Orange passes budget, but books will reopen if sales tax ballot measure fails
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If Orange voters reject a sales tax increase on the November ballot, city officials will schedule a public budget session to grapple with what to do in the aftermath.
The stipulation came Tuesday as the Orange City Council voted to adopt a budget for the next fiscal year, one that transfers $15 million into the general fund, mostly from capital improvements, to give the city a small surplus of just over $1 million.
While the move helps offset a projected $4.4-million operating deficit, a staff report noted it offers temporary relief and not a long-term solution.
“This budget … is one of the last ones [where] we can transfer in funds in the way that we have been doing to cover this deficit,” said Councilmember Arianna Barrios. “Hope is not a strategy. While I’m hopeful, I think that we need to let people know if this [sales tax] doesn’t pass, we are prepared to go back and hit that operating budget hard.”
Orange’s proposal to temporarily shelve several infrastructure projects for the next fiscal year comes as City Council members push for a sales tax ballot measure to avoid a projected bankruptcy.
Barrios proposed the triggered meeting, which would occur no later than January, as an attachment to the budget.
“We can reopen the budget anytime you want,” City Manager Jarad Hildenbrand said. “We’re not going off the fiscal cliff tonight, tomorrow [or] six months from now, but it’s certainly on the horizon. We’ll pay attention to what happens in November.”
The adopted budget follows a June 3 special meeting where councilmembers voted to put a 1% sales tax increase for a 13-year term on the ballot, with Councilmember Denis Bilodeau the lone dissenter against the measure.
Councilmember John Gyllenhammer was absent from the meeting.
The decisiveness came after councilmembers could not find common ground on the ballot initiative, which would raise the sales tax rate to 8.75% and rake in $37 million annually, over the past three meetings.
Setting terms for a sales tax hike put before Orange voters is high stakes. A measure that proposed a half-percent raise over 10 years narrowly failed in 2024.
Accounting consultants suggested that Orange should take second look at a sales tax increase last summer as a short-term solution to avoid potential bankruptcy by 2029, when the city’s budget deficit could balloon to $26.8 million if city officials took no action to stave off the scenario.
At Tuesday’s meeting, some councilmembers expressed a sense of urgency while others tried to temper bankruptcy fears.
Gyllenhammer claimed that the threat of insolvency is not anywhere near Orange’s financial future.
“Going bankrupt is a decision,” he said. “I still think there’s an opportunity to pull back in salaries and benefits.”
Gyllenhammer pointed to a 4.5% increase in salaries and benefits despite Orange leaving some 40 staff positions vacant. He also claimed that Orange has more than enough in reserves to dip into for any future financial hardships.
Barrios pointed to two models in the staff report that showed Orange potentially exhausting its general fund by either 2029 or 2030.
She also argued that restricted funds would not be available to pump into the city’s general fund.
“We can’t just say we need the money,” she said. “We just can’t. I want to be clear that it’s not a matter of [us] sitting on a huge pile of cash.”
Finance Director Trang Nguyen weighed in with clarifications and noted that only unrestricted funds, which she estimated to be around $60 million, are available to move as needed.
“That’s what we have been doing the last couple of years,” she said. “All we’re doing is just moving our money around to make ends meet, and sometimes we have to do that, which is perfectly fine, but we’ve got to disclose that.”
Consultants warned that Orange could be at risk of bankruptcy by 2029 if city officials don’t change course. A sales tax hike is seen as a necessary part of a solution going forward.
Orange is already putting off more than $7 million in needed repair projects to help patch up the budget.
Bilodeau claimed that unrestricted funds do give Orange something to work with, if need be.
“Throwing around the ‘B’ word is a bit much,” he said. “We’re looking at a deficit of $4.4 million, so obviously we’re a long ways off from throwing around the bankruptcy word. That being said, the council needs to be diligent and try to continue to close this deficit by whatever means necessary.”
The budget passed 6-1 with Gyllenhammer stating he would not vote for a budget reflecting a deficit.
Councilmembers adopted Barrios budget session trigger along with it should the sales tax measure fail.
If called, city officials would have to grapple with reducing spending and services alongside other financial measures to address future deficits.
