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BACKGROUND The proposed budget is the City's comprehensive financial plan for all programs and services for FY 2017/18 and FY 2018/19. Staff is recommending that the Operating Budget be adopted as presented at the Council meeting on June 6, 2017. DISCUSSION The Operating Budget maintains core service levels, and addresses new program and project initiatives prioritized by the City Council in the Two-year Work Plan. In addition, the Operating Budget allocates a total of $10.3 million to the City's Capital Improvement Program (CIP) some of which funds projects included in the Two-year Work Plan. The City has capitalized on the economy as it grew out of the Great Recession. There have been numerous housing and commercial projects over the past few years that have increased the City's property and sales tax revenues. Commercial vacancies are down as companies are deciding to locate in Pleasanton, the City's unemployment rate is 3.0%, down from a high of 8.8% in 2010, and median home price of $1,028,250 is the highest it has ever been. Unfortunately, sales tax revenues increases are slowing down as a result of increased regional shopping competition and consumers continued shift to on-line sales. The City's FY 2017/18 General Fund revenues reflect a mixture of projected strong increases in property taxes, hotel taxes, and business license taxes that are off-set by a slight increase in sales taxes that results in an overall 3% increase in General Fund revenues over the FY 2016/17 Midyear Budget. Operating Budget Overview The Operating Budget as presented is balanced. In addition, the General Fund reserves will be $21.6 million by 6/30/2018 or 20% of operating revenues in the General Fund as required by the City's reserve policy. Overall, the Operating Budget is projected to be $174.9 million in FY 2017/18 and $172.1 million in FY 2018/19 which represents a 3.1% decrease from the FY 2016/17 Midyear Budget and another 1.6% decrease from the FY 2017/18 budget. While the total FY 2017/18 operating budget decreased by 3.1% from FY 2016/17, there are several increases in the FY 2017/18 and FY 2018/19 operating budgets related to salary and fringe benefits pursuant to adopted labor agreements as well as increased PERS pension contribution rates. These increases are off-set by a decrease of $8.6 million associated with the one-time FY 2016/17 Special Revenue Fund allocation to the Kottinger Place and Pleasanton Gardens Housing Project, $2.9 million one-time allocation to prefund the City's pension liability, $1.2 million for the City's new integrated financial system, Tyler Munis, and $1.4 million in fewer large equipment and vehicle purchases primarily related to LPFD. A more detailed discussion of the proposed two-year Operating Budget is contained in Exhibit A, Budget Summary. Page 2 of 5