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Office of the City ManagerJanuary 28, 2011

Fiscal Outlook PresentationFiscal Outlook Presentation

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AgendaAgenda

Economic EnvironmentEconomic Environment

State Budget UpdateState Budget Update

City RevenuesCity Revenues

General Fund Operating ExpendituresGeneral Fund Operating Expenditures

Expenditure PressuresExpenditure Pressures

Solutions for Restoring FundingSolutions for Restoring Funding

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Economic EnvironmentEconomic Environment

Economy improving, but Economy improving, but slow recovery to lower slow recovery to lower basebase

Unemployment remains Unemployment remains highhigh

Housing market Housing market stabilizing but vulnerablestabilizing but vulnerable

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State Budget UpdateState Budget Update

Governor’s Proposed Budget Governor’s Proposed Budget $14 billion in revenue solutions $14 billion in revenue solutions $12.5 billion in cuts$12.5 billion in cuts

Potential elimination of RDAsPotential elimination of RDAs

Staff continuously monitoring for changesStaff continuously monitoring for changes

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City RevenuesCity Revenues

Property TaxProperty Tax

Sales tax Sales tax

Development-related revenues Development-related revenues

Transient Occupancy Tax Transient Occupancy Tax

Recovery Recovery already plannedalready planned into the budget into the budget

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General Fund General Fund Operating ExpendituresOperating Expenditures

FY 2010/2011Current Budget

FY 2010/2011Actuals thru

AP7% of

Budget

Public SafetyPublic Safety $70,431,620 $36,939,760 52.45%

Public WorksPublic Works $12,045,397 $5,448,554 45.23%

FinanceFinance $7,803,601 $3,849,902 49.33%

Community ServicesCommunity Services $8,536,314 $4,491,298 52.61%

LibraryLibrary $7,394,377 $3,632,199 49.12%

Community Community

DevelopmentDevelopment$5,122,945 $2,630,367 51.34%

Office of City ManagerOffice of City Manager $3,914,222 $1,903,307 48.63%

Human ResourcesHuman Resources $3,459,362 $1,610,467 46.55%

Office of City AttorneyOffice of City Attorney $1,632,720 $679,548 41.62%

TOTAL:TOTAL: $120,340,558 $61,185,402 50.84%

*

* Includes $560K for Salary Increase Budget Mod

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Expenditure PressuresExpenditure PressuresRising Employee CompensationRising Employee Compensation

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$ M

illi

on

s

Non-Personnel Costs

General FundSalaries & Benefits

Pension Costs vs. Sales Tax Pension Costs vs. Sales Tax RevenueRevenue

FY 02/03 FY 06/07 FY 10/11 (Est)Pension % of GF Revenues 8% 14% 19%

$30.9

$22.8

$25.4

$17.6

$7.0

$21.6

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

99/0

001

/02

03/0

405

/06

07/0

809

/10

11/1

2 (E

st)

13/1

4 (E

st)

$ M

illi

on

s

Sales Tax Revenue

GF Pension Costs

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Expenditure PressuresExpenditure Pressures Future CalPERS RatesFuture CalPERS Rates

Potential interest rate changePotential interest rate change• 7.75% to 7.5%7.75% to 7.5%

Significant cost increaseSignificant cost increase• 3.8% for Safety - $1.3M3.8% for Safety - $1.3M• 2.3% for Miscellaneous - $1.4M2.3% for Miscellaneous - $1.4M

Board to decide in February or MarchBoard to decide in February or March

Staff evaluating long-term rates and impactStaff evaluating long-term rates and impact

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Expenditure PressuresExpenditure Pressures

Unfunded Building/Infrastructure NeedsUnfunded Building/Infrastructure Needs $2M annual funding set-aside removed from $2M annual funding set-aside removed from

FY 2004/05 budgetFY 2004/05 budget Without that cut, there would be $14M more Without that cut, there would be $14M more

available nowavailable now

No funds set aside for existing building No funds set aside for existing building infrastructureinfrastructure

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Expenditure PressuresExpenditure Pressures

Deteriorating street/roadway conditionsDeteriorating street/roadway conditions Pavement Condition Index (PCI) decrease Pavement Condition Index (PCI) decrease

from 85 (2006) to 75 (2010)from 85 (2006) to 75 (2010) Current annual funding = $3.1MCurrent annual funding = $3.1M

PCI of 80 -> optimal cost/benefit for PCI of 80 -> optimal cost/benefit for maintenance maintenance To get back to 80: extra $2.5M / yr (5 yrs)To get back to 80: extra $2.5M / yr (5 yrs) To maintain: extra $750K / yr (ongoing)To maintain: extra $750K / yr (ongoing)

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Expenditure PressuresExpenditure Pressures

High Cost of Deferred MaintenanceHigh Cost of Deferred Maintenance Could have spent an additional $3.8M in last 5 Could have spent an additional $3.8M in last 5

years to maintain PCI at 80years to maintain PCI at 80 Restoring PCI to 80 will now cost $12.5MRestoring PCI to 80 will now cost $12.5M Cost of 5 year delay = $8.7MCost of 5 year delay = $8.7M

Continued PCI drops will result in major costsContinued PCI drops will result in major costs Costs increase exponentiallyCosts increase exponentially $19.5M for major overlay and restoration in $19.5M for major overlay and restoration in

5 years if no additional funding added 5 years if no additional funding added

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Addressing Street & Addressing Street & Infrastructure DeficienciesInfrastructure 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 $10.5MInfrastructure $47.5M, Streets $10.5M

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A Solution for Restoring A Solution for Restoring FundingFunding

Two-tier pension + 2% PERS contribution = Two-tier pension + 2% PERS contribution = $47M over 20 years$47M over 20 years Safety: 3% @ 55Safety: 3% @ 55 Misc: 2% @ 55Misc: 2% @ 55

Salary Increases =$56M over 20 yearsSalary Increases =$56M over 20 years : 0% in FYs 2012/13 and 2013/14: 0% in FYs 2012/13 and 2013/14

Holding BSF to $8M balanceHolding BSF to $8M balance

= $103M total

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Many options for restoring funding:Many options for restoring funding:

Reallocate a portion of budgeted, non-contractual Reallocate a portion of budgeted, non-contractual salary increases from 20-year plansalary 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 SolutionsOther Solutions