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Despite budget crisis, Orange will save cherished community events, hire police and fire — for now

June 13, 2024

After weeks of budget deliberations on a projected deficit, the Orange City Council voted Tuesday to temporarily protect beloved community events such as the 3rd of July fireworks celebration and the Christmas tree lighting ceremony.

The council also directed city staffers to continue to hire police and fire officers for roles never before filled, while authorizing a freeze on vacant positions outside of public safety. In addition, the council mandated cuts to community and library services.

Still, the city faces a deep hole for the new fiscal year beginning in July, and the council appears inclined to ask voters for a sales tax in November to fill it.

Orange is facing a $19.1 million structural budget deficit and is on pace to run out of emergency reserve funds within two years, officials say. If approved, the council’s latest direction for revenue enhancements and cuts would still leave the city with a budget deficit next year of more than $8.7 million, according to Finance Director Trang Nguyen.

“Our task is to pass a balanced budget,” Mayor Dan Slater said to the council Tuesday. “Tonight, we couldn’t get there.”

He said he hoped some more cuts might be identified before the seven-member council has a final opportunity at its next meeting June 25 to adjust the city budget before the new fiscal year. Regardless of their decisions in two weeks, councilmembers plan to revisit expenditures in December including the idea of chopping community events or freezing public safety hires.

“We cut tonight $5 million and we saw how painful that was, and if we don’t have revenue coming in, the problems will still exist,” Councilmember Kathy Tavoularis said Tuesday.

A majority of the council rejected again recommendations from city staff to sign off on budget reductions to public safety – spending on police and fire accounts for about two-thirds of Orange’s general fund, or day-to-day, spending.

Conversely, councilmembers provided direction to hire for previously budgeted, yet left vacant, roles that when filled will grow the Police Department to its largest size in city history. They acknowledged the city needs to raise new revenue to sustain the police force and other services.

“The only way we’re going to get there (to a balanced budget) is to pass some kind of a sales tax measure,” Slater said.

The council is still weeks away from having to decide whether to ask voters for a local sales tax this November, but on Tuesday, all seven members voted in favor of city staff coming back to the council with a formal study of some sort of proposal to levy a local tax.

Sales tax in Orange County is 7.75% and 10 cities, as City Manager Tom Kisela pointed out, have added their own local taxes as an additional revenue source. The highest are Los Alamitos and Santa Ana at 9.25%.

Slater and Councilmember Denis Bilodeau called for staff to examine a half-percent sales tax addition that would sunset after six years, but their five colleagues voted instead for studies of either a 0.75% or 1% sales tax, citing a need for the city to raise more revenue.

“I can’t in good conscience light off fireworks while asking people to dig into their pockets,” Bilodeau said before his minority vote, along with Slater and Tavoularis, to end the 3rd of July fireworks show. “We don’t have the money to fund all these things. There are things that we need to have and things that we want to have, and this is a want to have.”

Councilmember John Gyllenhammer, in the majority, disagreed. “There’s value to these events, value to living in Orange,” he said. “It’s an investment in Orange.”

City Attorney Michael Vigliotta said he needed to research the legality of a sunsetting sales tax that could potentially vanish after Orange ran a budget surplus for a certain number of years. Currently, staff estimate that a 1% sales tax could help Orange increase annual revenue by up to $40 million.

In support of a sales tax measure, Tavoularis called Orange a “cheap city” that historically has spent less than many of its neighbors. But she and others on the dais also expressed their opinion that the city has not done enough economic development to keep up with services for a growing population and an increasing number of unfunded state mandates. A city staffer pointed out that Orange has run a structural deficit since fiscal year 2009 during the Great Recession, but through the years has used one-time money sources and other options for covering costs.

Councilmembers Jon Dumitru, Ana Gutierrez and Arianna Barrios made informal calls for a budget audit going back at least several years to determine how Orange ended up in this predicament and why previous city leaders allowed an annual deficit to grow for more than a decade.

City staff will also continue research into fee studies to see where Orange can generate more money. Tavoularis and Barrios are advocates of asking Chapman University, which is exempt from property taxes, to make a payment to the city in lieu of taxes. The council previously discussed imposing some sort of per-student public safety fee on Chapman, a measure that Gyllenhammer said in May might not be warranted without assessing data on the university’s impact.

Staff say they also are working on development plans to help Orange capitalize on its proximity to Disneyland, potentially bringing forward an incentive program to lure upscale hotels to the west side of the city.

Near the end of the meeting this week, Kisela apologized to the council for delays in responding to their study requests, saying that staff has had little time to examine anything other than line item cuts to the budget.

In a warning about overworked city staff and their low morale, Kisela said City Hall faces a “self-correcting problem.” He worries overburdened employees will find new places to work by the end of the year — inadvertently correcting the city’s budget crisis by trimming the payroll.

“I would say in about six months that people aren’t going to be here, and that’s going to be a result of some of the things that are happening tonight,” he said.

“The only reason I’m still here is because I made a commitment for two years,” he added. Kisela, a former Orange police chief, was lured out of retirement by the council to become interim city manager in 2022. The interim tag was removed in early 2023.

Kisela said Orange has a history of “always getting by.”

Now, he said, it’s time for the city to start “thinking big.”

And, he said, “Thinking big costs money.”

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