65A - RECEIVE AND FILE REVENUE ESTIAMTES RELATED TO COVID-19

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Receive and File — Budget Update — Preliminary Financial Impact related to COVID-19 April 21, 2020 Page 4 For FY 2020-21, the City is expecting the following expenditure increases, which may total $19.9 million: • Employee pension cost increase of $6.0 million. CalPERS investment losses in FY 2019- 2E will impact contributions for FY 2022-23. The FY 2020-21 contributions were set with the June 30, 2018 actuarial valuation reports issued in 2019. • Negotiated employee compensation increases of $6.5 million. • Orange County Fire Authority contract increase of $2.5 million. • Additional General Fund spending of $1.3 million to maintain compliance with the Orange County Transit Authority Maintenance of Effort requirement, which increases for FY 2020- 21. • The General Fund will need to subsidize the Santa Ana Regional Transit Center by at least $1.1 million to maintain operations (discussed in detail below). • The City's self-insurance funds will need to increase charges to the General Fund by $2.5 million to maintain a prudent balance for claims activity (discussed in detail below). The following options are available to help mitigate the expected $15.1 million revenue loss in FY 2020-21, and the additional $19.9 million of costs (expenditures) outlined above. These options include one-time measures: • Use of the estimated Unappropriated Fund Balance of approximately $13.0 million at June 30, 2020. Utilizing unappropriated fund balance is a one-time resource, and does not cure a budget deficit. • Use of the Economic Uncertainty Reserve of $3.1 million. Per the policy, this requires a two- thirds vote by City Council, as well as a plan for replenishment. • Remove all one-time expenditures from the General Fund budget, totaling $10.3 million. • Continue the hiring freeze throughout FY20-21 to save $8.6 million. • Pursue Pension Obligation Bonds (discussed in detail below) to save as much as $7 million. • Seek concessions with the City's employee bargaining groups. Refuse to Transfer to the General Fund As part of developing the Request for Proposals for Refuse Collection, staff analyzed the associated franchise fee revenue. The Refuse Enterprise Fund has accumulated approximately $6.6 million of General Fund revenue over the last 10 years. Staff recommends transferring this money to the General Fund by June 30, 2020. Budget and Financial Policy (Exhibit 1) The City Council adopted its General Fund reserve policy as part of the Budget and Financial Policy in June 2017. Prior to the COVID-19 pandemic, staff was planning to re -visit the policy during this budget process to improve the following: • The Operating Reserve is 16.67% to 20% of recurring General Fund revenue or expenditures. We are currently maintaining 16.67% of revenue. • The City Council established the Operating Reserve in accordance with Government Industry best practices. However, there was no risk analysis performed to establish the 65A-4