The Cypress City Council voted to approve their 24/25 operating budget on Monday, as the city’s finance director said the city was in “pretty good” shape, though there were real concerns.
“All things considered, the outlook for the coming year is pretty good, but like most years, there are always reasons for some near-term and long-term concerns,” Matt Burton, Director of Financial and Administrative Services told the Council.
Among them, said Burton, were the economic impact of inflation, rising personnel costs, mandated pension costs, and new growth,
“While the City’s financial condition is relatively unchanged from last year,” said Burton, “the challenges and uncertainties ahead remain significant.”
Burton said the bulk of the city’s revenue comes from property and sales taxes, but a new hotel that recently opened along Katella Ave. is a new source of revenue. While property taxes are steady, Burton said sales taxes “can be a little volatile.”
As an aside, Cypress owns the right to brag about the lowest sales tax in Orange County at 7.75 percent.
“For this upcoming year, sales tax growth is a little modest,” he said, “We’re seeing a little slowdown throughout the region. Fortunately, our sales taxes have grown quite a bit year-over-year,” said Burton.
In addition, Burton hinted the city is beginning to have some concerns about personnel costs and outside contracting costs. As a result, said Burton, the city will not fill two vacant positions.
“Our employee costs have gone up quite a bit,” he said.
According to the website Transparent California, the City of Cypress in 2022 paid its 251 employees a total of $22.7 million in wages, compensation, and benefits.
In a related issue, the city approved a one-time $2,000 across the board bonus for middle management employees, which prompted Council member Frances Marquez to express concern.
“I just don’t know how it helps morale to see someone get something and other people don’t get it who works just as hard,” she said. “I’m grateful for everyone’s hard work.”
Both Council member Anne Hertz Mallari and Mayor Pro-Tem Bonnie Peat jumped in to try and defend the move.
Hertz said various employee groups negotiate and “tell us what they want,” said Hertz, “and we do the best we can to meet their individual expectations.”
“Actually, this group (of employees) is non-representative,” Burton told Hertz.
Peat said “there’s different needs and requests,” from employee groups, and “you come to the Council and you come up with the best solutions to meet that and that’s how this particular quality bonus came into the picture.”
“Because once you get to this group, we’re talking about the management group that is not represented so there was no negotiations,” said Burton, although acknowledging they do go through that process with other groups.
The financial discussion may have also prompted what appeared to be an “oops” moment from closed session when Mallari said thank you to the executive team even though they were not approved for a raise.
“The executive management team was not approved by the five of us for a one-time payment…and I just want to say to the executive team that you guys are really appreciated.”
This prompted Marquez to say “it’s critical that we not say information that was discussed in closed session” and legal counsel Fred Galante quickly stepped in to tell Mallari that, “I suggest that there be no discussions even about the process of negotiations.”
Although the executive employees were not approved for a one-time bonus, the website Transparent California notes that top employees in Cypress were paid near or above $400,000 in 2022, the latest year for which payroll data is available.
City Manager Peter Grant led executive pay with a reported $457,469.90 in total pay and benefits followed by several others over or near $400k.
Finally, the city’s finance director said “high interest rates are keeping us in the black.” The city has a significant investment portfolio reported to be more than $150 million, so high interest rates brings in additional interest income.
He warned, however, that the council about being over-reliant by “balancing our budget through the use of interest rates because interest rates are much like sales tax. They can change,” he said.
“There’s no guarantee that two or three years from now we can lean as much on our portfolio as we do today.”
The city is expected to see a surplus between $200-300,000 for the fiscal year, said Burton.
The City also approved the Cypress Recreation and Community Services Department’s approximately $10 million budget, which is approved separately from the city’s budget.
The City Council’s Fiscal Strategies and a Five-Year Forecast for the City’s General Fund – these long-term financial planning tools consider the impacts of rising costs and revenue trends.
Burton said “while the City’s financial condition is relatively unchanged from last year, the challenges and uncertainties ahead remain significant,
“These are the realities that all government agencies are facing,” he said.
Burton expressed concern about the state’s potential budget deficit and other “neighboring” cities that are facing large 24/25 deficits.
“Deficits are forecast over the next five years talking about those one of the biggest concerns that we have relates to cost previously brought on by inflation,” he said.
“We are balanced and don’t expect to use any rserves in the upcoming year,” said Burton, “which is great.”