fy 2009 first quarter update & economic impacts on the city’s budget december 8, 2008

FY 2009 First Quarter Update &

Economic Impacts on the City’s Budget

December 8, 2008

2

The Update

Overview Economic Climate & Trends FY 2009 Budget Update

General Fund Revenue General Fund Expenditures

FY 2010 & FY 2011 Forecast Budget Calendar

3

A Challenging Economic Outlook

National economic failure Rapid financial sector collapse

• Restricted credit – no lending• Property and auto sales dropping

Volatility & Uncertainty!

No certain solution in sight

4

Continued Economic Uncertainty – Bad News from the State

State deficit = $28B• $10B out-year deficits

Round #1 cuts to Berkeley = $1.75M• Set aside $1.8M to buffer cuts• Not a long-term solution

More cuts to come…• Public & Mental Health programs• Increased fee/charges to cities

E.g., DMV Administrative Costs

5

FY09 1st QTR Indicates Downturn

Overall loss of revenue Property Transfer Tax down 46%(-$1.5M+)

Sales Tax down 2.3% (-$500,000 so far)

Parking Meter revenue down 10% (-$500K)

Property Tax growth slowed

Permit Activity down

6

Updated FY09 Revenue Projections

1st QTR Report: +$343KNow: -$700K

$1M swing = Volatile & Dynamic

Updating information continuously

7

GF Revenue Forecast

Forecasted declines in:• Property Transfer Tax• Sales Taxes • Vehicle In-lieu Tax

Some Revenue Increases:• UUT (offset by like cost increases)• Interest Income (up now, but uncertain

future)

8

Property Transfer Tax Decline

Real estate market collapsed 50% 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

9

Property Sales Tax Decline

Changes since last year (FY 2008):

Total Property Sales down 48%

Commercial Property Sales down by 88%

Residential Property Sales down by 27%

10

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

11

How is our FY09 1st QTR Spending?

Generally within budget

Some potential General Fund problems:• Fire Department Overtime

(Measure GG will help offset this)• Police Department Overtime• Recreation Division cost overrun

Other Revenue Fund problems:• Refuse Fund • Mental Health & Public Health Funds• Permit Service Center Fund

12

FY 2010 & FY 2011 – Getting Ready

Proceed with Caution! Revenues down State Uncertain Economy Uncertain Not a time for growth Capital expenditures down

Reductions Required for General Fund and other funds

13

Policy Framework

1-time revenue for 1-time expenses

Long-term fiscal health• 2-year budget• 5-year planning

Prudent Reserve

Control labor costs – minimize layoffs

Manage unfunded liabilities

No new programs without new revenues or expenditure cuts

14

1st QTR GF Forecast FY 2009 – FY 2013

Deficit growth with flat PERS rates & no action Excludes a number of possible influences

.3

(2.58) (2.1) (1.55) (1.3)

(8,000,000)(6,000,000)(4,000,000)(2,000,000)

-2,000,000

FY2009 FY2010 FY2011 FY2012 FY2013

Fiscal Years

Su

rplu

s/(D

efic

it)

15

A Delicate Balance

What if…..

• The State takes more local revenue?• The economy continues to drop?• Transfer Tax declines further?• What if PERS rates increase 6%+?

16

General Fund Reserve

Audited Beginning Cash Balance 6/30/08 29.78

Planned Expense of Cash Balance:FY 2008 Carryover - Planned Expenses (mostly capital) (7.44)

FY 2009 Planned Use of the Reserve (1.81)

Reserve Set-asides: Utility Undergrounding (0.80)

Potential Liability Funding (2.50) 5-Year Capital Plan '06-'10 (remaining) (0.60) Set-aside for State economic uncertainty (FY 2009) (1.80)

(5.70) Cash Reserve for Emergencies: 14.83$

17

GF 5-Year Forecast

GF Reserve balance dips to $7.26M• if no action taken to remedy structural deficit

