65B - FINANCIAL REVIEW - Laserfiche WebLink

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Analysis of City of Santa Ana Reserve Funds Page 7 that there will most likely by salary savings in any given year and taking those funds and appropriating them to other city services is an acceptable practice. What is important during the budget process is that the true number of funded personnel positions for the fiscal year be clearly identified. During the City of Santa Ana's 2016-17 budget process, it is not clearly evident that the City Council approved a specific amount of personnel positions for the fiscal year. By not doing this it allowed budgeted funds to be redirected to other needs without clearly identifying that a certain number of positions were not funded for the upcoming year. KAMG recommends the City Council, as part of the budget adoption, approve a specific number of full- time positions for the upcoming budget year. This will demonstrate transparency to the public, and it will clearly communicate to each department what the approved number of personnel staffing is for the new fiscal year. Granted, it still may be difficult to fill all vacant positions for any given department, and personnel cost savings may occur in some years. If that is a situation that exits in one or more departments, staff should discuss with the City Council the possibility of reducing the number of budgeted positions, and possibly redirecting the funds, for other citywide needs. Long -Term Financial Projections The reserve amounts on hand by the City of Santa Ana are a result of, one, a much improved local and national economy and, two, General Fund savings over the last five years. The additional funds (revenues generated but not spent), at the end of each of the last six fiscal years, has enabled the City to establish and meet reserve policy goals, and to have create additional discretionary funds. As the City is actively preparing its 2017-18 budget, one-time reserves may be needed to balance the budget. Two reasons for this situation are the slowdown in the local and state economy and the constant pressure of increased operational costs. Pension costs have the highest risk of dramatically increasing over the next 5 to 10 years. Because of this financial uncertainty is it critically important that the potential large increases in the PERS pension rates be incorporated into the current long-range General Fund financial forecasts of the City. This will enable the City Council and Staff to make better informed decisions regarding, one, the use of one-time reserves to balance future budgets, and, two, new revenue sources and/or expenditure cuts. The use of reserves to balance a budget that is structurally unbalanced should not be an ongoing practice that is put into place. It can be used for a short period of time, one to two years, but only if during that time period long term solutions are found to structurally balance the budget, and also to potentially repay the reserves account. As the City considers the use of one-time reserves to balance the 2017-18 General Fund budget, and potential future year budgets, it is also very important that an estimated cost of labor negotiations be incorporated into the budget. All represented employee groups' labor contracts are expiring June 30, 2017. If there is a possibility that salary and/or benefit enhancements could be given to any or all employee groups, then estimates should be factored into the current year budget and any long-range financial projections. These estimates will better represent the true costs of future projects, and will better inform the City Council and Staff as to use of future reserves. 65B-7