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City of ModestoComparative Benchmarking and

Ten-Year Budget Forecast

City Council Study SessionDecember 9, 2014

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• Conduct an independent assessment ofModesto’s fiscal condition and prepare a long-term financial forecast• Compare Modesto with similar cities to obtain

meaningful comparison information relative to budget, staffing and service levels

Project Purpose

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• Review the results of the benchmarking analysis• Review the City’s current and projected financial

condition and underlying budget assumptions• Discuss the implications of the long-term forecast

on Modesto’s ability to achieve financial sustainability in the future• Review next steps

Tonight’s Focus

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Peer Benchmarking

DemographicsGeneral FundTotal StaffingCrime Rates

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Peers were selected based on the following criteria:

• Population size• Full-service city• County seat• Median household

income• Crime levels• Geographic area

Comparison Cities

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Municipal Populations in 2014

0

100,000

200,000

300,000

400,000

500,000

600,000

206,785

367,315

515,609

314,034

475,122

212,721

300,899

129,582

330,755

Population Peer Average

Source: California Department of Finance, Population Estimates 2014

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Median Income in 2012

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$45,405

$54,422

$40,761

$53,893$48,692

$37,472

$45,360

$52,272

$47,553

Median Income Peer Average

Source: US Census 2012, 3-year estimates, American Community Survey.

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General Fund Expenditures per Capita FY 2008-09 and FY 2014-15

Modesto

Bakersfield

Fresn

o

Riverside

Sacramento

San Bernard

ino

Stock

ton

Visalia

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$635

$543 $531

$674

$852

$722$646

$467$532 $556 $554

$669$744

$532$600

$459

$633$588

GF Expenditure per Capita FY 2008-09 GF Expenditure per Capita FY 2014-15Peer Average FY 2008-09 Peer Average FY 2014-15

Sources: FY 2008-09 Adopted City Budgets and FY 2014-15 Proposed and/or Adopted City Budgets. City of Modesto staff provided additional detail for Modesto’s FY 2014-15 information, which is reflected above.

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Modesto’s General Fund Revenue and Expenditures from FY 2008-09 to FY 2014-15

Source: Budget Forecast Model, information has been provided by Modesto city staff.

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General Fund Sales Tax Revenue per CapitaFY 2008-09 and FY 2014-15

Modesto

Bakersfield

Fresn

o

Riverside

Sacramento

San Bernard

ino

Stock

ton

Visalia

$0

$50

$100

$150

$200

$250

$133

$187

$163$179

$164$152

$139

$188

$137

$209

$153

$183

$153

$209

$230 $223

$167

$194

GF Sales Tax per Capita FY 2008-09 GF Sales Tax per Capita FY 2014-15Peer Average FY 2008-09 Peer Average FY 2014-15

Sources: FY 2008-09 Adopted City Budgets and FY 2014-15 Proposed and/or Adopted City Budgets. City of Modesto staff provided additional detail for Modesto’s FY 2014-15 information, which is reflected above.

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General Fund Property Tax Revenue per CapitaFY 2008-09 and FY 2014-15

Modesto

Bakersfield

Fresn

o

Riverside

Sacramento

San Bernard

ino

Stock

ton

Visalia

$0

$50

$100

$150

$200

$250

$300

$350

$160

$198

$239

$180

$315

$153

$193

$162

$126

$176

$210

$169

$275

$137$154 $151

$206$182

GF Property Tax per Capita FY 2008-09 GF Property Tax per Capita FY 2014-15Peer Average FY 2008-09 Peer Average FY 2014-15

Sources: FY 2008-09 Adopted City Budgets and FY 2014-15 Proposed and/or Adopted City Budgets. Stockton’s information for FY 2008-09 is from the Stockton Budget Model due to limitations in its adopted budget. Modesto’s FY 2014-15 information has been provided by the City.

