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Honorable Mayor and Members of the Council: <br /> <br />BACKGROUND <br /> <br />Each quarter a report of financial condition is presented to Council that includes any staff <br />recommendations for budget amendments and technical corrections or actions needed. At the same <br />time that staff was updating the current 2004-05 (FY05) budget, preparation of the upcoming <br />budget for 2005-06/2006-07 (FY06/FY07) was taking place. Due to known State budget impacts <br />in both FY05 and FY06, and increases in PERS rates, it was more advantageous to perform the <br />midyear review of FY05 at the same time as the upcoming budget preparation. This allows the <br />City to take a multi-year approach in smoothing out these impacts. Thus, staff held the midyear <br />process open until the upcoming budget preparation was complete. In addition, since the third <br />quarter is now also complete, the following report includes both the midyear and third quarter <br />FY05 updates combined. <br /> <br />OVERVIEW OF SECOND & THIRD QUARTER 2004-05 (FY05) OPERATING BUDGET <br /> <br />GENERAL FUND <br /> <br />Staff has completed a review of revenues and expenditures in the General Fund FY05 operating <br />budget. The following are the key highlights: <br /> <br />Temporary Recession Reserve <br /> <br /> · The Temporary Recession Reserve was created in 2002-03 to set aside funding to allow the <br /> City time to react to potential revenue reductions due to the State budget and/or the <br /> weakened economy. <br /> <br /> · Since the end of fiscal year 2003-04, the balance in the reserve has been $5.1 million. <br /> <br /> · While not anticipated, it is still not known if there will be additional State budget impacts in <br /> FY06 or FY07, or if the economic recovery will slip. Therefore, staff is recommending that <br /> the Temporary Recession Reserve be kept intact through FY07, as discussed in the two-year <br /> budget document. <br /> <br />Revenues <br /> <br /> · Property related tax revenue estimates are being increased in FY05 by a net $746,000 as <br /> follows: <br /> o Estimates for secured property taxes are being increased by $475,000 and estimates <br /> for supplemental property taxes are being increased by $335,000, both based on an <br /> update provided by the County. <br /> o However, estimates for unsecured and delinquent property taxes are being decreased <br /> by $389,000. <br /> <br />SR 05:166 Page 2 <br /> <br /> <br />