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MAYOR Miguel A. Pulido moulido(a7santa-ana ora MAYOR PRO TEM Michele Martinez Ward 2 mimartinezOsanta-ana ora P. David Benavides Ward 4 dbenavides(asanta-ana om Vicente Sarmiento Ward t vsarmiento(asanta-ana ora Jose Solorio Ward 3 Isolodoosanta-ana ora Sal Tinalero Ward 6 stinaieroosanta-ana ora Juan Villegas Ward 5 ivilleaas(asanta-ana.ora 04 searsMY 1 SANTA A I r U Iv+rM1@ June 5, 2018 Honorable Mayor and City Council: I am pleased to present the proposed budget for the City of Santa Ana for Fiscal Year 18-19. This budget document provides the foundation for our work plan, and more importantly our commitments to the residents and constituents of the community. As a document, the budget calls out the anticipated expenditures and revenue assumptions for the next year of service. During my short tenure as your City Manager, one of my top priorities was to analyze the current fiscal position of the organization and to provide clarity moving forward. These observations became the basis for the development of this budget. Observations & Fiscal Realities The first observation is that there is a lack of clarity as to the City's current financial position. This, in part, is due to changes in administration and varied budget philosophies. A fundamental value and budget principle is transparency and clear communication. We can do better and we will do better; that is my commitment to you. It is for this reason that I have instituted a directive that the City's over-riding budget principle be "Truth in Budgeting". City government has a responsibility to not only make financial information accessible, but also transparent so that any interested party can review, ask questions, and understand the budget. The second observation is that the problems we are experiencing are actually years in the making. Santa Ana is a community with many opportunities, but also many needs. We have one of the youngest populations; as an older city, we have increased infrastructure needs; and according to industry benchmarks, we are under -staffed in our police department. In short, we are operating with a "service deficit" in relation to the needs of our community. I believe that these pressures, in part, led to the decisions that contributed to a trend where expenditures increased at a rate of 4%, while revenues only increased at a rate of 2%. The result is a structural deficit of $9.3M for our current FY17-18 budget, and a projected $17.1M deficit for FY18-19. Clearly, this is not sustainable. As a result, unfortunately, we are left in a very vulnerable position, potentially unable to weather a downturn in the economy. While a core function of government is the delivery of services, a city must have solvency in order to deliver any services. The City's total general fund reserve balance is $46.1M ($42.3M in general fund reserve and $3.8M in an economic uncertainty fund). This is approximately 17.7% of the total proposed General Fund budget. At CITY ATTORNEY CITY MANAGER CLERK OF THE COUNCIL Sonia R. Carvalho Raul Godinez II Maria D. Huizar 20 CIVIC CENTER PLAZA — P.O. BOX 1988, M31 — SANTA ANA, CALIFORNIA 92702 TELEPHONE (714) 647-6900— FAX (714) 647-6954 — www.santa-ana.org