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General Fund Property Tax RevenuePercent Change from FY 2008-09 to FY 2014-15

Modesto

Bakersfield

Fresn

o

Riverside

Sacramento

San Bernard

ino

Stock

ton

Visalia

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

-18.5%

-2.1%

-5.5%

0.2%

-9.8%-8.2%

-16.4%

1.4%

-5.8%

Property Tax Percent Change from FY 2008-09 to FY 2014-15Peer Average

Sources: FY 2008-09 Adopted City Budgets and FY 2014-15 Proposed and/or Adopted City Budgets. Stockton’s information for FY 2008-09 is from the Stockton Budget Model due to limitations in its adopted budget. Modesto’s FY 2014-15 information has been provided by the City.

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Total Authorized FTE per Capita FY 2008-09 and FY 2014-15, in thousands

Modesto Bakersfield Fresno Riverside Sacramento San Bernardino

Stockton Visalia0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

6.8

4.8

8.7 9.0

11.5

6.06.6

4.95.6

4.1

6.3

7.88.7

4.65.1

4.5

7.4

5.9

Total Authorized FTE per Capita FY 2008-09 Total Authorized FTE per Capita FY 2014-15Peer Average FY 2008-09 Peer Average FY 2014-15

Sources: FY 2008-09 Adopted City Budgets and FY 2014-15 Proposed and/or Adopted City Budgets.

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Part 1 Crimes per 1,000 Residents2009 and 2012

Sources: FBI Uniform Crime Report 2009; FBI Uniform Crime Report 2012

Modesto Bakersfield Fresno Riverside Sacramento San Bernardino

Stockton Visalia 0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

57.653.9

50.1

37.4

53.956.3

65.6

46.6

63.1

55.9 56.6

39.1

49.6

58.5

66.7

47.7

52.053.4

2009 Part 1 Crimes Per 1,000 2012 Part 1 Crimes Per 1,0002009 Peer Average 2012 Peer Average

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Violent Crimes per 1,000 Residents2009 and 2012

Modesto Bakersfield Fresno Riverside Sacramento San Bernardino

Stockton Visalia 0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

6.96.3 6.1

5.1

8.99.6

12.7

5.2

7.8

5.4 5.44.4

7.4

9.4

15.5

4.3

7.7

7.4

2009 Violent Crimes Per 1,000 2012 Violent Crimes Per 1,0002009 Peer Average 2012 Peer Average

Sources: FBI Uniform Crime Report 2009; FBI Uniform Crime Report 2012

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Property Crimes per 1,000 Residents2009 and 2012

Sources: FBI Uniform Crime Report 2009; FBI Uniform Crime Report 2012

Modesto Bakersfield Fresno Riverside Sacramento San Bernardino

Stockton Visalia 0.0

10.0

20.0

30.0

40.0

50.0

60.0

50.247.2

43.7

32.0

44.7 46.3

52.8

41.3

55.1

49.9 50.9

34.5

41.9

48.951.0

43.344.045.8

2009 Property Crimes Per 1,000 2012 Property Crimes Per 1,0002009 Peer Average 2012 Peer Average

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Part 1 Crimes per Police Authorized FTE (Sworn and Non-Sworn)

FY 2008-09 and FY 2014-15

Modesto Bakersfield Fresno Riverside Sacramento San Bernardino

Stockton Visalia0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

29.4

34.5

18.4 18.9 19.922.5

28.3 28.7

43.2

37.0

31.1

22.023.9

32.2 32.129.324.5

29.7

Part 1 Crime per Authorized Police FY 2008-09 Part 1 Crime per Authorized Police FY 2014-15Peer Average FY 2008-09 Peer Average FY 2014-15

Sources: FY 2008-09 Adopted City Budgets and FY 2014-15 Proposed and/or Adopted City Budgets; FBI Uniform Crime Report 2009 & 2012. Modesto has filled 289 of the 299 authorized positions by the adopted budget.

