Office of the City Manager

2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7000 ● TDD: (510) 981-6903 ● Fax: (510) 981-7099

E-Mail: manager@cityofberkeley.info Website: http://www.cityofberkeley.info/manager

WORK SESSION February 14, 2012

To: Honorable Mayor and Members of the City Council

From: Christine Daniel, Interim City Manager

Submitted by: Teresa Berkeley-Simmons, Budget Manager

Subject: FY 2012 Mid-Year Budget Update SUMMARY This report will provide the Fiscal Year 2012 mid-year budget update as well as additional information regarding the City’s pension obligations and their impact on expenditure projections. The report suggests mechanisms to respond to the projected current year revenue shortfall of $1.9 million. Staff will return at a future Council meeting with an Action item should the Council wish to pursue the proposed approach.

CURRENT SITUATION AND ITS EFFECTS The City of Berkeley is currently in FY 2012 the first of two years in the FY 2012 & FY 2013 Biennial Budget cycle. When the Council adopted the FY 2012 & 2013 Biennial Budget this past June, the General Fund two year budget was balanced based on a 2-year plan composed of $6.1 million in balancing measures through a combination of recurring cuts and new recurring revenue. However, the national and state economy is still unsettled, and it appears that there is no immediate relief as tax revenues continue to lag behind budgeted amounts. With this ongoing trend we are projecting a FY 2012 year-end General Fund shortfall of $1.9 million

General Fund Summary

(dollars in millions) FY 2012 Adopted

FY 2012 Adjusted

FY 2012 Revised

Projected Revenue 149.4 147.5 147.5Projected Expenses 149.6 154.6* 154.6Use of Reserves .2 5.2* 5.2

Balance 0 -1.9 -1.9*Adjusted includes carryover for projects and programs that were not completed in FY 2011 and were approved by Council as part of the Appropriation Amendment Ordinance in December 2011.

FY 2012 Mid-Year Budget Update WORK SESSION February 14, 2012

2

FY 2012 General Fund Second Quarter – Projected Revenue (down $1.9 million) On December 13, 2011, Council was provided a revenue review of the first quarter of FY 2012 as well as a FY 2012 Federal and State Budget Update. In that report we discussed the economy’s sluggish growth, which continues to have a negative impact on the City’s budget. The FY 2012 second quarter revenues confirm the downward trend with projected declines in economically sensitive revenues including supplemental property taxes, property transfer tax, utility users tax, and interest income.

The City, as well as other surrounding jurisdictions, is also experiencing a reduction in revenue generated from moving violations. While the initial projection of $600,000 for this revenue line item was overly generous, even a projection based on prior year’s actual revenues has turned out to be inaccurate as we continue to see a decline in this revenue. This appears to be due, in part, to an intended shift in focus in the Police Department from citations for traffic violations to targeted enforcement in property crime reduction.

In sum, although General Fund revenues have increased slightly since 2010, revenue growth continues to be outpaced by expenditures.

Revenue vs. Expenditures for FY 2007 - FY 2012 General Fund

$125,000,000 

$130,000,000 

$135,000,000 

$140,000,000 

$145,000,000 

$150,000,000 

$155,000,000 

2007 2008 2009 2010 2011 2012

GF Revenues 

GF Expenditures

FY 2012 Mid-Year Budget Update WORK SESSION February 14, 2012

3

FY 2012 General Fund Second Quarter – Projected Expenditures (exceed budgeted amount by -$30,675) The planned expenditures appear to be on target, with no meaningful projected savings at year-end. As part of the biennial budget for FY 2012 and FY 2013, departments were required to reduce their expenditures by 3 percent each year with an additional target savings of 3 percent assumed in the Budget for most departments. Historically, departments were able to meet the target savings through a combination of vacancies and anticipated attrition. However, the number of personnel vacancies resulting from retirements and resignations has continued to shrink as the economy continues to struggle in its recovery. Over the years we have actively managed vacancies as a way of controlling costs. As we continue to eliminate positions and attrition remains low, departments are finding it increasingly difficult to meet the targeted savings.

