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BACKGROUND The Proposed Operating and Capital Budget includes a comprehensive detailed account, forecast and plan of all City revenues and expenditures across all funds, including the General Fund, Enterprise Funds, Internal Service Funds, Special Revenue Funds, and Capital Projects Funds. Both the Two-Year Operating Budget and the CIP documents include narratives and details that provide information regarding budgetary adjustments, issues, and goals. Please refer to the budget messages in the Proposed Operating Budget and the CIP for highlights. As with all City budgets, this document focuses attention on those areas deemed by the City Council to be a high priority. As a result, the Proposed Budget maintains existing service levels and meets capital needs in a way that addresses not only new programs and capital improvement projects but also a wide range of maintenance projects related to facilities, roadways, parks, and water and sewer systems. In this way, the Budget meets the goals of the City Council and the community. DISCUSSION This report includes a set of recommended adjustments to the Proposed Budget. While the Proposed Budget and the CIP documents were being finalized in late April, staff became aware of a few cost increases. First, the City's general liability insurance premium amount (preliminary estimate) for FY 2023/24 was recently made available by the Bay Cities Joint Powers Insurance Authority (BCJPIA); premiums are scheduled to increase by 31.6 percent to almost $4.3 million next fiscal year. This increase is greater than what was estimated and included in the Proposed Budget. Staff is working with BCJPIA to refine the number, and staff believes the proposed adjustments should be sufficient to cover the costs for FY 2023/24 and FY 2024/25. Second, based on staff's most recent analysis of anticipated costs for existing and upcoming litigation and claims, the City's legal costs for the next two years are expected to be more than budgeted. Staff identified adjustments in the Proposed Budget to offset these two areas of increase to keep the General Fund budget balanced. These recommended adjustments are found in Attachment 3. Staff originally presented recommended updates to the existing reserve policy at the April 18, 2023, budget workshop. Based on the City Council's comments, staff updated the reserve policy to add clarity on the use of excess fund balance. The revised policy also clarifies that the General Fund reserve should be calculated using the next fiscal year's budget or the current fiscal year budget if next year's budget is not available. The final version of the reserve policy is presented in Attachment 4 and in Appendix C of the Proposed FY 2023/24 and FY 2025/26 Operating Budget document for review. As previously indicated, this agenda item is intended to be informative by providing the City Council and the public with an opportunity to review recommended expenditures, revenues, and assumptions. In addition, it provides the City Council with an opportunity to request additional information, if necessary, prior to the adoption of the Budget, which is scheduled for June 6, 2023. Staff intends to provide presentations covering all aspects of the Proposed Budget and CIP. Page 2 of 3