General Fund Forecast FY 2010 FY 2011 FY 2012 FY 2013

(in millions) Projected Projected Projected Projected

Beginning Fund Balance 14.83$ 13.52$ 11.97$ 9.84$

Operating Surplus / Shortfall (1.31)$ (1.55)$ (2.12)$ (2.58)$

Fund Balance Adjustment

Available Cash Fund Balance 13.52$ 11.97$ 9.84$ 7.26$

18

CalPERS Losses Impact Berkeley

Dramatic portfolio losses (30% and dropping…)

Rate smoothing cannot absorb

Rates will increase by FY 2012• 2% - 6% of payroll• Huge cost increase to Berkeley

19

PERS Rate Increase = Big GF Deficit

FY 2012 FY 2013

PERS What ifs… Projected Projected

Projected Deficit: with flat PERS rates (2.12)$ (2.58)$

PERS rate increase of 2% (1.40)$ (1.45)$ Resulting Deficit: (3.52)$ (4.03)$

PERS rate increase of 6% (4.20)$ (4.34)$ Resulting Deficit: (7.72)$ (8.37)$

GF operating deficit of $4M -$8M if we do nothing Wipes out GF Reserve entirely! Need to plan now!

20

Capital Improvements - Funding Reduced

Reduce General Fund capital funding by 33%

Must finish current big projects• Animal Shelter• Ed Roberts Campus• Brower/Oxford Center• Center Street Garage• Gilman Playing Fields

21

Some Good News

Measure GG: up to $3.6M annually• Fire and emergency services• FRALS• Ensure staffing and no closures• Disaster preparedness

Measure FF: $26M (1-time)• Library bond for branch improvements

Measure WW: $4.86M (1-time)• regional parks bond

22

Other Fund Deficits

Projected Ending Fund Balance(in millions) FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

Enterprise/Special FundsStreetlight Assessment 0.17 0.09 -0.38 -0.72 -0.74Refuse Fund -0.86 -7.04 -11.92 -17.07 -17.59Clean Storm Water 0.67 -0.42 -0.82 -1.67 -1.72Permit Service Center 3.30 0.63 -2.10 -2.17 -2.23

23

Other Revenue Funds Face Deficits

Public and Mental Health Funds• Expenditure reductions

Streetlight Assessment Fund• Possible General Fund subsidy increase

Refuse Fund• Rate increase in March 2009: 15-20%

Clean Storm Fund• Ballot in FY 2010

Permit Service Center Fund• Expenditure reductions

24

What are the Next Steps?

Plan for long term Control costs Begin budget review

• (January – March) Council Citizens Labor unions & employees

Mid-year Update on February 10

25

Council Budget Planning

Focus on service areas• Impacts and Outcomes

Special Council workshops• Adopt revised calendar• Add some Council dates

26

Budget Calendar & Workshops Date Agenda Action/Topic

October 7, 2008 Consent Adopt FY 2010 & FY 2011 Budget Development CalendarDecember 8 Workshop FY 2009 1st QTR Update & Economic Impacts

January 13, 2009 Workshop Special Budget Workshop - Budget OverviewJanuary 27 Workshop FY 2010 & FY 2011 Priority Setting Overview

February 10 Action FY 2009 Mid-year Update, FY 2010 & FY2011 Budget ForecastFebruary 17 Workshop FY 2010 & FY 2011 Priority SettingFebruary 24 Workshop FY 2010 & FY 2011 Priority Setting

March 10 Workshop FY 2010 & FY 2011 Priority SettingMarch 17 Workshop FY 2010 & FY 2011 Priority SettingMarch 24 Workshop Capital Improvement Program

April 28 Action Public Hearing on CDBG & ESG Annual Action Plan and proposed funding allocations to community agencies

May 5 Workshop FY 2010 & FY 2011Proposed Biennial BudgetMay 5 Action Adopt funding allocations and Annual Action Plan for CDBG and ESG

May 19 Action Public Hearing #1: Budget & FeesMay - June n/a Community Meeting(s)

June 2 Action Council recommendations on budget due to City ManagerJune 9 Action Public Hearing #2: Budget & Fees

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