Attachment 1 provides a summary of revenue projections.

Attachment 2 provides a summary of the second quarter expenses and year-end projections.

General Fund - Budget Balancing Strategies Annually, the General Fund transfers $5.6 million to the capital improvement fund for projects such as street paving and storm drain repair. The General Fund also supplements special funds, such as Mental Health funds, in which revenues are expected to decrease due to a reduction in state or federal funding. Special assessment funds such as the Street Lighting and Clean Storm Water funds are also regularly supplemented by General Fund because the revenues from the assessments are insufficient to cover the expenditures in those funds. The projects below have funding supported by the General Fund transfer to the capital improvement fund. These projects are not scheduled to begin construction in FY 2012 thus we recommend reducing the General Fund transfer in FY 12 for those projects. Additionally, the planned capital expenditures in the Solid Waste program for this fiscal year will not exceed the amount available in the Refuse Fund. Therefore, the General Fund monies allocated in the Capital Plan for Refuse capital infrastructure can be reprogrammed for use as part of the General Fund budget balancing strategies. In addition, the Measure B Local Streets and Roads fund was allocated $412,000 of General Fund because revenue to that fund was projected to decrease. However, that decrease has not materialized and there is sufficient fund balance to maintain the Measure B programs; therefore, we recommend reducing this General Fund transfer as well.

FY 2012 Mid-Year Budget Update WORK SESSION February 14, 2012

4

General Fund Balancing Measures

Project Current Phase or Status

Planned Construction Start Date

FY 2012 Unencumbered Balance

Council Chambers Not programmed FY 2013 $ 400,000Refuse* Not programmed FY 2013 1,100,000Measure B Local Streets and Roads

As needed 400,000

TOTAL $1,900,000 *FY 12 improvements to infrastructure covered by Refuse fund FY 2012 Other Funds Facing Deficit – Straining the General Fund There are several special funds which have faced significant deficits over the last several years and required significant balancing measures including layoffs of staff. These include the permit service center, public health, mental health, and refuse funds. Deficits in these funds were due to a number of factors including the loss of federal and state funding, revenue growth not meeting projections and the overall impact of the sluggish economy. Each of these is further described below. Department of Planning - Permit Service Center Although the Permit Service Center fund started FY 2012 with over $2 million in fund balance, an operating shortfall is projected through FY 2013. While revenue is projected to slightly increase in FY 2012 over FY 2011 and expenditures are projected to decrease from the FY 2012 adjusted amount, projected expenditures still exceed projected revenues. The shortfall will be met by using the fund balance as has been done for the last several years. The expected shortfall between revenues and expenditures in FY 2012 is $566,144. Health Services Department—Public Health Division; Mental Health Division In response to state and local funding reductions, the Public Health Division undertook a reorganization of staff over the last few fiscal years to better match expenditures with decreased revenues. We are continuing to manage expenditures in response to those declining revenues; however, we may need to propose more cost savings such as reducing non-personnel costs and restructuring programs. One thing staff will be assessing is space allocation to determine if non-personnel savings can be achieved by reducing rental costs.

FY 2012 Mid-Year Budget Update WORK SESSION February 14, 2012

5

Public Health Revenue Trend Fiscal Year PH Health PH Realignment Total Revenues

2010 $3,911,979 $3,615,337 $7,527,316 2011 $2,870,845 $3,569,423 $6,440,268

2012 (projected) $2,675,982 $3,497,018 $6,173,000 The Mental Health Division is still facing significant revenue challenges. One of these is the continued disallowances resulting from the ongoing state audit. Disallowances have been identified for FYs 2004, 2005, and 2006 and audits are still outstanding for FY 2007 and FY 2008. When the audits are concluded the State immediately recaptures what it estimates is owed by the City. Because the Mental Health fund balances have been exhausted by covering prior years’ recaptured revenues, the General Fund reserves cover the cost of the expenditures that would otherwise be covered by the revenue that is withheld by the State (i.e. “recaptured”). If the City is successful in challenging the audit findings on appeal, the State must return some or all of the recaptured funds. However, the City is required to undertake an arduous process to request a refund which could take years to realize. Once the FY 2007 and FY 2008 audits are completed and the findings are issued, the state will again immediately recapture the estimated disallowance. The General Fund reserves will have to additionally cover the gap between expenditures and revenue if any is generated above the amount of the recapture. Once the City is successful in obtaining refunds from the State, the General Fund will be repaid the amounts it has expended.

