By Shawn Raymundo
To account for new revenue and anticipated expenses toward complying with last year’s settlement agreement over the city’s riding park, city council on Tuesday, June 4, approved a spate of amendments to the city’s budget for the coming fiscal year.
With the council voting 4-0, the Fiscal 2019-20 budget, which goes into effect at the start of July, now projects revenues to reach about $32.64 million – nearly $2.72 million more than what had been previously adopted. The city’s planned expenditures also grew, by roughly $2.73 million, with spending expected to amount to $32.58 million in fiscal 2020.
Councilmember John Taylor was absent from Tuesday’s meeting.
Since the previous city council approved the fiscal-year 2020 budget a year ago as part of a biennial budget cycle, the city settled its lawsuit with the environmental advocacy group Orange County Coastkeeper, which alleged the Rancho Mission Viejo Riding Park contributed to pollution in San Juan Creek.
The city and the park’s operator, Blenheim Facility Management, have denied the allegations.
Last October, the city also agreed to extend the County of Orange’s use of a portion of the Prima Deshecha Landfill in exchange for $6 million and an annually recurring host fee of $800,000 for the next decade. The first half of the $6 million was paid in January and the city expects to receive the second half next month.
With the current fiscal year coming to a close this month, city staff proposed several budget adjustments based on the landfill payment and settlement agreement as well as additional revenue data on sales and property taxes.
Property taxes, which make up most of the city’s general fund revenue, or 34%, are collected by the county in April of December, according to the city. The initial property tax projection for fiscal 2020 was “based on an assumption that the city’s assessed valuation will increase more than 5% per year over the last four years.”
Instead of the $11.26 million in property taxes the city was tracking to collect by next year, the budget now projects such revenue to be $11.2 million. According to the city, the decrease is, in part, attributed to a decline in home sales.
“The current economic outlook indicates that the residential market in South County may be slowing, as evidenced by reduced real property transfer taxes collected in recent months, a reduction in the number of home sales and the amount of the median home sale price for single family homes sold over the past twelve months,” the city stated in its budget proposal.
The anticipated revenue from sales taxes was lowered to just shy of $8.72 million – $128,000 less than initially projected. The city said it reduced the revenue level because of sales tax revenue from the current fiscal year being “artificially inflated.”
“Because of the State’s difficulties in implementing new software for its sales tax accounting and reporting system, certain sales tax revenues earned in Fiscal Year 2017-18 were not distributed to the City until Fiscal Year 2018-19, resulting in artificially high levels of sales tax revenue collected by the City in Fiscal year 2018-19,” the city explained.
The city did reduce some of its planned expenditures, including $45,945 for the city manager’s office, $11,365 for the finance department, $60,160 for community services and $126,985 for public works and utilities.
“In order to bring the budget back to balance, every department made cuts,” Ken Al-Imam, the city’s chief financial officer, told the council.
The city is also having to cut $2.8 million from its budget for capital improvements, which are primarily funded through the collection of development fees. According to the city, there’s been a delay in its receipt of development fees.
While the city’s revenue from taxes are lower than what was previously budgeted for, the $3 million landfill payment will provide the city with a windfall that will be earmarked for water-quality projects stipulated in the consent decree with OC Coastkeeper.
Under the Coastkeeper settlement, the city and Blenheim agreed to several commitments such as installing a “recording rain gauge” at the park, developing a “Rain Event Action Plan,” and potentially grading the area between the stables and the creek to reduce run-off.
Another one of the commitments in the agreement was for the city to meet with South Orange County Wastewater Authority (SOCWA) to “explore implementation of an adaptive (best management practice), to be implemented by Dec. 31, 2019, to pump run-off from the grass field into SOCWA’s wastewater system.”
The city is estimates that it will need to spend nearly $8.5 million in order to comply with the settlement agreement. Of the $3 million being directed toward the water-quality projects, $900,000 is to be used in the coming fiscal year while the remaining $2.1 million will be reserved for future fiscal years, the city noted.
Al-Imam said the estimated costs for the projects could change depending on the long-term uses of the park as outlined in the city’s operating agreement with current and potential management companies in the future.
The costs “may be offset or mitigated by the riding park operator or grants or recoveries from responsible third parties,” Al-Imam said.
The city recently filed a lawsuit against Blenheim and Tokio Marine Specialty Insurance Company, which park’s insurance provide, in an effort to recoup its losses from fighting the Coastkeeper lawsuit.
The city argues that Tokio and Blenheim breached several aspects of their respective contractual agreements over the park by failing to repay the city for legal costs it incurred while settling last year’s lawsuit.
Blenheim has said the allegations lack merit.
Currently the city is going through the Request for Proposals process for a company to manage the riding park. The window to submit proposals to the city closed on May 23.
According to Blenheim attorney Wayne Call, Blenheim is seeking to renew its contract and submitted its proposal to the city.
Shawn Raymundo is the city editor for The Capistrano Dispatch. He graduated from Arizona State University with a bachelor’s degree in Global Studies. Before joining Picket Fence Media, he worked as the government accountability reporter for the Pacific Daily News in the U.S. territory of Guam. Follow him on Twitter @ShawnzyTsunami and follow The Dispatch @CapoDispatch.