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BACKGROUND The proposed budget is the City's comprehensive financial plan for all programs and services for FY 2019/20 and FY 2020/21. Staff is recommending that the Operating Budget be adopted as presented at the Council meeting on June 4, 2019. 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 $17.9 million to the City's Capital Improvement Program (CIP) some of which funds projects included in the Two-year Work Plan. The City 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 2.7 percent, down from a high of 8.8 percent in 2010, and median home price of $1,155,000 is the highest it has ever been. Unfortunately, sales tax revenues are stagnating as a result of increased regional shopping competition and consumers continued shift to on- line sales. The City's FY 2019/20 General Fund revenues reflect a mixture of projected increases in property taxes, hotel taxes, and business license taxes that are off-set by a slight decrease in sales taxes that results in an overall 3.9 percent increase in General Fund revenues over the FY 2018/19 Mid-year Budget. Operating Budget Overview The Operating Budget as presented is balanced. In addition, the General Fund reserves will be $26.8 million by 6/30/2020 which is equal to 22.2 percent of operating expenses. The City's reserve policy requires reserves equal to a minimum of 20 percent of operating expenses with a target of 25 percent. Overall, the Operating Budget is projected to be $189.7 million in FY 2019/20 and $194.3 million in FY 2020/21 which represents a 2.4 percent increase from the FY 2018/19 Mid- year Budget and another 2.4 percent increase from the FY 2019/20 budget. There are several increases in the FY 2019/20 and FY 2020/21 operating budgets related to salary and fringe benefits pursuant to adopted labor agreements as well as increased PERS pension contribution rates. A more detailed discussion of the proposed two-year Operating Budget is contained in Exhibit A, Budget Summary. Operating Budget Recap The Operating Budget is comprised of the General Fund which include: most operating services that the City provides (e.g. Police, Fire, Library, Recreation Services); the Enterprise Funds (Water, Sewer, Golf) which are funded from user rates and charges; 1 Includes transfers out from the General Fund, Sewer Fund, Storm Drain Fund and Water Fund. Page 2 of 5