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BACKGROUND The proposed budget is the City's comprehensive financial plan for all programs and services for the two fiscal years 2009 -10 and 2010 -11. Staff is recommending that the budget be adopted as originally presented. DISCUSSION This budget maintains core service levels, and addresses all new program and project initiatives prioritized by the City. These goals can be achieved with a spending plan that still operates within our fiscal means. Careful planning and a diversified local economy have allowed us to balance this budget without reductions in services. Even with our impressive financial standing compared to most jurisdictions, the City's spending patterns for the next few years should be closely monitored to ensure that our operating position remains positive. While revenues have been affected by the economic recession, Pleasanton remains in a better position than many local agencies that are implementing service and program cuts and /or staff layoffs. The length and depth of the current economic recession and the extent to which revenues may rebound in future years is an unknown. Additional takeaway of local revenues by the State is almost certain given the scope of their budget deficit. Although the City of Pleasanton has joined in the effort to vigorously protest such a taking we have anticipated and prepared for this contingency by fortifying our reserves during the prior fiscal year. There is also much to be optimistic about, for the City is well positioned to capitalize on the economy when it begins to improve. In addition, the City has developed new playfields on the Bernal property, moving forward with the development of Staples Ranch, construction of the Firehouse Arts Center and working to stimulate the resurgence of public and private development in the downtown area. How the City Is Meeting Its Budgetary Challenges This two -year General Fund budget submitted herein is balanced. However, with the economy is 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. 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 maintaining robust contributions to reserves; however, this economic downturn is unprecedented and reduced contributions are being Page 2 of 7