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The line-item budget requests prepared by the departments have been bound together in a second document, the Budget Workbook. This Workbook is intended to provide the program and line- item detail used by the City Council and public for initial review of the budget. In addition, the Workbook is used as a reference by the departments throughout the two budget years. Staff is once again recommending that the City Council adopt a two-year operating budget, with quarterly updates and a mid-term review. Therefore, the following Budget Plan summarizes the City's current financial position and proposes suggested services for the upcoming two years. The Budget preparation process and the budget calendar are described in more detail in Appendix B. III. FINANCING THE BUDGET PLAN The City's financial goal is to support and enhance services to the community with locally generated revenue. While Pleasanton's General Plan sets the framework for a diverse revenue system, many factors impact Pleasanton's finances, including external circumstances over which the City has little control. While the San Francisco Bay Area's economy is still feeling some lingering effects of the "dot com" bust, the East Bay including Pleasanton has fared better than much of the region. Of the over 18 million square feet of commercial space in Pleasanton's business/industrial parks and mall area, approximately 87% is occupied. While business to business taxable sales transactions are down significantly from their high, the diversity of Pleasanton's sales tax base has resulted in a gradual recovery. This is an important change, as sales tax is the City's second largest revenue source. Hotel taxes in Pleasanton experienced a significant decline (25% in 2001-02) like much of the Bay Area. Revenues continued to decline through 2003-04, and only this last fall (late 2004) starting to show some increases. Property tax revenues are the primary funding source for Pleasanton's General Fund. This revenue source has grown significantly with new commercial development in the last few years, as well as the strong resale housing market, and the recent completion or near completion of residential projects such as Bridle Creek and the Bernal property. While commercial development has slowed significantly, some housing development continues, including the early stages of Vineyard Avenue corridor development, Sycamore Heights and Mariposa Ranch in south Pleasanton, and Ironwood at the Busch property. Quite significantly, housing resales continue to set records in the Bay Area, including Pleasanton. Unless there is a sudden significant decline in property values due to market or other external factors, Pleasanton should experience continued growth in property tax revenues for the next few years. However, as Pleasanton approaches full buildout of its General Plan, the year to year increases will likely be less than experienced in years of more significant growth. Even without growth and only a "normal" resale market, City staff projects that property tax revenues would still trend on average toward an annual 4.5 to 5% growth rate. In addition, with the high demand for land in the Bay Area, older developments in Pleasanton will naturally start undergoing a reformation that will contribute to stronger property and sales tax bases. Some of this has started already, as evidenced by the demolition of the Galaxy Theatre and recent studies to determine the feasibility of high density housing in underused areas b-6