward. None. WORKSHOP SESSION Fiscal Year 2006-07 Mid-Year Budget Review: The Acting City Manager stated that the purpose of the mid-year budget review is to provide a brief overview of where the City is at mid-term Fiscal Year 2006-07 and to review preliminary information on where the City is going on next year's budget. The Finance Manager indicated that the three main focus areas are the City's General Fund, the Redevelopment Agency, and the Recreation and Park District. He explained that the City's General Fund is the main operating fund of the City, is discretionary in nature, and the monies are unrestricted as to use. This year the City is expecting very favorable results, with revenues over expenditures by $6.8 million; $5.5 million of that will be set aside for future infrastructure needs. He stated that General Fund revenues are more than $3 million over the initial budget. Sales tax is the City's biggest revenue source and is up due to the healthy economy. Property taxes have grown and there has not been an ERAF shift this year. 334 CITY COUNCIL MINUTES FEBRUARY 5, 2007 The Acting City Manager reported that last year the City still had 17% of property under the Proposition 13 cap. Council Member Narain questioned on where the remaining $1.3 million (of the $6.8 million) went. The Acting City Manager responded that the excess will be reviewed once the budget is adopted to see where it may be needed. At the end of this year, it is projected that $48.5 million will be for City infrastructure and $750,000 for infrastructure for parks. He stated that $42 million is already loaned to the Redevelopment Agency for projects. Mayor Pro Tem Seymore questioned staff on the percentage sales tax is of the City's revenue. The Finance Manager indicated it will be approximately 44%. The Finance Manager reported that investment earnings have also had favorable results, with interest rates going up over the last six months. Vehicle License Fee/Educational Relief Augmentation Fund backfill should be approximately $200,000 more than budgeted. The 10% Transient Occupancy Tax (TOT) will be up approximately $150,000 with the opening of the new Hampton Inn. Council Member Mills questioned staff on what other cities charge for Transient Occupancy Tax. The Acting City Manager reported that Transient Occupancy Tax ranges from 8% - 16.5%. Council Member Narain questioned staff on the City's occupancy rate. The Acting City Manager indicated it varies, from over 80% during the week to 60% on weekends. The Finance Manager reported that operations should be within budget. Supplemental requests were funded with grants, except for recruitment services for City Manager and City Clerk. Staff was questioned on the need for the supplemental appropriations and shifting monies among funds. The Finance Manager explained that staff cannot shift funds between payroll/personnel costs and other supplies/services. The Acting City Manager explained that staff did not know what the salary savings would be. The budget is adopted under the condition that the City Council has to make any shift between funds or personnel costs and operations. The Finance Manager reviewed the General Fund Balance and contingency levels and that approximately $200,000 will be available. Council Member Narain requested an explanation of the financial relationship between the City of Cypress and the Redevelopment Agency. The Acting City Manager reviewed the three basic entities (City of Cypress, the Recreation and Park District, and the Redevelopment Agency), their financial . relationships, and the need for loans. He explained that any action between them has to involve promissory notes. The Redevelopment Agency has to have debt in order to collect tax increment. In order to establish the debt, the City loans the Redevelopment Agency money to perform its operations and projects. The Redevelopment Agency then pays the City back, plus interest. The meeting was recessed at 5:25 p.m. 2 335 CITY COUNCIL MINUTES FEBRUARY 5, 2007 The meeting was reconvened at 5:37 p.m. The Finance Manager reviewed the Cypress Recreation and Park District General Fund, indicating that there should be a net increase in the Fund Balance of about $180,000. The increase in revenues is probably due to increased property taxes and no ERAF shift out. The Acting City Manager explained how and why ERAF (Educational Relief Augmentation Fund) was implemented by the State of California in the late 1990's. ERAF III became atwo-year only adjustment. The adjustments from the late 1990's go on, but there is now a cap and Proposition 1 A doesn't allow them to move it anymore unless a fiscal emergency is declared by the Governor. The Finance Manager commented that last year the General Fund had to subsidize the Park District. He also reported that investment earnings are slightly up but user fees are down, probably because of the Community Center construction. Park Development Fees should have $56,000 more than budgeted. Council Member Narain asked about user fees. The Acting City Manager responded that they are a very small part of the budget. The Finance Manager explained that the Redevelopment Agency is broken into three project areas but were recently combined into one project area to use money generated by one project area to fund activities in other project areas. However, they are still tracked separately (Civic Center Project Area, Lincoln Avenue Project Area, Race Track Project Area). For the benefit of the new Council Members, Mayor Luebben requested staff explain why the areas were merged. The Acting