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Budget Forecast Model

Model FeaturesRevenue and Expense Assumptions

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• Balance the Budget Pension/health cost increases Labor agreements Status quo vs. workload/population increases Maintain adequate reserves: contingencies, economic uncertainty

• Address unfunded liabilities Deferred maintenance Inadequate replacement funds for IT, vehicles Insurance reserves OPEB and pension

• Fund Capital Needs Streets, buildings, parks & drainage New facilities (with potential ongoing O&M costs)

Budgetary Challenges

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• Budget model: Identifies structural imbalances resulting from known increases and

continuation of current programs and policies without corrective actions Is transparent about assumptions Ten-year forecast avoids perils of short-term focus Identifies long-term impacts of current policy decisions Can evaluate impact of alternate policies and economic outcomes Helps staff/Council make informed, prudent, timely fiscal decisions Can be updated periodically by staff to show progress toward goals

• The budget forecast estimates are realistic, not conservative Shows Most Likely vs. Optimistic vs. Pessimistic revenue levels

• The ability to weather an economic recession must be considered in the context of a ten-year financial plan

Role of Budget Model

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• Property Tax: growth model based on HdL data (3.6% growth)• Sales Tax: based on MuniServices projections (3.9% growth)• Utility Users Tax (UUT): based on MuniServices projections

(0.7% growth)• Other Revenues: varies by source, overall 1% growth• Staffing: FY 2015 budget with no change over time (status quo)• Salary/Benefits: FY 2015 budget including merits and recent

Misc compensation changes from Dec 2014 – March 2016• PERS: based on CalPERS 6/30/13 valuation projections, with

extended forecast, PEPRA and payroll adjustments • Retiree Medical: pay-go costs per Actuarial (adjusted by staff to

reflect benefit reductions from recent negotiations)• Non-Personnel Costs: FY 2015 budget @ CPI growth

Basis for Assumptions: Best Information Available

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• Concentration of revenues Property, sales, utility taxes comprise 67% of total Sales tax make-up comparable to statewide averages

Revenue Overview

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• Sales Tax: rate much lower than average 16th percentile

statewide

• Utility Users Tax: 6% gas/electric, 5.8% telecomm, 3% cable Compares to 5.3%

average statewide for UUT cities

Revenue Overview (continued)

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• Forecast provides disciplined approach that avoids wishful thinking about capacity for revenue growth

• There are constraints in tax revenue growth potential that will generate less revenue than projected expense levels, if the city addresses unmet needs and labor market pressures

Revenue Overview (continued)

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• Higher near-term growth due to Prop 8 (ongoing growth of 3.2%)• Model projects following elements using HdL data:

Prop 13 inflator (0.454% in FY2015 vs. usual 2%) Prop 8 value recovery (phases out over next 5 years) New construction based on historical non-residential trends and ramping

up to 400 units/year over next 7 years (vs. 627 average 1997-2007) Ownership Transfers (current median sales price $200,000)

Property Tax

2015 2016 2017 2018 2019 2020 2021 2022 2023Prop 13 Inflator 0.2% 1.8% 1.8% 1.8% 1.8% 1.9% 1.9% 1.9% 1.9%Prop 8 Recovery 5.8% 1.6% 1.4% 1.2% 1.0% 0.5% - - - Ownership Transfers 0.8% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%Construction-Res 0.1% 0.2% 0.3% 0.4% 0.6% 0.7% 0.8% 1.0% 1.0%Construction-NonRes 0.1% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%Appeals - - - - - - - - - Total Growth 6.9% 4.1% 4.0% 3.9% 3.9% 3.4% 3.1% 3.2% 3.3%Growth with Recession 6.9% 4.1% 4.0% -1.1% 5.5% 5.1% 4.7% 3.2% 3.3%New Housing Units 50 100 150 200 250 300 350 400 400

Components of Property Tax Forecast Growth Rate - No Recession

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• MuniServices “most likely” ongoing growth of 4%

