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~i ":r ~,~f~~;~,~-T-~~,~. I N T R O D U C T I O N City Manager's Budget Message OVERVIEW I am pleased to present the Proposed 2007-08/2008-09 Budget. The City of Pleasanton has a tradition of long-range financial planning, which has been invaluable in helping us provide sustainable services to the community. This budget continues the City's practice of providing high quality municipal services while maintaining an ability to adapt to local, regional and statewide economic issues and challenges. This budget also provides a financial education for the reader: it covers our budget history, policies and goals; describes all revenue sources and department functions; and forecasts revenue and expenditure trends over the next several years. The budget will be discussed in a City Council study session on June 12, 2007 and is scheduled for adoption on June 19, 2007. BUDGET PLAN SUMMARY This budget maintains core service levels, addresses new program and project initiatives prioritized by the City Council and implements measures to promote long-term fiscal stability. These goals can be achieved with a spending plan that still operates within our fiscal means. Careful planning and a diversified local economy have allowed us to balance this budget without reductions in service. Locally, Pleasanton's economy remains strong. The City's unemployment rate (currently 2.2%) is consistently below County and State averages. The local real estate market is competitive, with home values typically above the median for the State and region. Commercial vacancy rates have stabilized around 11 % over the past several quarters, and the rate remains very favorable compared to the 18% rates experienced during the economic downturn from 2001-2004. Local companies are expanding and other well known companies are relocating to Pleasanton; in fact, a key challenge for the City is to assist in identifying sufficient commercial, office and industrial space for those firms. The City's economic base continues to diversify, further strengthening Pleasanton's position as a center for innovation and entrepreneurship, in such areas as scientific and biomedical products and services, business operations, information technology products, and specialized engineering and consulting services. Nonetheless, the City still faces fiscal challenges as the cost of providing services to the public continues to rise. This is compounded by costs that have grown at a rate greater than inflation. Amain contributor to this increase was the dramatic escalation of employee pension costs brought about by changes in benefit levels, coupled with market losses for the Public Employee Retirement System (PERS). The situation has stabilized as a result of the introduction of a new PERS formula for calculating pension contributions that reduces volatility, and, most importantly, an improvement in the investment return in recent years. xvii