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Councilmember Thorne asked how projections are prepared. Ms. Wagner stated that staff works with a consultant who projects based on state and local trends as well the mix of local retail businesses. Mr. Fialho noted that the projections are a reflection of both sales volume and inflation. Vice-Mayor Cook-Kallio asked how accurate the projections are, based on experience. Ms. Wagner said extremely accurate. Ms. Wagner discussed Hotel/Motel Tax projections, which foresee a 2% growth in each year. She also discussed Business License Tax projections, crediting the growth in large part to the City's aggressive staff in terms of collection. She reviewed General Fund expenditures, noting that revenues will set the budget in any balanced budget environment. While the projected $87.3 million in expenditures are monetarily similar to 2007/08, the expenditures themselves are materially different. Public safety represents 44% of the General Fund budget, followed by General Government, Community Development (8%), Community Services (4%), Library Services, Support Services, and Streets. Personnel represents 78% and non-personnel represents 22% of the General Fund expenditures, which is a decrease over 2009/10 levels and a reflection of staffs commitment to gradually decrease to 2003/4 levels. Salaries represent 60% of the overall budget, equaling $41.4 million. CaIPERS retirement costs represent 17% or $11.6 million, followed by benefits at $8.6 million, other post retirement benefits of $5 million, and workers' compensation. Staff projects that personnel costs will increase 1.9% in 2011/12 over 2010/11 and then 2.7% in 2012/23 for a cumulative increase of 4.6%. This relates to an anticipated increase in medical premiums. She noted that while there are no salary increases in the Two Year Budget, there are step increases per existing labor contracts. Retiring medical reserves are increased by $1 million in 2011/12, and $2 million in 2012/13. CaIPERS rates are projected to increase between 4.3-5.5% during the Two Year Budget, which offset by an employee pickup of the CaPPERS increase up to the employee contribution of 8%. Ms. Wagner reviewed non-personnel expenditure history, noting a fluctuation due to the City's previous funding of the repair and replacement program. While that is reduced, there exists over $15 million in repair and replacement reserves in the Internal Service Fund. Expenditures break down to Contract Services (32.6%), Utilities (16.4%), Replacement and Renovations, Field Supplies, Insurance, Vehicle Costs, Alameda County Services, and Budget Contingency. Non- personnel costs are projected to increase 1.5% for 2011/12 and 5.9% for 2012.13, for a cumulative increase of 7.4%. Mayor Hosterman asked if the City would be capable of performing the services provided by Alameda County in house. Ms. Wagner explained that this expenditure breaks down primarily into animal control and property tax collection fees, the latter of which cannot be performed in house. Ms. Wagner reviewed General Fund transfers, which comprise subsidies to the Para-Transit, Strom Drain, Cemetery, Golf Debt Service, and other Debt Service Funds. She noted that the Capital Improvement Program (CIP) Fund has not been subsidized since 2008/09. Mr. Fialho stated that the CIP would be presented to the Council on June 21st. The four-year planning document reflects infrastructure improvements in the areas of streets, acquisition of and improvements to new parks, miscellaneous facilities, water, and sewer improvements. City Council Minutes Page 5 of 10 May 17, 2011