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BACKGROUND The proposed budget is the City's comprehensive financial plan for all programs and services for FY 2015/16 and FY 2016/17. Staff is recommending that the Operating Budget be adopted as presented at the Council meeting on June 2, 2015. DISCUSSION The Operating Budget maintains core service levels, and addresses all new program and project initiatives prioritized by the City Council. In addition, the Operating Budget allocates a total of $3.5 million towards reducing the City's unfunded pension related liabilities and $6.4 million to the City's Capital Improvement Program (CIP). The City is well positioned to capitalize on the economy as it continues to improve. The City is moving forward with the development of numerous housing projects 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. Commercial vacancies are down as companies are deciding to locate in Pleasanton, the City's unemployment rate is 3.7%, down from a high of 8.8% in 2010, and median home prices are the highest they have ever been. As a result, the City's General Fund revenues are projected to increase by 6% over the FY 2014/15 mid-year budget and 3.5% over the FY 2015/16 proposed budget. Operating Budget Overview The Operating Budget as presented is balanced. In addition, the General Fund reserves will be $17.6 million by 6/30/2017 or 17% of operating revenues in the General Fund for unforeseen emergencies. These funds can be called upon if needed to keep the Operating Budget balanced. In addition, it provides funding to address City Council priorities, increases funding for capital projects, and reduces the City's unfunded pension related liabilities. Overall, the Operating Budget is projected to be $178 million in FY 2015/16 and $184 million in FY 2016/17 which represents a 0.45% decrease and a 2.9% increase, respectively, from the FY 2014/15 Midyear Budget. While the total operating budget decreased by 0.45% from FY 2014/15, there are several increases in the FY 2015/16 and FY 2016/17 operating budgets related to salary and fringe benefits pursuant to adopted labor agreements as well as increased PERS pension and Retiree Health (OPEB) contribution rates. In addition, through the use of fund balance, the FY 2015/16 Operating Budget includes $1,077,017 for the financial and human resources system upgrade and $1,250,000 for replacement fire trucks. These increases are off-set by a decrease of $9.6 million associated with the one-time FY 2014/15 Special Revenue Fund allocation to the Kottinger Place and Pleasanton Gardens Housing Project. A more detailed discussion of the proposed two-year Operating Budget is contained in Attachment 2, Budget Summary. Page 2 of 5