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extend their useful lives. Because these funds referred to collectively as the Replacement Plan, 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. Assuming that conditions do not worsen, we will produce a balanced budget over the coming two fiscal years by utilizing the following five key budget goals as a compass in allocating available resources. Meet essential public safety needs fully • Maintain core service levels by maximizing available personnel and financial resources Incorporate innovation to meet all service levels and minimize ongoing expenses Pursue cost recovery strategies Preserve existing financial policies These objectives will allow the City to prevent any interruptions in services in a cost effective manner. Thanks to responsible fiscal planning the City of Pleasanton is in a better position than many cities struggling through this economic downturn. However, we are not without a number of potential financial challenges that we may face in the future. The depth and extent of the economic downturn, the State budget implications, future labor costs, CaIPERS rate increases, and increased retail competition in the Tri-Valley area may add pressure in keeping the operating budget in balance. The next two year budget cycle will certainly be difficult for the City. If economic conditions worsen, the City will have the ability to adjust revenues and expenditures on quarterly basis reflect unforeseen impacts. During these quarterly intervals we will monitor whether more drastic measures are necessary such as further refinement of the above key budget goals, potential service reductions and/or personnel impacts. Respectfully submitted, i 1, ~~ ~ 1, Nelson Fialho City Manager Attachments: (1) City of Pleasanton Mid-Year FY 2008-09 Budget Update 1,~~`~ hn M. Casey d.D. uperintende Page 3 of 3