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General Fund Reserve Designations -Recommended changes to General Fund Reserve Designations affect the Reserve for Carryovers, the 10% Reserve for Economic Uncertainties, the Capital Projects Reserve, and the Temporary Recession Reserve. The recommended adjustment to the Reserve for Carryovers is a net reduction of $1,310,377 which is comprised of the net of carryover appropriations of $1,342,721 in expenditures and an increase for carryover for grants of $32,344. The recommended adjustment to the 10% Reserve for Economic Uncertainties results in a reduction of $470,000 due to total revenues being reduced from the Mid-Term Budget. When total revenue estimates are reduced it requires a change in the reserve to remain at a 10% level. As a result, the 10% reserve will change from the $9.4 million approved in the Mid-Term Budget to $9.1 million. Another recommended adjustment involves the $3 million one-time transfer from the Capital Projects Reserve to the Capital Improvement Program (CIP) approved in the Mid-Term Budget and redirecting that back into the Temporary Recession Reserve. This will result in a Temporary Recession Reserve balance increasing from $7.9 million to $10.9 million. Enterprise Funds Water Operations and Maintenance Fund -The Water Enterprise revenue for sale of water to customers is being reduced $1 million, to $15.5 million. The adjusted revenue is more in line with the revenue generated in the prior year and YTD trends. The original FY 2008-09 budget was developed in early 2007 when a rate adjustment was anticipated. The water rates are currently being studied and FY 2009-10 &FY 2010-11 budgets will reflect any change in the rate. Metered water revenue and the sale of construction water meters are also being reduced ($40,000 and $4,500, respectively) as a result of the current economic downturn. The cost to purchase water is being increased $2.5 million, to $13 million, which is a reflection of higher than anticipated Zone 7 water rate increases and higher than anticipated consumption. Budgeted labor costs are being increased $67,000 but are somewhat mitigated by other minor operating cost savings of $14,000. Page 7 of 10