• Includes adjustments for business changes and 2% inflation

• “Triple-Flip” ends in FY 2016 with one-time cash flow gain

Sales and Use Tax

FY2015 ActualSector Share 2014 2015 2016 2017 2018 2019 2020General Retail 40% $10.8 $10.9 $11.1 $11.5 $12.0 $12.4 $12.9Food Products 19% 5.0 5.1 5.2 5.4 5.6 5.8 6.1Transportation 20% 5.4 5.5 5.6 5.8 6.0 6.2 6.5Construction 7% 2.1 2.1 2.1 2.2 2.3 2.3 2.4Business-to-Business 14% 3.9 3.8 3.9 4.0 4.2 4.3 4.5Miscellaneous 1% 0.2 0.2 0.2 0.2 0.3 0.3 0.3 Cash Collections* 100% 27.4 27.5 28.0 29.1 30.2 31.4 32.7

Late/Prior Payments 0.3 0.2 0.2 0.2 0.2 0.3 0.3State/County Pools 3.4 3.4 3.5 3.6 3.7 3.9 4.0County Sharing (1.5) (1.6) (1.6) (1.6) (1.7) (1.8) (1.9)Admin Costs (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.4) Economic Basis 29.1 29.3 29.8 30.9 32.2 33.5 34.8Net Triple-Flip Adjustments 0.0 (0.1) 1.2 0.0 0.0 0.0 0.0Inflation+Business Adjustments 0.0 0.5 1.2 1.2 1.3 1.3 1.4Petroleum Tax Rebates (1.5) (1.5) (1.6) (1.6) (1.6) (1.7) (1.7) Local+Flip (1% tax) 27.7 28.2 30.6 30.6 31.8 33.1 34.5Percent Change-No Recession 2.0% 1.9% 8.3% 0.0% 4.0% 4.0% 4.0%

Percent Change-With Recession 2.0% 1.9% 8.6% -5.0% 1.7% 5.6% 3.9%

"Most Likely" Sales Tax Forecast - No Recession ($ in Mil.)Projection Including Adjustments

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• Conservation impacts, technology issues

• Wired communication revenues have been declining steadily since 2008

• Shifts to non-taxable internet

• Expect slow growth for gas and electric

• Overall UUT long-term trend (“most likely” per MuniServices): flat

Utility Users Tax

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• Recessions have occurred on average every 6.5 years since 1928

• Severity and duration are difficult to predict

• Prudent to assume a modest recession during forecast period

Potential for RecessionNational

California

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• Personnel costs in FY 2015 are 70% of total General Fund expenses (includes fire staff)

• Labor costs held down in past through cuts and vacancies; not a sustainable long-term strategy for “service solvency”

Expenditure Overview

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• CalPERS employer rate increases Statewide issue, unavoidable increases

• City Discretion: Future salary and benefit changes Level of funding for currently unmet needs Staffing levels (assumes no change – status quo)

• Other Key Assumptions: OPEB costs at pay-as-you-go levels (after negotiations to reduce

costs), not ARC (unfunded liabilities will grow) Vacancy savings levels declines from 6% to 3% over 3 years Continuation of adopted FY 2015 budget adjustments Growth in non-personnel costs is 2% over 2015 levels

Major Cost Drivers

Substantial Pension Rate Increase

• CalPERS 2013 valuation projects rates through FY 2021• Forecast includes:

Rate smoothing/ amortization

Discount rate of 7.5%

Mortality improvements

PEPRA impact with employee turnover

Impact of payroll deviation from CalPERS forecast Extended forecast reflects paydown of

unfunded liability 31

44% increase from FY 2015 to peak

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• PERS rate increases add $43M through FY 2023• Pension costs as

percent of total General Fund expense rises from 12% to 18%

CalPERS Pension Cost Impact

$43M

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• Competition with labor market• Unrealistic to

expect no change over time• Example: ongoing

COLAs at CPI (2%) for salary and health add $51M in cost through FY 2023

Salary and Health COLAs

$51M

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Unmet Needs Not Funded in Baseline Budget Forecast

FY 2016 – FY 2023Internal Services $17.3MInfrastructure Maintenance $33.1MPublic Safety $78.0M 8-Year Totals $128.4M Average Annual $16.0M

