May 6, Proposed Operating Budget Overview City of San José

PROPOSED CITY BUDGET 1 :$2.9 billion TOTAL NUMBER OF FUNDS:111 TOTAL NUMBER OF EMPLOYEES:5,928 City of San José Budget Overview Slide 1 1 An adjustment of $576 million is necessary to arrive at the $2.9 billion net Proposed City Budget to avoid the double-counting of transfers, loans, and contributions between City funds.

Proposed Budget Overview Slide 2 General Fund projected surplus of $9.4 million allocated All special and capital funds brought into balance Targeted investments in: Improving Safety Through Investments in Police and Fire Operations A Safer, Smarter San José Restoring Basic City Services Broadening Opportunity and Prosperity/Boosting Vitality Engaging the Community Our Future Employee compensation increases included in all funds to support modest pay increases Positions are up 2.9%, from 5,759 to 5,928

General Fund Forecast Incremental General Fund Surplus/(Shortfall) Slide 3 * Excludes Development Fee Programs and was revised from the $8.6 million surplus presented in the February 2015 Forecast based on continued analysis. With a surplus of only $20,000 in the Development Fee Programs, the General Fund surplus addressed in the Proposed Budget remains at $9.4 million. Does not include: -Elements of the Fiscal Reform Plan that are not yet implemented -Fully funding the annual required contributions for retiree healthcare -Services funded on a one-time basis in Restoration of key services to January 2011 levels -Costs for a Police Staffing Restoration Strategy to increase sworn positions from 1,109 to 1,250 -Costs associated with unmet/deferred infrastructure and maintenance needs -One-time revenues/expenses

Proposed Budget – General Fund Funding Sources Slide 4 TOTAL GENERAL FUND SOURCES: $1,034,527,319

Proposed Budget – General Fund Uses Slide 5 TOTAL GENERAL FUND USES $1,034,527,319

Proposed Budget – General Fund Uses by Category Slide 6 TOTAL GENERAL FUND USES $1,034,527,319

Budget Balancing Strategy General Framework and Policy Direction Mayor’s March Budget Message as approved by the City Council (March 2015) Budget Balancing Strategy Guidelines contained in the City Manager’s Budget Request as approved by the City Council (March 2015) Guiding Principles for Restoring City Service Levels as approved by the City Council (March 2012) City of San José Budget Principles as approved by the City Council (March/Sept. 2008) Slide 7

Budget Balancing Strategy General Fund Ongoing Total General Fund Surplus$ 9.4 M$ 9.4 M Recommended Balancing Strategy – Changes in Sources$ 40.0 M$ 6.2 M – Changes in Uses 49.4 M 15.6 M Total Balancing Strategy$ (9.4 M)$ (9.4 M) Remaining Balance $ 0.0 M $ 0.0 M Slide 8

Budget Balancing Strategy Changes in General Fund Sources Ongoing Beginning Fund Balance Police Staffing/Ops & Overtime Reserve $ 12.0 M $ 0 Homeless/San José BEST Reserves5.0 M0 Development Fee Program Reserves2.5 M2.0 M Future Deficit Reserve2.4 M Paramedic Program Revenue1.5 M0 Various Other Reserve Eliminations5.3 M0 Additional Ending Fund Balance0.8 M0 Grants/Reimbursements/Fees1.9 M2.7 M Other Revenue Changes6.8 M0.6 M Overhead/Transfers from Other Funds1.8 M0.9 M Total Change in Funding Sources$ 40.0 M$ 6.2 M Slide 9

Budget Balancing Strategy Changes in General Fund Uses Ongoing Service Level Enhancements$ 24.0 M$ 6.8 M Earmarked Reserves 12.8 M One-Time Funded Services 7.7 M7.2 M Other Fee Programs/Grants/Reimbursements4.4 M0.8 M Unmet/Deferred Infrastructure/Maintenance3.9 M0 Development Fee Programs2.1 M1.7 M Funding Shifts from Other Funds/Other0.9 M0.7 M New Facilities Operations and Maintenance0.5 M1.4 M Use of Reserves (6.9 M)(3.0 M) Total Change in Funding Uses$49.4 M$15.6 M Slide 10

Slide 11 Recommended Budget Actions Improving Safety Through Investments in Police and Fire Operations Police Field Patrol Community Service Officers Police Overtime and Downtown Police Foot Patrol Program Police Recruitment and Background Services Crime Prevention Program Police Protective Equipment Silicon Valley Regional Communications System Reserve Police-related Capital Projects (PAB roof & parking lot fence, Fleet Mgmt. System) Police Civilian Staff (Crime Analysis Unit, Bureau of Investigations – Video Evidence, Gang Investigations Unit, Field Training Officer Program) Technology Improvements (Field Patrol Mobile Data Computers, Communications Phone System, Computer Aided Dispatch Business Intelligence, Fire Information Technology staffing, public safety vehicle mobile connectivity) Staffing for Adequate Fire and Emergency Response (SAFER) Grant Reserve Fire Fighter Recruit Academy and Fire Engineer Academy Training

Slide 12 Recommended Budget Actions A Safer, Smarter San José San José Best and Safe Summer Initiative Programs San José Works Illegal Dumping Rapid Response Program Transportation Safety and Education Staffing Code Enforcement Multiple Housing Program Support Staffing Sidewalk Repair and Inspection Program

