FY 2009 First Quarter Update & Economic Impacts on the City’s Budget December 8, 2008

2 The Update  Overview  Economic Climate & Trends  FY 2009 Budget Update  General Fund Revenue  General Fund Expenditures  FY 2010 & FY 2011 Forecast  Budget Calendar

3 A Challenging Economic Outlook  National economic failure  Rapid financial sector collapse Restricted credit – no lending Property and auto sales dropping  Volatility & Uncertainty!  No certain solution in sight

4 Continued Economic Uncertainty – Bad News from the State  State deficit = $28B $10B out-year deficits  Round #1 cuts to Berkeley = $1.75M Set aside $1.8M to buffer cuts Not a long-term solution  More cuts to come… Public & Mental Health programs Increased fee/charges to cities  E.g., DMV Administrative Costs

5 FY09 1 st QTR Indicates Downturn Overall loss of revenue  Property Transfer Tax down 46%(-$1.5M+)  Sales Tax down 2.3% (-$500,000 so far)  Parking Meter revenue down 10% (-$500K)  Property Tax growth slowed  Permit Activity down

6 Updated FY09 Revenue Projections 1 st QTR Report:+$343K Now:-$700K $1M swing = Volatile & Dynamic  Updating information continuously

7 GF Revenue Forecast  Forecasted declines in: Property Transfer Tax Sales Taxes Vehicle In-lieu Tax  Some Revenue Increases: UUT (offset by like cost increases) Interest Income (up now, but uncertain future)

8 Property Transfer Tax Decline  Real estate market collapsed  50% Revenue DECLINE!

9 Property Sales Tax Decline Changes since last year (FY 2008):  Total Property Sales down 48%  Commercial Property Sales down by 88%  Residential Property Sales down by 27%

10 Decline in Assessed Value Growth

11 How is our FY09 1 st QTR Spending?  Generally within budget  Some potential General Fund problems: Fire Department Overtime  (Measure GG will help offset this) Police Department Overtime Recreation Division cost overrun  Other Revenue Fund problems: Refuse Fund Mental Health & Public Health Funds Permit Service Center Fund

12 FY 2010 & FY 2011 – Getting Ready  Proceed with Caution!  Revenues down  State Uncertain  Economy Uncertain  Not a time for growth  Capital expenditures down  Reductions Required for General Fund and other funds

13 Policy Framework  1-time revenue for 1-time expenses  Long-term fiscal health 2-year budget 5-year planning  Prudent Reserve  Control labor costs – minimize layoffs  Manage unfunded liabilities  No new programs without new revenues or expenditure cuts

14 1 st QTR GF Forecast FY 2009 – FY 2013  Deficit growth with flat PERS rates & no action  Excludes a number of possible influences

15 A Delicate Balance What if….. The State takes more local revenue? The economy continues to drop? Transfer Tax declines further? What if PERS rates increase 6%+?

16 General Fund Reserve

17 GF 5-Year Forecast  GF Reserve balance dips to $7.26M if no action taken to remedy structural deficit

18 CalPERS Losses Impact Berkeley  Dramatic portfolio losses (30% and dropping…)  Rate smoothing cannot absorb  Rates will increase by FY % - 6% of payroll Huge cost increase to Berkeley

19 PERS Rate Increase = Big GF Deficit  GF operating deficit of $4M -$8M if we do nothing  Wipes out GF Reserve entirely!  Need to plan now!

20 Capital Improvements - Funding Reduced  Reduce General Fund capital funding by 33%  Must finish current big projects Animal Shelter Ed Roberts Campus Brower/Oxford Center Center Street Garage Gilman Playing Fields

21 Some Good News  Measure GG: up to $3.6M annually Fire and emergency services FRALS Ensure staffing and no closures Disaster preparedness  Measure FF: $26M (1-time) Library bond for branch improvements  Measure WW: $4.86M (1-time) regional parks bond

22 Other Fund Deficits

23 Other Revenue Funds Face Deficits  Public and Mental Health Funds Expenditure reductions  Streetlight Assessment Fund Possible General Fund subsidy increase  Refuse Fund Rate increase in March 2009: 15-20%  Clean Storm Fund Ballot in FY 2010  Permit Service Center Fund Expenditure reductions

24 What are the Next Steps?  Plan for long term  Control costs  Begin budget review (January – March)  Council  Citizens  Labor unions & employees  Mid-year Update on February 10

25 Council Budget Planning  Focus on service areas Impacts and Outcomes  Special Council workshops Adopt revised calendar Add some Council dates

26 Budget Calendar & Workshops