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• Fund Vehicle Replacement Backlog Costs for backlog of vehicles beyond their useful life and for which

replacements are needed for the current levels of service; $1.6M over next three fiscal years

• Fund Information Technology Systems Replacement Sets aside funds for the major systems that require replacement

over time, including Enterprise Resource Planning (ERP) software; average $1.1M/year, $8.5M through FY 2023

• Increase Workers’ Compensation Reserve Increase reserve from $10M to $18M over eight years to achieve

funding at 70% confidence level $7.2M through FY 2023 (GF is 90% of total based on claims

experience)

Unmet NeedsInternal Services

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• Fund Facility Maintenance Backlog One-time backlog identified by Public Works is $1.25M; will likely be unfunded

needs in future years as well

• Increase Park Maintenance Public Works identified $1.5M in annual maintenance needs (eliminated in past

budget cuts) in Modesto’s extensive network of 75 parks; $12.9M through FY 2023

• Surface Transportation Maintenance of Effort In the five prior years the General Fund paid $1.7M/year; this was stopped in

FY 2015; would assist with local matching funds if a countywide sales tax for road improvements is approved; average $1.7M/year, $13.5M through FY 2023

• Continue Centre Plaza Subsidy Budget stopped subsidizing the convention center one-third into FY 2015; if

subsidy reinstated, restructuring of how the service is provided should continue to be pursued; ave. $600K/year, $5.4M through FY 2023

Unmet NeedsInfrastructure Maintenance

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• Reopen Fire Station #6 Adopted budget assumed closure of Station #6 in FY 2015; fire

service subsequently brought back in-house from MRFA; Council has directed staff to report on the impact of keeping Station #6 open (work in progress)

Average $2.2M/year (without staffing level changes), $20M through FY 2023

• Rebuild Fire Station #1 Staff has identified a need to rebuild the aging main fire station

located downtown Estimated at $9M from FY 2016 to 2020 (assumes no other

available funding source)

Unmet NeedsPublic Safety - Fire

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• Increase Police Staffing Budget cuts reduced sworn staffing levels from 1.42/1,000

population in 2009 to an estimated 1.04/1,000 in FY 2015─ 68 cut from a peak of 287 to 219 in FY 2015

Example: ─ adding 32 FTE officers would increase sworn staffing

levels to 1.20/1,000─ Average cost of $6.9M/year, $49M total through FY

2023─ Cost includes proportionate increases in support and

supervisory positions

Unmet NeedsPublic Safety - Police

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Budget Scenarios

A. Baseline Budget without COLAs

B. Add Cost of Funding Unmet Needs

Scenario A:Baseline Budget Without Additional COLAs

• Most likely revenue level meets or exceeds baseline expense without COLAs• Optimistic revenue

level significantly exceeds total expense• Pessimistic revenue

level generally at or below total expense

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Scenario A:Baseline Budget Without COLAs

• Maintains adequate total reserves (above 15% of total expense)• Scenario A is unrealistic: does not address inflation in labor costs

(potential recruitment and retention issues over time) and no funding for unmet needs (can’t sustain current service levels)

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Scenario A Forecast Summary:Baseline Budget Without Unmet Needs

FORECAST SUMMARY Estimate Projected Projected Projected Projected Projected Projected Projected Projected Projected 10-Year($ in Mil.) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Totals

