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Sales Use taxes have decreased from their peak in FY 2006 -07 of almost $22 million to $15 million this year, or a total decrease of $7 million. Last year sales tax dropped 17% and this year it is expected to drop another 14.5 Hotel /Motel tax declined 17% last year and is expected to drop another 19% this year. Development fees (building permits, planning and inspection fees) have decreased from a high of $4 million two years ago to $1.3 million in the current year. The revised revenue estimates along with offsetting adjustments to expenditures and transfers to keep the budget in balance were approved recently as recommended in the Mid -Year FY 2008 -09 Budget update. That report is attached for your reference. While the primary focus of this report is the City's General Fund, which receives revenue from a range of taxes and fees, also addressed are other City funds including Special Revenue Funds where revenues are restricted for specific purposes and Enterprise Funds, such as sewer and water operations, which receive funding primarily from user fees. Pleasanton has a reputation for being one of the most financially stable cities in California resulting from years of careful financial planning, definitive budget oversight, fiscally conservative Council direction and a diversified revenue base. As a result, Pleasanton is in a better financial position than most public agencies and private companies. In an effort to maintain this position to the largest extent possible, staff has regularly monitored and cautiously forecasted revenues and has made recommendations to address changes as quickly as possible in order to maintain a balanced General Fund budget. Consistent with the past few budget reports major revenues from taxes and development fees are still not performing which necessitates adjustments to assure a balance between revenues and expenditures. As a reflection of the difficulties facing the local and state economy, the FY 2008 -09 Budget was originally adopted with revenues estimates totaling $100.3 million while the current fiscal year budget for FY 2009 -10 was adopted with revenues estimates at $87.3 million. Now, however, for FY 2009 -10, revenue estimates are at $83.2 million. As a result, since the FY 2008 -09 budget there as been revenue adjustments, and related adjustments to expenditures and transfers totaling over $17 million. As is the case with most cities the City of Pleasanton will likely face additional fiscal challenges in the future. The depth and extent of the economic downturn, the State budget implications, future labor costs, CaIPERS rate increases, and increased retail competition in the Tri- Valley area may add pressure in keeping the operating budget in balance. The next two year budget cycle will certainly be difficult for the City. If economic conditions worsen, the City will have the ability to adjust revenues and expenditures on quarterly basis reflect unforeseen impacts. During these quarterly intervals we will monitor whether more drastic measures are necessary such as further refinement of the above key budget goals, service levels and /or personnel impacts. Page 2 of 3