1. Finance Department Presentation to the City of Houston Budget and Fiscal Affairs Committee First Quarter Review General Fund Five Year Scenario and FY2012 Draft Budget November 8, 2010 Michelle Mitchell, Director

2. Section Page General Fund Five Year Scenario (FY2011 – 2015) I. Overview3 II. General Fund Revenues4 III. General Fund Expenditures8 IV. Revenues and Expenditures Summary11 Fiscal Year 2012 Draft Budget 12 Management Options22 2 Table of Contents

3. Finance Department First Quarter Review General Fund Five Year Scenario

4. 3 Overview  This 5-year scenario is for analysis of the General Fund. Base period is FY2010. Five year period begins in FY2011 and ends with FY2015. All figures are in thousands.  This plan highlights the financial issues facing us now in FY2011 and over the next four years and illustrates the choices we must make to balance the budget.  Expenditures include contractual escalators, legal mandates, and staffing for new facilities.  Capital outlay and equipment acquisition planning is not included.

5. Revenue Projections Property Tax Revenues Assumes:  5.23% decline in FY2011.  No growth in FY2012.  2.4% growth in FY2013.  3.6% growth in FY2014.  4.2% growth in FY2015.  Maintain current tax rate of $0.63875 per $100 of assessed valuation. 4

6. Revenue Projections Sales Tax Revenues Assumes:  1% growth in FY2011.  5.8% growth in FY2012.  5.7% growth in FY2013.  5.6% growth in FY2014.  6.7% in FY2015. 5

7. Franchise Revenues  Electric Franchise: assumes 1% growth in FY2011; and 1.5% growth per year thereafter.  Gas Franchise: assumes 0.7% growth in FY2011; and 1% growth per year thereafter.  Telephone Franchise: assumes 4.7% decline in FY2011; and 1.8% decline per year thereafter.  Other Franchise*: assumes 4% decline in FY2011; and 3.25% growth per year thereafter. Other Revenues  FY2011 Adopted Budget assumed $15 million in new revenue from a cost of service initiative. Current projection assumes $6.5 million in FY2011 and the balance of $8.5 million in FY2012. 6 Revenue Projections * Other Franchise includes Cable TV, Solid Waste Hauler, Spur Track, and Fiber Optics franchise fees

8. 7 Revenue Details ($ Thousands)

9. Expenditure Projections  FY2011 Adopted Budget assumed a $22 million Management Initiative Savings. Current projection now assumes Management Initiative Savings of $10 million in FY2011 and the balance of $12 million in FY2012.  Assumes $11 million reduction in civilian personnel costs through elimination of current vacancies, attrition, and reduction in personnel.  As a result of the failure of Proposition 3 and loss of revenues in Special Revenue Fund - DARLEP, the General Fund must assume an unsupported expenditure of $7.2 million in HPD’s budget. The allocation of this cost will be $5.4 million in FY2011 and $1.8 million in FY2012. 8

10. Expenditure Projections (Cont’d.)  Assumes a new savings of $7 million through consolidation in FY2012.  Assumes Pension for:  Fire at 29.4% in FY2011, 28.7% in FY2012 - FY2014 and 45.2% in FY2015.  Police at 19.8% in FY2011 - FY2015.  Municipal at 14.5% in FY2011 – FY2015.  Assumes Health Benefits growth of 10% in FY2012 – FY2015.  Includes $2.5 million transfer to fund Mobility Response Team operation in FY2012. 9

11. 10 Expenditure Summary ($ Thousands)

12. 11 Revenue and Expenditure Summary ($ Thousands)

13. FY2012 Draft Budget Finance Department

14. General Fund Sources of Funds ($ Thousands) 12

15. General Fund Uses of Funds ($ Thousands) 13

16. Revenue Highlights  Assumes property value appraisals as of January 1, 2011 neither show recovery nor further deterioration.  Assumes growth of 5.8% in FY2012 sales tax revenues.  Assumes balance of $8.5 million of cost of service management initiative realized in FY2012. 14

17.  Assumes balance of $12 million of management initiative savings through consolidation realized in FY2012.  Assumes a $1.8 million additional cost to HPD’s budget as a result of the failure of Proposition 3.  Assumes a new savings of $7 million through consolidation in FY2012. 15 Expenditure Highlights

18. 16 General Fund Revenues

19. 17 Property Tax Revenues

20. 18 Sales Tax Revenues

21. 19 General Fund Expenses

22. General Fund Debt Service Includes Departmental Transfers to Debt Service for Fleet and Other Equipment 20

23. General Fund Year End Fund Balance 21

24. Finance Department Management Options

25. Management Options – FY2011 Goal: To close $17.1 million gap* Actions In-progress:  Consolidation of fleet, fuel, and parts inventory.  Consolidation of HR and IT.  Elimination of all current vacancies and reduction in force. Options Remaining:  Implementing furlough days beginning January 1, 2011 (FY2011) for civilian employees. Savings to be realized are as follows:  1 day per month for 6 months estimated at $6 million.  2 days per month for 6 months estimated at $12 million.  Pensions  Issue pension obligation bonds to cover the incremental cost of the three pension plans = $20 million. 22 *Assumes passage of cost of services fee increase and collection efficiencies.

26. Goal: To close $118.8 million gap* Actions In-progress:  Completion of consolidation of fleet, fuel, and parts inventory.  Completion of consolidation of HR and IT. Options Remaining:  Increase property tax rate by $0.05/$100 valuation. Financial impact to the City is approximately $64 million.  Department reductions of 3% (by most departments) is approximately $26.5 million.  Increase the number of civilian furlough days with additional furlough days saving approximately $1 million per day.  Pensions  Renegotiate pension payments  Issue pension obligation bonds to cover the incremental cost of the three pension plans = $20 million.  Health Benefits Negotiate self-insurance contract for health benefits for employees. 23 Management Options – FY2012 *Assumes passage of cost of services fee increase and collection efficiencies.