Mental Health (State Audit) Fiscal Year Estimated

Disallowance Actual

Disallowance Amount subject

to Reimbursement

2004 $1,212,196** $764,351 $447,8452005 1,356,606** 787,282 569,3242006 624,612** 587,254 37,3582007 706,383 706,383* 02008 743,877 743,877* 0*Estimates **Amounts already recaptured by the State

FY 2012 Mid-Year Budget Update WORK SESSION February 14, 2012

6

Department of Public Works – Solid Waste Division On November 8, 2011, staff provided Council with an update on the Solid Waste Division (Refuse Fund). The City has implemented many operational changes in the delivery of solid waste services over the last two years, and we are beginning to see the positive effect these changes have had on reducing the operational deficit in the Refuse Fund. However, expenses still exceed annual revenue by $600, 000; this shortfall will be met by using the small fund balance generated last fiscal year. Further expenditure reductions are planned for FY 2013 (as noted in the Adopted Budget). The General Fund Reserve The Council’s current policy is to maintain a minimum reserve at 8 percent of gross General Fund revenues. The reserve provides some flexibility to address one-time priority programs, smooth out economic swings, buffer the loss of state and federal revenues, and to support City operations in the event of a catastrophic event (such as an earthquake). An 8 percent reserve would fund City operations for about 30 days in the event of a catastrophic disaster. The available unassigned liquid reserve balance is currently 8.1 percent of the gross General Fund revenues or $11.9 million. The total undesignated reserve balance is 10.4 percent or $15.3 million. The difference is primarily grant receivables for which the City has advanced funds; it may take several years to collect those receivables. California Public Employees Retirement System (CalPERS) Pension Obligation - Unfunded Liabilities Retirement contributions represent one of the most significant elements of citywide expenditures, and the costs of these plans are projected to rise. The City actively manages its unfunded or under-funded liabilities, and completes regular actuarial valuations for most of the benefits the City offers. On December 6, 2011, the City’s outside actuary made a presentation to Council on the pension costs and liabilities. The presentation included a discussion of the demographics for the City’s active employees and retirees, investment return information regarding the City’s assets with CalPERS, the projected rates for the City’s contribution over the next several years and the funded status of each plan: Police, Fire, and Miscellaneous Employees. The second part of the actuary’s presentation will be a part of this Work Session and will specifically include further discussion of the CalPERS rate structure and its impact on the City’s contribution policy.

FY 2012 Mid-Year Budget Update WORK SESSION February 14, 2012

7

Included in the actuary’s December presentation was a discussion on a contribution policy and the possibility of adjusting the contribution to get a rate close to the rate prior to the asset smoothing modification undertaken by CalPERS. Currently the City uses the Modified Actuarial Value of Assets (Modified AVA) rates. If the City moved to fund its pension based on the Unmodified Actuarial Value of Assets rates (Unmodified AVA) the FY 2012 payment would increase by $6.18 million. The increased amount attributed to the General Fund would be $3.58 million. The rates resulting from the Unmodified AVA for each plan are set forth below. Resources would need to be identified to fund this additional contribution.

