FY 2009 Second Quarter Update and FY 2010 & FY 2011 Forecast February 10, 2009

2 The Update  Uncertain Economic Climate  State Budget – No Good News  FY nd QTR Update  FY 2010 & FY 2011 Forecast  Budget Process & Calendar  Economic Development  Local stimulus  Council comment on direction

3 An Uncertain Economic Outlook  National economy still failing  Rapid financial sector collapse  Restricted credit – no lending  Property and auto sales dropping  Unemployment at 10% soon  CA Retail Vacancies  2001 = 6% 2009 = 13%

4 An Uncertain Economic Outlook  2-3 year recovery?  Perhaps a different kind of recovery? V versus L shaped path  Personal income for goods down  Retail industry shrinking  (thousands of shopping malls to close)  Property tax growth slowed

5 Federal Stimulus Hopes  The House version includes…  $31B to states, local governments & non-profits Investments for infrastructure Emergency assistance to families & individuals $1B in new, 1-time CDBG funding  The Senate version may be different  No new CDBG funding  No meaningful affordable housing funds

6 Bad News from the State -$17B FY $25B FY $42B Deficit (23% of budget!)  Cash flow problems (funding deferrals)  Potential State solutions  Cuts to Health & Redevelopment  Bond against lottery  Sales tax temporary increase  Spending cap  Need budget reform

7 More Bad News from the State  More State cuts now…  Parking Fines – new legislation Loss of $3/citation = loss of $1M/year Increase fines to recoup loss  DMV fees & reduced City revenue  Frozen CIP & transportation funding  Health & mental health grant reimbursements We are managing State cuts through immediate expenditure reductions.

8 FY09 2nd QTR Results Worsen Overall revenue loss of - $2.4M  Property Transfer Tax down 45% (-$3.0M)  Sales Tax down 2.6% (-$500,000)  Parking Meter revenue down 7% (-$400K)  Property Tax growth slowed  Permit Activity down

9 GF Revenue Forecast  Declines:  Property Transfer Tax  Sales Taxes  Vehicle In-lieu Tax  Parking Fines  Increases:  Transient Occupancy Tax  Ambulance Fees  Other Revenue  And property tax is still growing…

10 Property Transfer Tax Decline  Real estate market collapsed  45% Revenue DECLINE

11 Property Sales Tax Decline Changes since last year (FY 2008):  Total Property Sales down 45%  Commercial Property Sales down 77%  Residential Property Sales down 31%

12 Decline in Assessed Value Growth

13 Immediate Actions  Hiring Freeze  Deferring capital projects  (pending State $)  Limit overtime spending  Limiting non-essential expenses  Passage of Measure GG helps now  fully fund Fire Department staffing  prevent fire station closures

14 How is FY09 2nd QTR spending?  Hiring freeze = salary savings  Savings help offset revenue losses General Fund - $2.37M revenue +$2.28M savings (-$90K gap)  Next 6 months uncertain  State budget?  Federal stimulus?  No budget increases

15 FY 2010 & FY 2011 Outlook  Revenues down  State uncertain  Economy uncertain  Not a time for growth  Available capital funding reduced  Reductions needed for all funds

16 Policy Framework  1-time revenue for 1-time expenses  Long-term fiscal health  2-year budget  5-year planning (focus on year 3 impacts)  Prudent Reserve  Control labor costs – minimize layoffs  Manage unfunded liabilities  No new programs without new revenues or expenditure cuts  Balance grant and enterprise funds

17 2-YR Budget…3-YR Problem PERS rate spike in FY 2012  Need GF reductions over 3 years of 6%  Year 3 reflects PERS rate spike  Assumes CIP funding reductions

18 Other Revenue Funds Face Deficits  Public and Mental Health Funds  Expenditure cuts  Streetlight Assessment Fund  Possible General Fund subsidy increase  Refuse Fund  Rate increase in FY 2010: 15-30%  Clean Storm Fund  Ballot in FY 2010  Permit Service Center Fund  Expenditure cuts

19 What are the Next Steps?  Plan for long term  Control costs  Continued budget review  Discuss with labor unions & employees  Council workshops focus on…  key program areas  performance outcomes  Prepare for Federal stimulus package

20 Goals & Values  Maintain City’s long-term fiscal health  Provide quality services to residents  Recognize the exceptional work our employees do

21 Budget Calendar & Workshops

22 Program Focus: Economic Development  Regional economy is struggling  What are Berkeley impacts?  Business downturn  Job losses  What can we do locally?  Council comments on direction