HomeMy WebLinkAbout0229.091,
April 11" lS91
Honorable City council
Palo Alto, California
1991-'2 BOQGI1 RJPUCTZOHS
Members of the Counci 1 :
Report in Briet
o
At your meeting-of April 1, 1991,. you received and approved the
midyear financial report for the City. This report follo~s on that
information and sets forth, in nont~ctmical terms, the issues ~e
face as we prepare to deal with the cominq budqet~
Two Year Pl&llS
1991-9" represents the second year of our first two-year budget.
In retrospect,. preparing a two-year bu4gat puts us in a very
advantageous position~ It has allowed us to concentrate on the
rapidly shiftinq nat.1onal and local economic situation in the
context of an adopted blueprint.
Tbe two year budget assumed that it ~ould be necessary to dip into
reserves in the &mOUnt of approximately $3GO,OOO to operate in the
current year (1990-91). That assumption has not heIdi instead, we
will finish the year baving-us.ed approximately $600#000 of our
res~es. The pri.a.ry reason for tbis increased use of reserves is
the county's new policy of charging us for prisoner booking and
property tax collecticn. This charge is the result of a state la~
which, as Council knows# was completely unanticipated. Sir£e we
started the year with a reserve of approximately $5.2 million, this
$600,000 expense 'Will :bring the reserves to approximately $4.6
million on June 30, 1991. (Actually, the reserve will be lower
temporarily, since we are lending $1.8 million to the stor~ drain
fund unti 1 that fund issues bonds and repays the General Fund
sometime next winter.)
The two year budget also assumes that it will be necessary to dip
into reserves in the amount of $400,000 to operate in the second
year (H91-92).
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In other words, for the two year peri9d covered by the budget, ~a
will redlJce our reserves by $L 0 mi Ilion. Given the poor
performance of the economy, this amount is not especially alarming.
We create reserves during years when revenues exceed expenditures,
so that we will be in a position to cushion the blow when the
circumstances are reversed. OUr use of the reserve is a prudent
and reasonable strategy, which allows us time to adjust to changing
cirCUllatances.
As noted above, e~cept for the unanticipated changes by the county
for bookinq and property tax collection, our ending reserve
balances for 1990-91 will be on tarqet. What we expect for 1991-92
is another matter, however. When we prepared the two year budget,
we estimated the revenue for the second year (1991-92). We have
now refined those estimates, based on actual experience with the
econc.y in the last twelve months. OUr best estimate is that
1991-92 revenues will be approximately $2. a Illillion below our
previous estimates. (The major problem is sales tax, althouqh
there are other anticipated reductions in income.) There are only
three ways to accommodate this anticipated revenue shortfall and
balance the budget; 1) dip into resarves even furth~r, 2) reduce
expenditures, .3) find new/additional sources of revenue. Since we
are already scheduled to use $400,000 .from the reserves (see
above), that option is somewhat limited. consequently, I have
instructed staff to concentrate on the remaining options: cutting
expenditures and raising new/additional revenue.
strategy ~or 1991-92 BUdqet
Before attempting to balance the 1991-92 budqet, it is necessary to
consider the context in which we are operating and to make some
judgments as to what we think will happe.."l in the near and lcnq-term
future. Here are some of the considerations I helieve to be most
germane.:
1. The economy is beginning to show signs of a turna,round.
The last halt of fiscal year 1991-92 may not be as bad as
the first halL
2. State government finances are in a desperate condition.
With a $13 billion deficit, there 1s no telling what the
fallout will be for cities. With less than 90 days to
go, the Governor and the Leqislature seem tc be a long
way from resolvinq these issues.
l. There is continuQQ and increasing discussion about the
system for distribution of sales tax. The ~situs· system
aay not survive for .ueh longer. palo Alto depends
heavily on this system.
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-4 ~ The General Fund capital Improvement Proqrall. is running
at approximately $3.0 million/year. Some programs could
be delayed O~ postponed.
5. Since approximately 85 percent or our costs are in
personnel, we will bave to look to some reductions in
~~at area in order to effect any r$al savings.
6. When faced 'iiith personnel coat reductions,. our
long-standing policy haa been to reduce staff while
!I.!lintaininq salaries and benefits at ~ competitive level.
The continuity of this policy is necessary in order to
retain and attract productive employees.
Given theset considerations., we embarked upon a two-month lonq
eftort to identify possible reductions in expenditures for 1991-92.
In addition, we beqan to look at longer-term savings in the event
the situation does not eas'9 by the end of the next fiscal year. As
a working hypothesis, we determined to take half the reductions
froa the qenera 1 operating fund ~ Whereve.r poss ible, .. -e viII
substitute new/additiona.l revenue. for reductions in service and
proqraaa.
We detenained to make usa of the exte.nsive work the. Council did two
years ago under similar circumstances. Each department reviewed
the work we presented to council at that time and upc1&ted the
material to assure that it was still accurate. The next step is to
rank each proposal in a high, medium or low category. The result
will be a list of $2.0 million in possible reductions/increases for
1~91-92. That list will be presented to Council (F'PW) as soo~ as
possible.
In su..ary, if there are no further unexpected events, the re::;erves
will be reduced by $1.0 million for the period 1990-92. No further
budqet adjustments are needed for 1990-91. Revenues tor 1991-92
are est~ted to be short by approximately $2.0 million> A
cOllbination of capital Im.provement Progr~m delay; General Fund
reductions and newJ~dditional revenues will be necessary to cover
this shortfall. A recommendation for such a combination will b~
forwarded to council as soon as possible.
R~espectfU::~[~
WILL ZAlIER
City "goer
j
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