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BACKGROUND The City maintains an ongoing review of City finances involving annual, Mid-Year and quarterly reviews of operating and capital budgets. The goal of these reviews is to make adjustments as necessary to reflect changes in revenues and operating expenses. Currently, the City is operating with the Budget adopted in June 2007 covering FY 2007- 08 & FY 2008-09. In June 2008, the Council approved aMid-Term Budget update that included adjustments to the Budget's current year. Since that time, there have been a number of budget amendments for approved carryovers and various agenda actions accepting grants and other changes. This report recommends additional Mid-Year adjustments to revenue estimates and expenditure appropriations. While the primary focus of this report is the City's General Fund, which receives revenue from a range of taxes and fees, also addressed are other City funds including Special Revenue Funds where revenues are restricted for specific purposes and Enterprise Funds, such as sewer and water operations, which receive funding primarily from user fees. During the past year, there have been significant financial issues that have impacted not only the City and the region, but the State and the Country overall as well. Unfortunately, these issues have impacted the City's finances and result in the need to make revenue and expenditure adjustments. Fortunately, the City maintains financial policies that are effective in controlling the immediate impact of this financial downturn. In general, these policies will allow budget re-balancing actions without a reduction of services or personnel. Some examples of these policies include the establishment of specific reserve accounts for addressing temporary recessions and economic uncertainty, conservative investment practices and ongoing financial reviews. Financial policies also require the maintenance of various replacement/renovation funds that provide ongoing replacement of equipment, vehicles, streetlights, traffic signals and to make major repairs and renovations to buildings, parks and medians to extend their useful lives. Because these funds referred to collectively as the Replacement Plan and have a 20 to 30 year cash flow focus, they are a valuable financing tool that can be used to smooth out downturns in general revenues by reducing contributions in difficult years and pre-funding contributions in positive years. In preparing this Mid-Year report, staff has adhered to the City's financial policies and has used them to effectively address the current financial condition. DISCUSSION -OPERATING BUDGET Most, if not all, California cities are experiencing a reduction in general revenues that are reflective of issues in the overall economy and the real estate market. Pleasanton is not immune to this situation and has experienced revenue reductions that warrant a $4,992,198 reduction in 2008-09 General Fund revenue estimates. Tax revenue from property, sales, hotel, and business license tax sources and development services fees account for $4,572,909 (92%) of this recommended adjustment. The reduction in estimates for vehicle license fees ($241,000), franchise fees ($57,383), and recreation revenues ($62,909) account for remainder of the recommended revenue adjustments. The reduction in the revenue estimate of $4,992,198 is somewhat mitigated by our reserve policy which calls for the Reserve for Economic Uncertainty to equal 10% of General Fund revenues. When total revenues are adjusted up or down this reserve is adjusted to maintain an amount equal to 10% of the revenue estimate. After this is Page 2 of 10