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flL I .v vti is City Manager's Budget Message OVERVIEW INTRODUCTION I am pleased to present the Proposed 2009 10/2010 -11 Operating Budget. The City of Pleasanton has a tradition of conservative long -range financial planning, which has been invaluable in helping us provide sustainable services to the community. This budget continues the City's practice of providing high quality municipal services while maintaining an ability to adapt to local, regional and statewide economic issues and challenges. This budget also provides a financial education for the reader: it covers our budget history, policies and goals; describes all revenue sources and department functions; and forecasts revenue and expenditure trends over the next several years. The budget will be discussed in a City Council study session on June 9, 2009, and is scheduled for adoption on June 16, 2009. THE BUDGETARY IMPACTS OF THE ECONOMIC RECESSION ATTACHMENT 2 The nation, state, and East Bay region are in the midst of an economic recession the likes of which have not been seen since at least the 1950's, and quite possibly since the 1920's. The subprime lending crisis that triggered this recession has seen credit frozen, home foreclosures and short sales, rising unemployment, and bankruptcies of numerous large corporations and small companies. The median price of single family homes in Pleasanton has declined 9.6% in 2009 and home sales volume is only 70% of what it was in 2007. In January 2009 there were 3 foreclosures reported in Pleasanton down from 8 in January 2008. Sales tax declined 10.3% in FY2008 -09 and is expected to decline another 13% in FY2009 -10 before any recovery is expected. Both property tax and sales tax revenues have dropped to FY1996 -97 levels. The Federal government, in an effort to stimulate the economy, has already approved nearly $1.5 trillion in financial assistance to credit markets as part of the stimulus package. While we have not been immune to this severe economic downturn, the City of Pleasanton is better positioned than most public agencies due to our fiscal policies. Adherence to adopted fiscal policies has served us well in the past and is paying dividends as we set the course to weather this current economic storm. This two -year General Fund budget submitted herein is balanced. However, with the economy in such a fragile state it may well be a challenge to keep it in balance. This balance was only produced after further operating budget cuts, elimination of 10 vacant positions through attrition, and temporarily reducing contributions to certain reserves. In accordance with adopted fiscal policies we have established adequate reserves for replacement of equipment and renovation of facilities, self insured liability. workers compensation, and retiree medical costs. In good years we have maintained the discipline to increase these reserves. This prudent approach has resulted in over $70 million in reserves for these anticipated costs and future unknowns. These reserves can provide a short term cushion to weather this unprecedented economic recession without having to resort to layoffs and elimination of programs and services. Over the next few years contributions to these reserves will be less than they would have been normally (General Fund reserves for temporary recession and economic uncertainty will remain intact). Reducing contributions to replacement, self- insurance, and retiree medical reserves is a departure from our normal practice of