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consumed by a business. The Mid-Term Budget assumes a 25% reduction in water revenues <br /> with an offsetting reduction in the amount of water purchased from Zone 7 and a 25% <br /> reduction in commercial sewer revenues with no offsetting reduction in sewer operating <br /> expenditures. It is also important to note that Zone 7 wholesale water rates remain <br /> unpredictable at this time as they move to offset the fiscal impacts of the drought. While these <br /> rates are reflected as a pass-through for all residential and business accounts, as one of the <br /> largest consumers of water in the community (e.g., parks, public facilities, etc.) the City could <br /> see an increase in the cost of purchasing water if Zone 7 moves to increase wholesale rates. <br /> Such a move would impact water and sewer utility payments for the City in fiscal year 2014/15 <br /> and beyond. The City will continue to monitor this situation and report back to the City Council <br /> as necessary. <br /> Budget Approach and Strategy <br /> A goal of the City Council and City Manager continues to be the maintenance of fiscal <br /> sustainability. Staffs approach to the Mid-Term Budget update was to live within the <br /> parameters and staffing levels of the 2014/15FY Budget put forth by staff and adopted by the <br /> City Council in June 2013. We continue to be able to do this through greater operating <br /> efficiencies, implementing operation changes and improved technology, and utilizing contract <br /> services. <br /> Prior to the Midyear Budget Review scheduled in February 2015, department directors are <br /> being asked to review their staffing levels and based on forecasted revenues, staff will <br /> determine if it is the appropriate time to rehire some of the positions frozen over the past seven <br /> years. If it is determined that the City should rehire some positions, staff will bring forward <br /> these recommendation for Council's review and consideration during the Midyear Budget <br /> Review in February 2015 and/or part of the next two year budget cycle which begins in July <br /> 2015. <br /> Operating Budget <br /> The recommended adjustments included in this 2014/15FY Mid-Term Budget Update (Section <br /> I of this report) keep the budget in balance, maintain strong reserves, and are in conformance <br /> with all of the City Council's adopted financial policies. This budget update responds <br /> appropriately to current economic realities, and positions the City to provide public services as <br /> needed in the next year and beyond. The budget update continues the City's philosophy of <br /> fiscal discipline, attention to the Council's priorities, established performance measures, and <br /> living within our means. Finally, as labor contracts expire we are continuing the goal of <br /> achieving meaningful employee-employer cost sharing of the cost of benefits and the <br /> implementation of a two-tier pension and retiree medical system. <br /> Capital Improvement Program <br /> The Mid-Term Capital Improvement Program (CIP) has been prepared with a focus of <br /> adhering to the current CIP budget; therefore, only three new projects have been added to the <br /> CIP and two projects have been amended to reflect increases in funding reserves. As a result <br /> of this approach, the Mid-Term budget for the 2014/15FY includes $12,261,136 of project <br /> expenditures as compared to the originally adopted budget of $9,832,774. A majority of the <br /> 2 <br />