Slide 13 Branch Libraries Open 6 Days/47 Hours per Week Parks and Community Center Programming Development Fee Program Additions Preventative Maintenance Program City Tree Maintenance Capital Infrastructure Improvements Human Resources/Payroll/Budget Systems Enterprise Asset Management System Office 365 Licensing Ugrade City-Wide Hiring and Recruiting Strategic Support Resources (Human Resources, Information Technology, Finance, City Attorney) Recommended Budget Actions Restoring Basic City Services

Slide 14 Homeless Response Team/Rapid Rehousing Programs San Jose Learns Office of Immigrant Affairs Small Business Activation and Assistance Manufacturing Jobs Initiative San Jose Creates and Connects Independence Day Celebrations Community Network Upgrades St. James Park Activation Lake Cunningham Bike Park and Skate Park Recommended Budget Actions Broadening Opportunity and Prosperity/ Boosting Vitality

Slide 15 Silicon Valley Talent Partnership PBCE Website and Graphics Coordinator Civic Innovation Strategic Partnerships Funding Reallocation Essential Services Reserve Recommended Budget Actions Engaging the Community

Slide 16 North San Jose Development Policy and EIR Update Envision San Jose 2040 General Plan Four-Year Major Review Long Range Planning Project Staffing U.S. Patent and Trademark Office Airport Investments to Promote SJC Ballot Measure Polling Water Conservation Efforts Water Pollution Control Plant Capital Improvement Program Staffing Single Family Dwelling Waste Materials Processing – Phase II Recommended Budget Actions Our Future

Slide 17 Recommended Budget Actions Other Budget Actions Recycle Plus Single Family Residential Payments Transition to Property Tax Bill (effective July 2015)  eliminate City positions that supported this function  eliminate late fee revenues and transition most services to the General Fund (e.g., City facilities waste collection and illegal dumping) or eliminate programs previously supported by unrestricted late fees (garbage rate assistance programs) Final Year of Three- Year Funding Strategy for Children’s Health Initiative (Transitioned to County) Successor Agency City Subsidy (Administrative Support) Reduction

Recommended Budget Actions Fee and Charges Adjustments Utilities: –Storm Sewer Service Fee: No increase –Sewer Service and Use Charge Fee: 5.5% increase –Recycle Plus Rates: 3% increase for single-family; 5% for multi-family –Municipal Water System Rates: up to 29% estimated increase primarily due to the higher cost for wholesale water and water conservation program enhancements Development Fee Programs: No general fee increases Other Fee Programs: Fee changes to generally maintain or improve cost recovery Slide 18

Looking Forward Budget expected to be relatively stable over the next several years. “Service level deficit” remains: Absent new revenues, services will remain well below what the community deserves and expects from the City. City will continue its commitment to financial discipline; focusing our resources on enhancing service quality and strengthening our economic foundation. Slide 19

Slide 20 Next Steps through May 26 th Community Budget Meetings May 6 th through 14 th City Council Budget Study Sessions May 12 th /June 8 th Public Budget Hearings May 29 th Mayor’s June Budget Message Released June 9 th Council Review/Approval of Mayor’s June Budget Message and Budget June 23 rd Adoption of the Budget and Fees and Charges

GDP Growth Strong in 2014, Forecasted to Remain Strong in 2015 Source: Bureau of Economic Analysis (BEA) Growth Rate Slide

Source: EDD San Jose Metropolitan Statistical Area (MSA) Job Growth Leading the Nation in Metro Job Growth Slide 22 Year-Over-Year San Jose Area Jobs (Gains/Losses)

Regained Nearly All Jobs From DOT.COM Peak Source: EDD San Jose MSA Employment 1,048,300 Mar 2015 Pre-Recession Peak 938,300 June 2008 Trough 853,800 Jan 2010 Slide 23

Source: EDD Employment Growth Mar Mar 2015 Continued Year-Over-Year Growth All Sectors Slide 24 San Jose MSA Employment

Local Unemployment Rate Below Nation Source: EDD Unemployment Rate San Jose City 4.6% San Jose MSA 4.2% 5.6% Nation Slide 25

Consumer Sales Grew 7% in 2014 Source: Board of Equalization & HdL Companies San Jose MSA Taxable Sales Billion ($) 2011 Slide

Source: DTZ Cassidy/Turley Commercial Vacancy Rates, San Jose 5.0% SV Avg. 9.7% SV Avg. 10.9% SV Avg. Manufacturing Vacancy Rate Tight, San Jose Office & R&D Still Lag Region Slide 27

Home Prices Increase 6% Year-Over-Year Source: SCCAOR Single Family Homes Sales in San Jose Median Sales Price ($,000) Jan 2008 $664,444 Trough Feb 2009 $406,000 Mar 2015 $801,000 Slide 28 Mar 2014 $755,000

Reaching full employment nationally ( ) Credit markets improved Wages and Consumer incomes trending up Global economy still wobbly Valley jobs forecasted to grow 2-3% annually over next two years Local Consumer sales expected to grow modestly between 4-5% Local Non-Central Business District Office vacancy rates are expected to rise in R&D and Office vacancy in Downtown Districts continue downward decline What Can We Expect? Slide 29

May 6, Proposed Operating Budget Overview City of San José