Agenda 05-19-2026; 8-a - Minutes for April 16, 2026, April 21, 2026, and April 30, 2026

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36 1 2. Operating Budget Model Update 2 The Board received an update on the Operating Budget model since the January 16, 2026 Board Retreat. 3 4 BACKGROUND: At the January 16th Retreat, the Board received a budget update that estimated a $21.5 5 million gap between estimated revenue growth and known cost factors. Since then, the County has 6 refined multiple estimates going into the budget, which has decreased the estimated gap to 7 approximately $15 million, and the County Manager continues to work with departments to close that 8 gap as much as possible before considering a recommendation to increase the tax rate. Below are some 9 of the largest changes to the operating model that will be detailed in the presentation: 10 11 Property Tax: The property tax base has stabilized since the January Retreat. At that time, the property 12 tax base was estimated to grow by 2% from FY 2025-26. Since that time, valuation appeals have been 13 finalized, and large exemptions have been recognized. The County had assumed a tax base loss of 3%due 14 to valuation appeals; however, based on informal and formal appeal decisions, the actual loss is 1.47%. 15 Although the lower percentage has a positive impact on the tax base, the County also lost significant tax 16 base due to complex exemptions of properties that qualify as affordable housing and properties that have 17 been redeveloped on brownfields. The FY 2026-27 tax base is also affected by property damage from 18 Tropical Storm Chantal.When taken together,those fluctuations result in a new growth estimate of 2.27% 19 from FY 2025-26. 20 21 Sales Tax: Based on new data related to the County's Hold Harmless payment, the sales tax revenue 22 projection has been decreased by $500,000 as State Medicaid expenses significantly exceeded sales tax 23 growth in FY 2025-26. Other sales tax categories are left unchanged since the Retreat. Although FY 2025- 24 26 actual collections are exceeding estimated growth, uncertainty about the global economy requires 25 caution in projecting future growth. 26 27 Living Wage:Since the presentation at the Retreat,the County has reviewed its living wage requirements. 28 The living wage calculation is directly tied to fair market rent in Orange County and surrounding counties 29 in which employees are likely to live. Based on average rent in Orange County and its adjacent counties, 30 the living wage will be $20.02 in FY 2026-27. This represents an increase of $1.84 per hour from the 31 current year. 32 33 The new living wage will drive increases in temporary and seasonal budgets for departments like 34 Environment,Agriculture, Parks and Recreation(DEAPR)and Library and will impact the first four(4)salary 35 grades on the pay scale for permanent employees. Adjusting to the new living wage rate is estimated to 36 cost $500,000 for both temporary and permanent employees. The increase in the wage scale for 37 permanent employees does cause some wage compression within the impacted salary grades, but the 38 Recommended Budget will likely not include sufficient funding to correct that compression. 39 40 Recommended Capital Investment Plan: The Recommended Capital Investment Plan changed the 41 planned phase-in of pay-go for the school capital plan. The retreat presentation assumed that pay-go 42 would be funded at $6 million in FY 2026-27. Due to operating budget constraints, the Recommended 43 pay-go amount was reduced to$3.5 million in FY 2026-27. 44 45 Debt Model: Between the time of the Retreat and the introduction of the Manager's Recommended 46 Budget, County staff assess the progress of School and County capital projects and determine which 47 projects are ready to recommend for financing. The amount of projects that are included in the financing 48 package influences the amount of debt service required in the subsequent year's operating budget. Based