Fiscal Year 2013-2015 Special Budget Meeting

Page 6 FY 2013-2015 BUDGET HIGHLIGHTS General Purpose Fund (GPF) Despite having addressed budget shortfalls totaling $318 million over the past six years, significant conditions continue to impact our fiscal condition, such as: rising costs, police staffing shortages, modest revenue growth, and ongoing recovery from the dissolution of Redevelopment. In addition, this Proposed Budget takes into account that two special assessments—Measure Y (the Violence Prevention Act and Public Safety Act of 2004) and the Wildfire Prevention Assessment District—are nearing the end of their 10-year lifespan; and that employee contributions, which are estimated to save the City $37 million per year across all funds in FY 2012-13, are set to expire and are subject to meet-and-confer bargaining to continue at any level after the expiration date. The next year must be used to prepare for the renewal of these initiatives to further stabilize the City’s fiscal condition in the next years: otherwise, there will be greater adverse impacts than already anticipated. Summary of Former Baseline Estimates Shortly after publishing the FY 2013-18 Five Year Forecast in the fall of 2012, staff developed the FY 2013-15 baseline revenue and expenditure estimates. These former estimates from the FY 2013-15 baseline indicated that despite modest revenue growth, continuation of the current FY 2012-13 levels of service plus Council approved augmentations (baseline) would result in a shortfall of $15.64 million in FY 2013-14 and $24.86 million in FY 2014-15, as reflected in the table below: Table 3: FYs 2013-2015 GPF Revenue & Expenditures Former BASELINE Summary FY 2013-14 FY 2014-15 Former Baseline GPF Revenues $417.99 million $430.07 million Former Baseline GPF Expenditures $433.63 million $457.93 million Former Baseline GPF Shortfall ($15.64 million) ($24.86 million) Note: Figures modified based on recent data, see Table 4 below. The baseline shortfall is generally caused by increased costs of providing City services which are outpacing moderate revenue increases, prior reliance on the use of one-time funds to fund ongoing expenditures, and the expiration of employee contributions over the past five years (these contributions, for example, saved $37 million in FY 2012-13 across all funds and $23.6 million in the General Purpose Fund). A primary cost driver the city has been experiencing has been the growth in employee health and retirement benefits. For example, the City’s pension costs are projected to grow from $67.3 million in the current year (FY 2012-13) to $85.3 million in FY 2014-15, representing an increase of 26.7% over the two year period; and the employee benefit costs (other than retirement) are projected to grow from $91.3 million in the current year to $107.3 million in FY 2014-15, representing a 17.5% increase over the two year period. Another driver of the baseline expenditure growth is ongoing funding for new police officers from the last three police academies (166, 167 and 168), as approved by the City Council in FY 2011-13 Policy Budget. In addition, when the City’s Redevelopment Agency was dissolved due to the State’s action, some of the positions were maintained to complete approved projects. As those projects are being completed, less funding is available for administrative positions proportionally.