1. 1 Office of the City Manager January 28, 2011 Fiscal Outlook Presentation

2. 2 Agenda  Economic Environment  State Budget Update  City Revenues  General Fund Operating Expenditures  Expenditure Pressures  Solutions for Restoring Funding

3. 3 Economic Environment  Economy improving, but slow recovery to lower base  Unemployment remains high  Housing market stabilizing but vulnerable

4. 4 State Budget Update  Governor’s Proposed Budget  $14 billion in revenue solutions  $12.5 billion in cuts  Potential elimination of RDAs  Staff continuously monitoring for changes

5. 5 City Revenues  Property Tax  Sales tax  Development-related revenues  Transient Occupancy Tax  Recovery already planned into the budget

6. 6 General Fund Operating Expenditures FY 2010/2011 Current Budget FY 2010/2011 Actuals thru AP7 % of Budget Public Safety $70,431,620$36,939,760 52.45% Public Works $12,045,397$5,448,554 45.23% Finance $7,803,601$3,849,902 49.33% Community Services $8,536,314$4,491,298 52.61% Library $7,394,377$3,632,199 49.12% Community Development $5,122,945$2,630,367 51.34% Office of City Manager $3,914,222$1,903,307 48.63% Human Resources $3,459,362$1,610,467 46.55% Office of City Attorney $1,632,720$679,548 41.62% TOTAL:$120,340,558$61,185,40250.84% * * Includes $560K for Salary Increase Budget Mod

7. 7 Expenditure Pressures Rising Employee Compensation Non-Personnel Costs General Fund Salaries & Benefits

8. Pension Costs vs. Sales Tax Revenue

9. 9 Expenditure Pressures Future CalPERS Rates  Potential interest rate change 7.75% to 7.5% 7.75% to 7.5%  Significant cost increase 3.8% for Safety - $1.3M 3.8% for Safety - $1.3M 2.3% for Miscellaneous - $1.4M 2.3% for Miscellaneous - $1.4M  Board to decide in February or March  Staff evaluating long-term rates and impact

10. 10 Expenditure Pressures  Unfunded Building/Infrastructure Needs  $2M annual funding set-aside removed from FY 2004/05 budget  Without that cut, there would be $14M more available now  No funds set aside for existing building infrastructure

11. 11 Expenditure Pressures  Deteriorating street/roadway conditions  Pavement Condition Index (PCI) decrease from 85 (2006) to 75 (2010)  Current annual funding = $3.1M  PCI of 80 -> optimal cost/benefit for maintenance  To get back to 80: extra $2.5M / yr (5 yrs)  To maintain: extra $750K / yr (ongoing)

12. 12 Expenditure Pressures  High Cost of Deferred Maintenance  Could have spent an additional $3.8M in last 5 years to maintain PCI at 80  Restoring PCI to 80 will now cost $12.5M  Cost of 5 year delay = $8.7M  Continued PCI drops will result in major costs  Costs increase exponentially  $19.5M for major overlay and restoration in 5 years if no additional funding added

13. 13 Addressing Street & Infrastructure Deficiencies  Pay Me Now or Pay Me Later  Every year of delay increases total cost to fix  Funding Needed = $100M over 20 years  $42M short-term (first 10 yrs)  Infrastructure $25M, Streets $17M  $58M long-term (second 10 yrs)  Infrastructure $47.5M, Streets $10.5M

14. 14 A Solution for Restoring Funding  Two-tier pension + 2% PERS contribution = $47M over 20 years  Safety: 3% @ 55  Misc: 2% @ 55  Salary Increases =$56M over 20 years  : 0% in FYs 2012/13 and 2013/14  Holding BSF to $8M balance = $103M total

15. 15  Many options for restoring funding:  Reallocate a portion of budgeted, non- contractual salary increases from 20-year plan  Restructure pension and/or funding plan  Reduce General Fund transfers  $3.7M to Community Recreation Fund annually  Implement prioritization of non-core services  Revenue enhancements  UUT, Assessment Districts, Fees Other Solutions