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BACKGROUND Attached is the proposed Operating Budget for fiscal year 2012/13 (July 1, 2012, to June 30, 2013) for Kottinger Place. The document has been prepared by staff in conjunction with Barcelon Associates which manages the project on behalf of the Housing Authority. The budget is presented as a "realistic" projection of project revenues and expenditures. However, matters such as changing of tenants and HUD funding are subject to change and these can impact budget revenue and expenditures. A summary of income and expenditures ("Budget Footnotes") is included as Attachment 1. The budget also includes columns for the original and projected/actual budget for the current year for each line item to provide a comparison with proposed budget line item amounts. An Operating Budget must be adopted each year and is used as the overall financial plan for the project during the coming fiscal year. The Operating Budget must receive final approval from the Housing Authority Board of Directors (the City Council) prior to submittal to HUD. DISCUSSION Budget details are outlined in the attached May 17, 2012, Housing Commission agenda report. Staff is projecting that the annual operating expenses at Kottinger Place will be $279,893. This represents a decrease of 4.2% over estimated FY 2011/12 expenses of $292,200. This modest decrease is due to a reduction in administrative salaries as well as minor reductions in maintenance costs. In addition, $14,685 is budgeted for Extraordinary Maintenance funded with a HUD capital grant for a total budget of $294,578. The continued availability of the Capital Fund Program (CFP) from HUD will help to offset continued inflationary costs for items such as landscape maintenance and utilities. However, an approximately $40,000 reduction in the Operating Subsidy (OFND) funding for FY 2012/13 as compared to last year will result in an estimated budget deficit of $24,258. Approximately 59% of the $279,893 in operating costs will be met through tenant rents, which are forecast to remain relatively stable at approximately $153,600. However, because Kottinger rents are determined by a percentage of a tenant's income, change of income for existing tenants or income from new tenants may influence rents significantly. The administrative expenses are projected to decrease by approximately 10% as compared to last year. The decrease is due to minor adjustments in the various administrative categories. A portion ($3,000) of the salary for the on-site manager has been transferred to the CFP (Administration) as in prior years. The budget for tenant services (i.e., recreation supplies) was increased several years ago to promote a continued enhanced level of resident activities in conjunction with the new management. The service coordinator has been budgeted for five hours per week (the same as the current year) with a 2% hourly rate increase. Page 2 of 4