Fiscal Year 2013-2015 Special Budget Meeting

FINANCIAL SUMMARIES Revenue Forecast Citywide revenues are projected using dynamic forecasting which anticipates changes in revenues triggered by new economic development, economic growth, changes in the levels of service of departments and agencies, (as approved in the case of Master Fee Schedule changes by the City Council), changes in governmental policies at the state or federal level, and various economic and demographic changes. The purpose of this dynamic forecast is to demonstrate the potential impact of various events and actions on the selected revenue sources. Under this scenario:  Tax Revenues are projected to grow at rates that are responsive to dynamic forces in the economy. Generally, the assumption is the local economy will be affected by national and state trends, with some deviation expected due to specific characteristics of regional business and labor markets.  Fee increases will likely follow the projected inflation and changes in the local population due to increased service costs and changes in demand.  Any known or anticipated changes in revenues as a result of potential changes in state revenue streams and/or legislation are reflected in the analysis. The revenue forecast takes into consideration a number of economic factors and trends, including changes in economic growth, income, sales and Consumer Price Index (CPI), among other factors. Additionally, anticipated changes in State or local policy are also considered. Expenditure Forecast Forecasting the City's expenditures involves analyzing, at the Agency level, and by category The expenditure forecast begins with the baseline budget, which represents the cost of maintaining the current level of services, while taking into account all unavoidable costs necessary to continue at that current level. Examples of unavoidable costs are pre-negotiated MOU salary levels, as well as health care and retirement costs that the City pays on behalf of its employees. The baseline budget is then modified to reflect changes to programs and services that the Mayor and the City Administrator decide to include as part of the Proposed Budget. These modifications could include additions or subtractions in any of categories (1) through (3) above. Changes to debt service are less discretionary, and are made based on changes in the Treasury Division's debt payment schedules. The expenditure forecast follows the guidance of the Government Finance Officers Association (GFOA), which recommends that expenditures be grouped into units of analysis that are meaningful to the organization, such as departments and standard budget categories of expenditures. As such, staff grouped baseline (FY 2013-15) proposed budget expenditures by department and by expenditure category, consistent with the City’s chart of accounts. Future expenditures were forecasted from the FY 2013-15 proposed budget. This forecast generally assumes that expenditures will only grow due to inflationary cost escalation. Though In a small number of cases, costs are also expected to change due to new operating expenditures, which are changes in service or staffing levels, as described below. • The Police Department will run one police academy per year in FY 2015-16, FY 2016-17, and FY 2017-18 to roughly maintain the number of sworn staff achieved by the FY 2013-15 budget proposal, 697; • The City will lose Successor Agency project staff as their projects and funding wind down; • Note that this forecast assumes the same funding level when Measure Y expires on December 31, 2014 and the Wildfire Prevention Assessment District expires on June 30, 2014. The parking revenue for Measure Y will not be collected by January 1, 2015 if the Measure is not renewed while the parcel tax covers until June 30, 2015; • The City will appropriate $10M in FY 2015-16 and an additional $10M in FY 2016-17 to a reserve for unfunded pension and OPEB liabilities, as directed by City Council. D - 2