FY 2009 Second Quarter Update and

FY 2010 & FY 2011 Forecast

February 10, 2009

2

The Update

Uncertain Economic Climate State Budget – No Good News FY 2009 2nd QTR Update FY 2010 & FY 2011 Forecast

Budget Process & Calendar Economic Development

Local stimulus Council comment on direction

3

An Uncertain Economic Outlook

National economy still failing Rapid financial sector collapse

Restricted credit – no lending Property and auto sales dropping

Unemployment at 10% soon CA Retail Vacancies

2001 = 6% 2009 = 13%

4

An Uncertain Economic Outlook

2-3 year recovery? Perhaps a different kind of recovery?

V versus L shaped path

Personal income for goods down Retail industry shrinking

(thousands of shopping malls to close) Property tax growth slowed

5

Federal Stimulus Hopes

The House version includes… $31B to states, local governments & non-profits

• Investments for infrastructure• Emergency assistance to families & individuals• $1B in new, 1-time CDBG funding

The Senate version may be different No new CDBG funding No meaningful affordable housing funds

6

Bad News from the State-$17B FY 2009-$25B FY 2010

-$42B Deficit (23% of budget!)

Cash flow problems (funding deferrals)

Potential State solutions Cuts to Health & Redevelopment Bond against lottery Sales tax temporary increase Spending cap Need budget reform

7

More Bad News from the State More State cuts now…

Parking Fines – new legislation • Loss of $3/citation = loss of $1M/year• Increase fines to recoup loss

DMV fees & reduced City revenue

Frozen CIP & transportation funding

Health & mental health grant reimbursements

We are managing State cuts through immediate expenditure reductions.

8

FY09 2nd QTR Results Worsen

Overall revenue loss of - $2.4M

Property Transfer Tax down 45% (-$3.0M)

Sales Tax down 2.6% (-$500,000)

Parking Meter revenue down 7% (-$400K)

Property Tax growth slowed

Permit Activity down

9

GF Revenue Forecast Declines:

Property Transfer Tax Sales Taxes Vehicle In-lieu Tax Parking Fines

Increases: Transient Occupancy Tax Ambulance Fees Other Revenue And property tax is still growing…

10

Property Transfer Tax Decline

Real estate market collapsed 45% Revenue DECLINE

0

5,000,000

10,000,000

15,000,000

20,000,000

FY 05 FY 06 FY 07 FY 08 FY 09

TRANSFER TAX

11

Property Sales Tax Decline

Changes since last year (FY 2008):

Total Property Sales down 45%

Commercial Property Sales down 77%

Residential Property Sales down 31%

12

Decline in Assessed Value Growth

5.40%

9.40%

9.30%

8.80%

6.90%

4.50%

0.00%1.00%2.00%3.00%4.00%5.00%6.00%

7.00%8.00%9.00%

10.00%

2005 2006 2007 2008 2009 2010

13

Immediate Actions

Hiring Freeze Deferring capital projects

(pending State $) Limit overtime spending Limiting non-essential expenses

Passage of Measure GG helps now fully fund Fire Department staffing prevent fire station closures

14

How is FY09 2nd QTR spending?

Hiring freeze = salary savings Savings help offset revenue losses

General Fund- $2.37M revenue+$2.28M savings(-$90K gap)

Next 6 months uncertain State budget? Federal stimulus?

No budget increases

15

FY 2010 & FY 2011 Outlook

Revenues down State uncertain Economy uncertain Not a time for growth Available capital funding reduced

Reductions needed for all funds

16

Policy Framework 1-time revenue for 1-time expenses Long-term fiscal health

2-year budget 5-year planning (focus on year 3 impacts)

Prudent Reserve Control labor costs – minimize layoffs Manage unfunded liabilities No new programs without new revenues or

expenditure cuts Balance grant and enterprise funds

17

2-YR Budget…3-YR ProblemPERS rate spike in FY 2012

Need GF reductions over 3 years of 6% Year 3 reflects PERS rate spike Assumes CIP funding reductions

Revised 3-Year Forecast - Not Balanced(in millions) FY 2010 FY 2011 FY 2012Projected Revenue $146.50 $149.50 $152.30Projected Expenses $149.20 $153.20 $158.30

Balance ($2.70) ($3.70) ($6.00)With PERS Rate Increase $3.00

Revised Balance ($2.70) ($3.70) ($9.00)

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Other Revenue Funds Face Deficits

Public and Mental Health Funds Expenditure cuts

Streetlight Assessment Fund Possible General Fund subsidy increase

Refuse Fund Rate increase in FY 2010: 15-30%

Clean Storm Fund Ballot in FY 2010

Permit Service Center Fund Expenditure cuts

19

What are the Next Steps?

Plan for long term Control costs Continued budget review Discuss with labor unions & employees Council workshops focus on…

key program areas performance outcomes

Prepare for Federal stimulus package

20

Goals & Values

Maintain City’s long-term fiscal health

Provide quality services to residents

Recognize the exceptional work our employees do

21

Budget Calendar & Workshops Date Agenda Action/Topic

February 10 Action FY 2009 Mid-year Update, FY 2010/FY2011 Forecast & Program Focus: Economic Development

February 17 Workshop Budget Update & Program Focus: Environment

February 24 Workshop Budget Update & Program Focus: Public Health

March 10 Workshop Budget Update & Program Focus: Youth Services

March 17 Workshop Budget Update & Program Focus: Transportation, Library, Administrative Services

March 24 Workshop Council Feedback on Budget Priorities & Program Focus: Capital Improvement Program

April 21 Action Public Hearing on CDBG/ESG Annual Action Plan and proposed allocations to community agencies

May 5 Workshop FY 2010 & FY 2011 Proposed Biennial Budget

May 5 Action Adopt funding allocations and Annual Action Plan for CDBG and ESG

May 19 Action Public Hearing #1: Budget & Fees

May - June n/a Community Meeting(s) on the Proposed Budget

June 2 Action Council recommendations on budget to City Manager

June 9 Action Public Hearing #2: Budget & Fees

June 23 Action Adopt FY 2010 & FY 2011 Biennial Budget & Tax Rates

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Program Focus: Economic Development

Regional economy is struggling

What are Berkeley impacts?Business downturn Job lossesWhat can we do locally?

Council comments on direction