City Manager explained that the Civic Center project area is almost built out and brings in a significant amount of tax increment. The loan could be paid off in a couple of years, but there isn't a revenue source coming into the other two project areas. By merging the project areas, tax increment can be used from all of the areas to pay off all of the debt. The Finance Manager reviewed the three Redevelopment project areas. He explained that the Civic Center Project area is the largest one, with growth anticipated to be up 4%. By law, the City must set aside 20% of the gross amount for low income housing. He stated that Lincoln Avenue is a smaller project area and staff is projecting a 7.4% increase in tax increment. It will take some time for that debt to be paid off. The Los Alamitos Race Track Project is down in tax increment and has a negative $455,000 for Operations. The Acting City Manager explained that Cottonwood Christian Center has applied to have their property taken off the tax rolls, but the County has impounded the current year's portion. The question is when it went from a land parcel and started becoming a religious facility. It is up to the County Assessor, but the City will probably have some input. The Finance Manager reviewed the Redevelopment Housing Fund, which has an excess surplus requirement of $3.7 million. The Acting City Manager indicated that this money can be used for purchasing land, if the idea is the land is to be used for housing. The Finance Manager stated that State Budget Impacts included Proposition 1A, ERAF shifts/backfills, and Proposition 42, Traffic Congestion Funding. The City has accumulated approximately $600,000 in Proposition 42 monies, but will not receive anything until FY 2008-09. 3 336 CITY COUNCIL MINUTES FEBRUARY 5, 2007 Mayor Luebben questioned staff on whether the State may look at RDA funds. The Acting City Manager felt that the State budget will be in balance. The Acting City Manager reviewed the City's current Goals. He indicated that the City Council will have an opportunity to go over these with the new City Manager. The Finance Manager discussed initial revenue projections for FY 2007-08. He stated that General Fund Revenues growth is projected at 4.6%. The major spike that is anticipated is in Investment Earnings. Mayor Luebben questioned staff on the interest rates and duration. He thought rates would go down. The Acting City Manager stated that he expects one more increase, probably next month, and then about 5.25% for investments next year. The Finance Manager commented that indications are that VLF backfill will be pretty flat. Council Member Mills questioned staff on who is tracking population. The Acting City Manager explained how, after the census, the California Department of Finance annually calculates the changes and usually over-projects population. The Finance Manager reviewed Fund Balance projections, including the Equipment Replacement Fund, Employee Benefits Fund, and Self-Retention Insurance Funds, which are fully funded. The Capital Improvement Program was reviewed. Staff will continue the $1.8 million "4"W'° transfer. Items discussed included residential street resurfacing, sidewalk repair, public facilities, storm drains, infrastructure needs and Public Works studies. Staff indicated that the figures will probably be quite large, possibly in the hundreds of millions of dollars. The Acting City Manager commented that in long-term planning, the City is doing only 1 % of the sidewalks per year. Staff will be looking at the Tree Policy to see if there are trees that are too big for the sidewalks. The Public Works Director reported that the City is looking at $40 million for sewers and $100 million for storm drains, but the studies aren't completed yet. The Acting City Manager stated that the Tree Policy will have an impact on what needs to be done about sidewalks, trees and curbs, etc. and has to be looked at as part of City infrastructure needs. The Finance Manager indicated that the Park District also has Capital Improvement Program projects, such as upgrading playground equipment, the Community Center renovation, and irrigation systems in parks. The City is looking at $1 million in irrigation needs for the parks in the future. The Finance Manager reported that Finance has already solicited input from various departments for next year's budget. Preliminary staffing requests were summarized and have not been reviewed by the new City Manager. He noted that the initial budget proposal includes almost $5 million in CIP projects, is prepared by Public Works and adopted separately, but is incorporated into the City budget. The Capital Outlay request is now at $1.3 million, but only $360,000 is funded. 4 3~7 CITY COUNCIL MINUTES FEBRUARY 5, 2007 The Finance Manager discussed other budget issues to be considered: State budget, energy costs, negotiations with all associations (except sworn Police Officers), minimum wage increases, and infrastructure funding. The Acting City Manager provided a budget handout from Community Development, which was previously provided to the former City Council. Council Member Mills provided a handout that listed his thoughts on the budget process. He would like to see atwo-year budget cycle and user-friendly budgets, with as much staff flexibility to act as legally permitted. ADJOURNMENT: Mayor Luebben adjourned the meeting at 6:47 p.m. to a Regular Meeting on Monday, February 12, 2007, beginning at 7:00 p.m. in the Council Chambers. MA OR O THE CITY OF CYPRESS ATTEST: i~~L~ CITY CLERK OF THE CITY OF CYPRESS 5