ORINDA -- The City Council approved updates to its balanced 2014-15 budget on Tuesday, but is already looking ahead to avoid the deficit situation projected to set in during the 2017 fiscal year.

The City Council unanimously approved general fund operating expenses of $11.2 million, up $453,000 from the original 2014-15 budget of $10.7 million approved in June 2013.

The forecast for general fund revenues in the upcoming fiscal year were also up, by nearly $511,000 over initial projections, to $11.3 million. Revenues are likely to exceed expenses by more than $158,000, according to the budget report.

Orinda operates on a two-year budget, which it approves up front and then modifies in the second year. The 2014-15 budget was first finalized in June 2013.

Higher staff salary and benefits costs, increased legal fees and a larger-than-expected cost-of-living increase for Contra Costa Sheriff's deputies who serve as Orinda police were the main costs driving general fund expenses higher.

The budget report attributed the rise in revenue to property tax, and increased parks and recreation and planning fees.

But while the city's coffers are in good shape in the near term, Finance Director Susan Mahoney cautioned the council that current spending levels will start to outpace revenues in 2017, forcing the city to borrow from reserves in 2018 and 2019 -- a move that would violate Orinda's reserves policy.

Stagnant property tax revenues and rising employee costs are the main factor, Mahoney said, recommending the council use caution in approving any new expenditures that are not paid for by corresponding fees.

Mahoney did, however, say that Orinda's increasingly tight real estate market may push home prices, and therefore property tax revenue, higher than the current conservative outlook.

"Everyone I've talked to has been very optimistic," she said.

Council members were receptive to Mahoney's caution. Vice Mayor Steve Glazer thanked city staff for its "appropriate guidance" on the fiscal forecast, and said the council will use discipline in making future decisions.

As far as Orinda running a deficit, Glazer said, "It will never happen."

Mayor Sue Severson also said the council would begin looking for ways to reduce spending in 2017 once workshops for that budget cycle begin early next year.

Orinda is not the first community in Lamorinda to face this situation; Moraga and Lafayette officials have said they could be in a similar spot in the next few years, though they remain confident that conservative governance can steer the town clear of major budget trouble.

In a separate discussion, the council also approved $102,000 to pay for an Environmental Impact Report to evaluate impacts of affordable housing developments proposed in the upcoming, fifth version of Orinda's Housing Element plan. The Housing Element is a state-mandated plan that requires cities to show where they could host low-income or affordable housing.

Orinda had originally planned to do a less rigorous "negative declaration" environmental report for a proposed multifamily housing development on Santa Maria Way, but agreed to do the EIR as part of a settlement reached in May with the nonprofit group Advocates for Lawful Environmental Review Today, or ALERT. That group had fought for stricter environmental study of any proposed "ultradense" housing projects.

Orinda resident Daniel DeBusschere spoke against the council's EIR decision, chastising the city for settling with ALERT and calling the EIR process "an albatross."

DeBusschere also asked that the city try to keep the study's additional costs in check, something Glazer later said would remain a priority. The city plans to submit the EIR costs to the state for reimbursement as a mandated expense, but Glazer said he was skeptical the request would be granted.

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