Fiscal Year 2013-2015 Special Budget Meeting

HONORABLE MAYOR AND CITY COUNCIL Subject: Proposed FY 13-15 Proposed Policy Budget Date: May 13,2013 Page 9 through internal service funds or accounted through special revenue grant funds (for example, the Self-Insurance Liability Fund and the Kids First Fund.) The GPF pays into internal service funds proportionate to its use of those services, like all other funds. For example, the GPF pays into the Facilities Fund proportionate to the amount of space occupied by GPF-supported City functions. If an internal service fund such as the Facilities Fund is negative due to historic overspending or under-recovery, the GPF contributes along with all other relevant funds to repay and replenish the negative fund, proportionate to each fund's use of the internal service or other appropriate cost allocation method. In this way, negative funds do not rely on the GPF for repayment any more than they rely on other funds that were historically underpaying the negative fund. Some negative funds that are not internal service funds, and which cannot allocate expenses to multiple funds, will have to rely on the GPF for repayment. See Attachment F for a list of all funds which the General Fund is the source. 16) Does the current Proposed Budget include the additional employee benefit cost? If so, why are we asking for concessions? Yes, the Proposed Budget does include the additional employee benefit costs. Please note that issues around employee contributions are subject to labor negotiations. The City's Five Year Forecast illustrates the City's fiscal condition where a structural imbalance exists. There are generally four categories that have impacted our City's fiscal health, which in turn, have perpetuated our fiscal condition. This includes following: 1) The City's reserves and the rate of revenue growth are slower than that of the City's rising expenditures and the rate of these expenditures; 2) There are actions outside of local control related to pensions and medical costs, which will have a significant impact to the City's financial condition, including: > Cal-PERS rates are rising 20% in the current year, and projections show that the cost will go up by approximately 50% over a six year period beginning in FY 2015-16; > The City is conservatively estimating that medical costs will go up by 6% per year, and that the City will have additional fiscal impacts to the implementation of the Federal Affordable Care Act. 3) The significant deferred investments and capital and maintenance (equipment) needs that need to be addressed; and, 4) The City's unfunded liabilities and negative fund balances. In the past, the City has used a variety of short and long term solutions to balance its budget. However, given the City's structural imbalance, it is imperative that the City work on long-