Fiscal Year Budgetary Update Report to the Cottonwood City Council – February 17, 2009

Background to the Problem Fannie Mae and Freddie Mac were encouraged and even required to issue loans and mortgages to people who could not possibly afford to pay them back. These mega-millions of dollars of bad loans are the main cause of our economic meltdown.

Background to the Problem Additional issues with the economy: Banks have tightened credit Some banks filed for bankruptcy Stock market decline Those businesses that are still open are struggling to stay afloat Rising unemployment Slowdown in retail sales We are in a downward spiral

Issues Facing the City Slowdown in retail sales (less local sales tax) Comparing the 2.2% November Sales were down 11.3% over last year Smaller stores are closing down or struggling Auto sales are less than ½ of what they were two years ago State shared sales tax is down (-10.23%) State shared income tax is anticipated to decline dramatically the next few years

Issues Facing the City Unemployment is rising – December figures United States – 7.2% Arizona – 6.9% Prescott Area – 7.3% Demand for services are expected to increase as the economy worsens We are in a downward spiral, too

What is our Fiscal Status General Fund revenues are estimated to be down by 7.3% or $1.44M Our primary source of revenue, local sales tax is down by over 11% The.8% increase is not coming in as anticipated Any revenue related to construction is also lower than anticipated State shared revenues are way down It is not expected to get much better next year.

The City of Cottonwood Plan Budgetary reduction of 5% across the board Earlier, filling vacancies was delayed for days Already we are not filling any positions (unless currently in the queue) through the end of the year Reduced travel and training budgets

The City of Cottonwood Plan Reduced operating supplies Reduced or eliminated continuing education for employees Eliminated any chance of Cost Of Living Adjustments (COLA) Eliminated the Undesignated Reserves

The City of Cottonwood Plan Eliminated the Impact of Growth Study Reduced or eliminated many equipment purchases Eliminated the compensation study Reduced council and manager’s contingency

The City of Cottonwood Plan Reduce the GRL sales tax reimbursement amount Eliminated a City-wide asset inventory Reduced overtime in some departments Reduced other O&M costs

The City of Cottonwood Plan What was the current status of the plan: Departments reduced their budgets by 6.7% or $1.32M The remaining shortfall of $120k can be absorbed by the General Fund balance We will continue to monitor revenues and expenditures for changes as the budget season moves forward

The City’s Future The downside of the near future State shared revenues will be lower Local sales tax are expected to continue to suffer Departments may need to reduce some non-essential services Departments may need to review staffing pattern We may need to tap into City reserves

The Future The upside of the near future City will see a full year of the.8% sales tax A new recreation center is currently being built City is moving forward with capital projects President Obama signed a Stimulus Plan We have reserves