Property Tax $24.11 $26.14 $27.20 $28.27 $27.96 $29.50 $31.00 $32.47 $33.52 $34.61 $294.77Sales Tax 27.65 28.17 30.60 29.07 29.55 31.21 32.43 33.68 34.96 36.25 313.57Utility Users Tax 20.15 20.05 20.02 19.72 19.87 20.15 20.35 20.55 20.76 20.97 202.59Other Taxes 17.02 16.65 16.73 16.12 16.42 16.74 17.04 17.15 17.25 17.36 168.49Permits & Fees 12.33 13.32 13.65 14.03 14.37 14.70 15.04 15.34 15.65 15.97 144.39Other Revenue/ Tfrs In 11.75 6.35 6.30 6.22 6.20 6.18 6.15 6.13 6.11 6.10 67.50 Total Revenues 113.01 110.68 114.50 113.44 114.38 118.47 122.02 125.32 128.25 131.26 1,191.32Salaries 32.27 43.97 44.84 45.62 46.28 46.95 47.63 48.32 49.02 49.74 454.63Overtime 2.57 2.02 2.04 2.07 2.09 2.11 2.14 2.16 2.18 2.21 21.59Health/Dental/Vision 3.82 4.65 4.65 4.65 4.65 4.65 4.65 4.65 4.65 4.65 45.67Pension 7.33 14.16 15.36 16.98 18.86 19.86 21.25 21.54 21.47 21.79 178.62Retiree Medical 0.55 2.89 1.68 1.72 1.75 1.80 1.84 1.82 1.83 1.83 17.70Other Pay & Benefits 4.48 11.40 11.50 11.59 11.68 11.77 11.86 11.95 12.05 12.14 110.41Budget Adjustments - (1.21) (1.22) (1.22) (1.23) (1.24) (1.24) (1.25) (1.26) (1.26) (11.13)Other Vacancy Savings - (2.78) (2.00) (1.25) (1.29) (1.32) (1.36) (1.37) (1.39) (1.40) (14.17) Subtotal Personnel 51.03 75.12 76.85 80.14 82.77 84.58 86.76 87.81 88.57 89.69 803.32Contract Services 31.42 8.94 9.12 9.31 9.49 9.68 9.88 10.07 10.27 10.48 118.67ISF Charges 6.71 6.32 6.45 6.57 6.71 6.84 6.98 7.12 7.26 7.40 68.35Other Expense 11.56 11.99 12.23 12.47 12.72 12.98 13.24 13.50 13.77 14.05 128.52Debt/Capital/Transfers Out 10.44 5.14 5.29 5.28 5.28 4.92 4.92 4.92 4.92 4.92 56.04 Total Expense 111.15 107.51 109.94 113.78 116.97 119.00 121.78 123.43 124.80 126.55 1,174.90Net Annual Surplus (Shortfall) 1.86 3.17 4.56 (0.34) (2.60) (0.53) 0.24 1.89 3.45 4.71 16.41Total Beginning Fund Balance 16.77 18.63 21.80 26.36 26.02 23.42 22.90 23.14 25.03 28.48 16.77Total Ending Fund Balance 18.63 21.80 26.36 26.02 23.42 22.90 23.14 25.03 28.48 33.19 33.19Nonspendable/Restricted 4.34 4.34 4.34 4.34 4.34 4.34 4.34 4.34 4.34 4.34 4.34Emergency/LOC Reserve 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00Unassigned Balance 4.29 7.46 12.02 11.68 9.08 8.55 8.80 10.69 14.14 18.85 18.85Res+Bal % of Total Expense 12.9% 16.2% 20.0% 19.1% 16.3% 15.6% 15.4% 16.8% 19.3% 22.8%

Scenario B:Baseline Budget With Unmet Needs

• No level of revenue, even optimistic, can cover baseline plus unmet needs over the full forecast period

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Scenario B:Baseline Budget With Unmet Needs

• Annual shortfalls of $5 to $21M result starting FY 2016; shortfall averages $16M; labor market not addressed long-term• Absent corrective budget actions, unassigned balance negative starting FY

2017, with a cumulative unassigned balance deficit of $110M by FY 202344

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Scenario B Forecast Summary:Baseline Budget With Unmet Needs

FORECAST SUMMARY Estimate Projected Projected Projected Projected Projected Projected Projected Projected Projected 10-Year($ in Mil.) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Totals

