BUDGET WORKSHOP February 15, 2017

Mid-Year Review – FY 2016-17 Budget update as of December 31, 2016 Revenues mostly on track with budget estimates Projected year-end expenditures and ending fund balances are overstated - assume CIP’s will be 100% spent Treasurer’s Report for quarter ended December 31, 2016 Portfolio totals $103,771,068 Average yield = 1.06% Net income realized for quarter = $284,702 Budget appropriation adjustments Adjust grant estimates to reflect actual amounts awarded Reduces total City appropriations by $659,266 Requires City Council approval

Mid-Year Review – FY 2016-17 General Fund Revenue 2015-16 2016-17 (in 000’s) Actual Budgeted Projected Taxes $65,275 $66,249 $67,189 Licenses & Permits 1,877 1,867 1,872 Fines & Penalties 1,256 1,200 1,295 Use of Money & Property 8,668 8,352 8,645 Other Agencies 770 665 Charges for Service 6,689 6,384 7,001 Miscellaneous 518 4,534 530 Total $85,053 $89,251 $87,197

Mid-Year Review – FY 2016-17 General Fund Expenditures 2015-16 2016-17 (in 000’s) Actual Budgeted Projected City Council $448 $459 City Manager/Clerk 1,150 1,281 Administrative Services 1,727 1,923 General Government 881 422 Human Resources 933 724 Fire 18,898 19,505 Police 42,197 44,125 Community Development 4,585 4,241 4,472 Public Works 7,236 7,152 Parks & Recreation 5,684 5,653 Library 3,692 3,936 Total $87,432 $89,420 $89,651

Mid-Year Review – FY 2016-17 General Fund Projections Fiscal Year-End 2015-16 2016-17 Total Revenues $85,053 $87,197 Transfers In 580 824 Total Expenditures 87,432 89,651 Transfers Out ___ 606 __762 Fund Balance $14,893 $12,502 10% Reserve Requirement $8,743 $8,965

5-Year Forecast – General Funds 16-17 17-18 18-19 19-20 20-21 21-22 Beginning Fund Balance 14,893 12,502 10,285 7,783 4,773 1,774 Revenues 87,198 89,819 92,952 96,318 99,481 103,165 Transfers In 824 550 Total Revenues 88,021 90,369 93,502 96,868 100,031 103,715 Expenditures 89,651 92,586 96,003 99,879 103,030 105,260 Transfers Out 762 Total Expenditures 90,413 Ending Fund Balance 240 10% reserve requirement 8,965 9,259 9,600 9,988 10,303 10,526

Budget Forecast Assumptions PERS Rates will increase significantly over the next five years due to reduction of discount rate from 7.5% to 7.0% (Discount rate is the annual rate used to discount the value of future payouts to today’s dollars – rate is tied to expected investment returns.) No growth in expenditures other than PERS and health care costs Operating costs have been kept artificially low since recession Average annual revenue growth of 3% (historical) Annual fee increases are included in revenue – will need to be removed if not adopted No new revenue sources

General Fund Balance

2017-18 Budget Preview Challenges & Opportunities General Fund structural deficit Aging infrastructure and equipment Lack of revenue/funding sources Increasing PERS rates Unfunded OPEB liability Health Insurance Reopener Labor Contracts Surplus Property Utilization of Fixed Assets

City’s Response to the Recession Fullerton began to realize effects in 2008-09 Cut General Fund expenditures by $12.9 million, or 16% Reduced staffing levels by 80.6 positions Negotiated CalPERS benefit reductions Employee cost-sharing of benefits Cut internal service fund allocations (including vehicle replacement by 50%) Hiring freeze and operating cost reductions Limited equipment acquisitions Fire Management staffing changes City continues to maintain operational costs at artificially low and unsustainable levels

Comparison 2008 To 2016 Description 2007-08 2015-16 Change Salaries & Wages $42,385,150 $41,305,857 $-1,079,293 Benefits 18,401,405 22,331,379 3,929,974 Services & Supplies 11,582,949 11,418,658 -164,291 ISF Allocations 8,185,450 11,588,497 3,403,047 Capital Outlay & Other -358,244 787,387 Total Expenditures $80,196,710 $87,431,778 Total Revenues $76,952,853 $85,052,982

Staffing Changes Department 2007-08 2015-16 % City Council/City Manager 14.7 13.0 11.6% Administrative Services 40.3 33.0 10.5% Human Resources 10.1 8.85 12.4% Fire 95.5 92.0 3.2% Police 233.0 217.0 6.9% Community Development 38.0 28.0 28.0% Public Works 216.0 200.0 7.4% Parks and Recreation 30.5 22.0 27.9% Library 28.4 23.8 16.2% Subtotal 706.5 637.7 Part-Time Hours 190,334 165,840 FTEs 91.5 79.7 12.9% TOTAL 798.0 717.4 10.1%

General Fund Revenue & Expenditures

PERS Rates Employer Rates 2007-08 2016-17 Miscellaneous 8.406% 18.036% Safety 25.168% 46.221% Discount Rate lowered from 7.75% to 7.5% in 2013-14 Discount Rate lowered in Dec. 2016 to 7.0% to be phased in over 5 years: Employer Rates* 2017-18 2022-23 Miscellaneous 20.300% 36.200% Safety 51.200% 82.900% *Estimates from PERS Actuary

Balancing the General Fund Budget Must be done expeditiously to preserve fund balance New and increased revenue sources are necessary Can not be balanced with more cuts without severely impacting services, including public safety City exists to provide services Employee costs comprise 75% of GF expenditures Reduction of staffing results in reduction of services

Balancing the General Fund Budget Example of $3 million ongoing structural deficit: Equates to across-the-board cuts of 3.5% per department Police & Fire budgets total 71% of General Fund A 3.5% reduction in P.D. = $1.5 million, or 9 Officers A 3.5% reduction in Fire = $683,000 or 4.5 Firefighters If public safety exempt from cuts, all other departments would be subject to an 11.5% reduction, resulting in closures

Council Policy Decisions Adopt a one-year budget for FY 2017-18 to allow for time to evaluate and develop options Develop fiscal strategy prior to June 30, 2018 to: Generate new revenue sources Economic Development Business Improvement District New/increased fees and/or taxes Evaluate service levels and reassess delivery options Identify employee recruitment, retention and negotiation strategies Develop funding strategies OPEB (Other Post-Employment Benefits) Infrastructure and equipment Risk Management

CONCLUSION