May 23, 2012

ISF & Cost Allocation Distribution of Costs (120 Day Review - Aug. – Dec., 2012) Overview Budget Picture Public Works & UP&P $3.8 Million Shortfall Mayor’s Reductions (Initial and Additional 3%) Department Presentations (Service Enhancements, Reductions, Impacts and Revenue Enhancements) UP&P - Workload/Workflow of Capital Improvement Support Fund Mayor’s Closing Comments Finance Committee Deliberations and Policy Considerations

Internal Service Fund (ISF) Cost Allocation Service Credits Direct Billing The City of Modesto utilizes 4 methods to distribute costs for services. These methods are industry standard and supported under Government Accepted Accounting Principles (GAAP)

Internal Service Funds Funds used to account for goods or services provided by one dept to another dept on a cost reimbursement basis. Cost Allocation Plan A method to identify and distribute indirect costs from support depts to those depts they serve. Service Credits An signed agreement between depts to provide labor, equipment, supplies and material costs as agreed upon in advance. Direct Invoices Invoices related to a service or charge provided or directed by another dept may be directly invoiced to the consumer dept.

DepartmentsISFCost Allocation Service Credits Direct BillingComments City ClerkXX City AttorneyXXX City AuditorX City CouncilX City ManagerXX PRNXX HRXXX FinanceXX ITXXX PoliceXX

Complex allocation models Not 1 for 1 reductions – Costs savings are not specific to General Fund (i.e., 40% General Fund to 60% Enterprise Fund) Plan to address distribution of cost models (Aug. -Dec., 2012) City Manager will request the City Council direct the City Auditor to review and make recommendations to current allocation models.

Continued challenges Expenditures still exceed revenues Service levels remain flat but needs are evident Water & Wastewater stable - Future rate increases being proposed Salary & Benefits (contractual raises, increased pension costs, retiree health care costs projected to increase annually) MPOA – 2% August, 2012 – Estimated at $310,052 MPMA – 2% August, 2012 – Estimated at $82,571 MCFFA – 3% July, 2012 – Estimated at $460,898 No furlough savings are currently budgeted Obligations to JPA/MRFA

City of Modesto has received and is reviewing the preliminary MRFA budget for FY13. Capital equipment needs will need to be discussed and addressed. Larger increases include: Pension Increase - $480,000 3% Raises July, $460,000 Airport Staffing - $160,000

Notes:Revenues include Transfers In Transfers Out include:Debt Service - $3,400,801 Surface Transportation MOE - $1,687,715 4th Year of PD ARRA Grant - $986,000 Mayor's Recommended Reductions or Enhancements Are Not Included

Reduction Worksheets

Freezing of Vacant Positions (May-Sept) Additional 3% Reductions (Invoked if concessions are not reached) August 28, 2012 Temporary Savings on EBF and WC (To fund shortfall temporarily through negotiations) Anticipated Negotiated Savings Obtained Via Labor Agreements

Thank you & Questions