HomeMy WebLinkAbout2005-01-24 City Council (8)RECOMMENDATION
Staff recommends that the Finance Committee review and comment on the attached forecast of
revenues, expenses, and reserve levels before the full City Council reviews the plan.
BACKGROUND
A Long Range Financial Plan (LRFP) is presented to the Finance Committee ammally. The
LRFP is designed to identify future financial problems and to alert Council and staff to action
plans to align revenues and expenses. During the past three years, the City has acted through
one-time and permanent revenue and expenditure changes to solve anticipated deficits. In the
2003-05 budget process, for example, the City reduced operating expenses by 5 percent to solve
a long-term structural budget deficit. This included the elimination or freezing of nearly 40 full-
time General Fund positions; implementation of an unpaid furlough; and capping medical
benefits for a majority of employees. Year-end 2003-04 financial results showing a $0.5 million
surplus demonstrate's that the City was successful in balancing its General Fund operating
budget.
The City also has engaged in noteworthy efforts to address long-term structural revenue issues.
Two mayoral committees have been formed to address the concerns of local businesses so as to
maintain a viable economic base that continues to generate sales and other tax revenues. To
forestall the migration of automobile dealerships, signage and other concerns of auto dealers
have been explored and partially addressed. On the expense side, the City has made some
headway in capping health care and is cautiously optimistic that it can make additional progress
in future union negotiations.
DISCUSSION
Unfortunately, the City is faced with another round of significant long-term budget issues. The
LRFP forecast shows net operating deficits ranging from $1.5 million in 2004-05 to $7.4 million
in 2014-15. A perfect storm, if you will, of weak tax and fee revenues, dramatically rising
current employee retiree and medical expenses, and state takeaways of local revenues has further
eroded the City's fiscal condition. , The duration of the weak economy and the repeated, steep
increases from the Public Employees Retirement' System (PERS) have far exceeded the best
information available at the time the 2004-05 budget was built. These issues are explored in the
attached chapters of the Long Range Financial Plan and an explanation for why the forecast for
2004-05 and 2005-06 has changed significantly from that shown in the 2004-05 budget
document is provided.
Faced with annual deficits of$1.5 million to $7.4 million over the next ten years, the City of
Palo Alto will act, as in years past, to balance its budget. The difference this time is that service
level reductions and layoffs will be needed to, close the budget gaps. At the current time, staff's
recommended plans to solve the shortfalls are as follows:
2004-05 Deficit of $1.5 Million
• Continue to restructure around retirements and vacancies
• Hiring freeze excluding public safety and special Enterprise Fund positions
• Cost reductions and one-time cost savings
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