Property Tax $24.11 $26.14 $27.20 $28.27 $27.96 $29.50 $31.00 $32.47 $33.52 $34.61 $294.77Sales Tax 27.65 28.17 30.60 29.07 29.55 31.21 32.43 33.68 34.96 36.25 313.57Utility Users Tax 20.15 20.05 20.02 19.72 19.87 20.15 20.35 20.55 20.76 20.97 202.59Other Taxes 17.02 16.65 16.73 16.12 16.42 16.74 17.04 17.15 17.25 17.36 168.49Permits & Fees 12.33 13.32 13.65 14.03 14.37 14.70 15.04 15.34 15.65 15.97 144.39Other Revenue/ Tfrs In 11.75 6.35 6.30 6.22 6.20 6.18 6.15 6.13 6.11 6.10 67.50 Total Revenues 113.01 110.68 114.50 113.44 114.38 118.47 122.02 125.32 128.25 131.26 1,191.32Salaries 32.27 43.97 44.84 45.62 46.28 46.95 47.63 48.32 49.02 49.74 454.63Overtime 2.57 2.02 2.04 2.07 2.09 2.11 2.14 2.16 2.18 2.21 21.59Health/Dental/Vision 3.82 4.65 4.65 4.65 4.65 4.65 4.65 4.65 4.65 4.65 45.67Pension 7.33 14.16 15.36 16.98 18.86 19.86 21.25 21.54 21.47 21.79 178.62Retiree Medical 0.55 2.89 1.68 1.72 1.75 1.80 1.84 1.82 1.83 1.83 17.70Other Pay & Benefits 4.48 11.40 11.50 11.59 11.68 11.77 11.86 11.95 12.05 12.14 110.41Budget Adjustments - (1.21) (1.22) (1.22) (1.23) (1.24) (1.24) (1.25) (1.26) (1.26) (11.13)Other Vacancy Savings - (2.78) (2.00) (1.25) (1.29) (1.32) (1.36) (1.37) (1.39) (1.40) (14.17) Subtotal Personnel 51.03 75.12 76.85 80.14 82.77 84.58 86.76 87.81 88.57 89.69 803.32Contract Services 31.42 8.94 9.12 9.31 9.49 9.68 9.88 10.07 10.27 10.48 118.67ISF Charges 6.71 6.32 7.35 7.47 7.61 7.74 7.88 8.02 8.16 8.30 75.55Other Expense 11.56 11.99 12.23 12.47 12.72 12.98 13.24 13.50 13.77 14.05 128.52Debt/Capital/Transfers Out 10.44 6.12 13.29 12.80 13.82 12.48 11.52 10.51 10.32 10.36 111.67 Total Expense 111.15 110.56 120.94 131.22 135.53 136.64 138.53 139.25 140.51 142.38 1,306.70Net Annual Surplus (Shortfall) 1.86 0.12 (6.44) (17.78) (21.15) (18.17) (16.51) (13.93) (12.26) (11.12) (115.39)Total Beginning Fund Balance 16.77 18.63 18.75 12.31 (5.47) (26.62) (44.79) (61.30) (75.23) (87.49) 16.77Total Ending Fund Balance 18.63 18.75 12.31 (5.47) (26.62) (44.79) (61.30) (75.23) (87.49) (98.61) (98.61)Nonspendable/Restricted 4.34 4.34 4.34 4.34 4.34 4.34 4.34 4.34 4.34 4.34 4.34Emergency/LOC Reserve 10.00 10.00 7.97 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00Unassigned Balance 4.29 4.41 0.00 (16.81) (37.96) (56.13) (72.64) (86.57) (98.83) (109.95) (109.95)Res+Bal % of Total Expense 12.9% 13.0% 6.6% (7.5%) (22.8%) (36.0%) (47.4%) (57.1%) (65.4%) (72.3%)

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• Absent proactive steps by City, Modesto will experience a gradual degradation of its financial position, its service delivery system, and the public’s investment in infrastructure and other capital assets

• To be a sustainable city, Modesto must balance its budget with an adequate reserve, given a realistic projection of resources, and find a way to fund labor agreements, unfunded liabilities, and unmet capital and public service needs

• Use budget model to help identify appropriate funding solutions to accomplish these goals

Conclusion

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Questions?