Santa Ana’s once dire financial position has improved so dramatically that city officials are now projecting a $2.6-million surplus by next fiscal year and a $41.7-million general fund reserve the year after that.

It is a startling turnaround for a city that projected a $30-million budget deficit in fiscal year 2012-13 and faced the prospect of municipal bankruptcy. The general reserve had at one point in 2011 dwindled to $3 million or just one week’s payroll, according to city officials.

City officials used the threat of bankruptcy to extract painful concessions from the city’s labor groups and push through the outsourcing of the city’s Fire Department to the Orange County Fire Authority.

New City Manager David Cavazos, who took over last October, said that one of his first tasks was appraise the revenue forecast, which to him seemed low.

“I wanted to earn my keep, so that’s the first thing I focused on,” Cavazos said.

The updated forecast includes an increase in annual growth from 2 percent to 3 percent, mainly due to better-than-expected revenues from sales and property taxes. Downtown sales tax revenue is up 7.9 percent, and new auto sales tax figures have increased by 74.7 percent since 2011, according to city figures.

The picture has brightened considerably in recent months, with every major revenue category coming in higher than expected during the second half of 2013, according to an information packet provided by the city. And indicators point to continued improvement in Santa Ana’s economy, said Cavazos and other officials.

On the cost side, Cavazos is planning for a 1-percent or $1.4-million savings from an innovation and efficiency program whereby the city manager asks managers to devise ways of doing the same work for 99 cents on every dollar.

But even with the optimistic projections, Cavazos said his forecast is conservative and rooted in part in the fact that city’s annual pension costs currently are lower than expected.

The general fund reserve level is projected to be at 20 percent of the total budget by fiscal year 2015-16. That reserve level, which city leaders made policy amid the budget crisis, is “among the highest in the country,” Cavazos said. Cities’ reserve levels are typically around 10 percent of the total budget.

Cavazos said he wants to revisit the budget reserve policy in a year and see if city leaders are interested in pairing it down to a level closer to other cities’.

The brighter financial picture should also allow city officials to refinance the city’s debt and obtain better credit ratings.

And they plan to ask the Fire Authority for $2.9 million that the city placed into a special account for the the authority to draw from in case the city defaulted on its payments to agency. The account was a requirement authority leaders made out of fear of the Santa Ana’s financial situation.

City leaders plan to use some of the extra revenue on the city’s strategic plan, which will receive $2 million in annual funding. The City Council plans to address the updated forecast at its regular meeting Tuesday night.

“This financial forecast is great news” Mayor Miguel Pulido stated in a city news release. “The Santa Ana economy is vibrant, our future is bright and our great city is back on track.”

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