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BACKGROUND The proposed budget is the City's comprehensive financial plan for all programs and services for the 2011/12FY and 2012/13FY. Staff is recommending that the Operating Budget be adopted as presented at the budget workshops on May 17 and June 7, 2011. DISCUSSION The Operating Budget maintains core service levels, and addresses all new program and project initiatives prioritized by the City Council. Careful planning and a diversified local economy have allowed us to balance the Operating Budget without reductions in services. Even with our impressive financial position compared to most municipalities, the City's budget for the next several years should be closely monitored to ensure that our operating position remains positive. The length and depth of the current economic recession and the extent to which revenues may rebound in future years is unknown. Additional takeaway of local revenues by the State in order to balance the State's budget is another unknown. There is also much to be optimistic about, for the City is well positioned to capitalize on the economy when it begins to improve. The City is moving forward with the development of the Pleasanton Gateway Project, Staples Ranch, and working with the Pleasanton Downtown Association and the Economic Vitality Committee to stimulate the resurgence of public and private development in the downtown area. How the City Is Meeting Its Budgetary Challenges The Operating Budget as presented is balanced. However, with the continued stress on the economy and the condition of the State's finances, it may become a challenge to keep the Operating Budget in balance during the next two years. Given that, the City will continue to maintain reserves of $25.3 million in the General Fund for unforeseen emergencies. These funds can be called upon if needed to keep the Operating Budget balanced. Overall, the Operating Budget includes the permanent elimination of 34 positions through attrition since July 1, 2009, resulting in a total cost savings of approximately $5.1 million. It also includes known and projected labor concessions totaling approximately $4.1 million and $3.5 million in reductions in non-personnel expenditures. In accordance with adopted fiscal policies the City has adequate reserves for replacement of equipment and renovation of facilities, self insured liability, workers compensation, and retiree medical costs. Over the next few years, the goal is to restore the annual contributions to these reserves to their pre-recession funding levels. Page 2 of 5