AVA Modified vs. AVA Unmodified for FY 2012 Police 

Fire 

Miscellaneous 

Modified AVA

42.01% 29.11% 19.18%

Unmodified AVA

47.50% 37.50% 23.50%

Two-tiered System As a member of CalPERS, the City may select optional benefit provisions from the benefit menu by contract with CalPERS and adopted through City ordinance. Optional benefits that the City has contracted for the Miscellaneous Employee plan include the 2.7 percent at age 55 retirement benefit formula. Miscellaneous plan members are required by statute to contribute 8 percent of their annual covered salary. The Employer Paid Member Contribution (EPMC) is the method the City uses for reporting the employee contribution. This means that the City pays the 8 percent cost for the employees covered by the Miscellaneous plan. The benefit formula for the Fire and Police plans is 3 percent at 50. The Safety Fire plan and the Safety Police plan members are required to contribute 9 percent of their annual covered salary. One approach to managing benefit cost is to select an option for the CalPERS benefit based on a 2-tier system, meaning that new employees would have a different retirement benefit calculation than existing employees. If all employees covered by the Miscellaneous plan agreed to a second tier of 2 percent at 55 for all new employees hired starting July 1, 2012 (FY 2013) the savings would be $176,000 in FY 2013, growing to about $2.67 million in ten years (by 2023). Over a ten year period the aggregate savings is estimated to be about $15 million. These savings assume that the City continues to pay the full 8 percent of the employee’s share of the cost. Additional savings would be realized if employees contributed a share of that cost.

FY 2012 Mid-Year Budget Update WORK SESSION February 14, 2012

8

If all Fire Safety employees agreed to second tier of 3 percent at 55 for new employees hired after the beginning of FY 2013, the savings would be $13,000 in FY 2013, growing to about $205,000 in ten years (by 2023). Over a ten year period the aggregate savings is estimated to be about $1.1 million. If all Police Safety employees agreed to second tier of 3 percent at 55 for new employees starting in FY 2013 the savings would be $20,000 in FY 2013, growing to about $311,000 in ten years (by 2023). Over a ten year period the aggregate savings is estimated to be about $1.7 million. Both the Fire and Police calculated savings assume no additional contributions by employees to the PERS costs. Savings would, of course, be increased if employees contributed a greater share to the costs. CONTACT PERSON Teresa Berkeley-Simmons, Budget Manager, City Manager’s Office, 981-7000 Robert Hicks, Finance Director, 981-7300

Attachments: 1: FY 2012 Second Quarter General Fund Revenue Summary 2: FY 2012 Second Quarter General Fund and All Funds Expenditure Summaries

Attachment 1

FY 2012 Mid-Year General Fund Revenues (7/1/11 - 12/31/11)

Adopted Actual %

Received Projected

Revenue Categories FY 2012 7/1/11-

12/31/11 To Date FY 2012 Variance Secured Property $38,991,947 $19,593,067 50.25% $38,955,419 ($36,528)Unsecured Property Taxes 2,455,252 2,056,084 83.74% 2,441,601 ($13,651)Supplemental Taxes 1,600,000 217,746 13.61% 600,000 ($1,000,000)Property Transfer Tax 10,000,000 4,396,590 42.38% 9,400,000 ($600,000)Sales Taxes 14,298,072 7,227,269 50.55% 14,837,725 $539,653 Utility Users Taxes 15,083,771 6,842,705 45.36% 14,428,319 ($655,452)Transient Occupancy Taxes 4,435,109 2,630,575 59.31% 4,735,109 $300,000 Business License Tax 14,501,693 933,676 6.25% 14,622,713 $121,000 Vehicle In-Lieu Taxes 8,900,073 4,295,147 48.26% 8,849,279 ($50,794)Parking Fines 9,785,000 4,876,346 49.88% 9,785,000 $0 Moving Violations 600,000 111,950 22.59% 300,000 ($300,000)Interest Income 5,550,000 2,403,536 43.31% 5,050,000 ($500,000)Ambulance Fees 3,559,453 1,932,458 54.31% 3,759,453 $200,000 Franchise fees 1,805,297 440,746 24.41% 1,805,297 $0 Other Revenue 9,456,467 3,516,397 37.19% 9,592,447 $135,980 Transfers 8,386,858 5,451,777 65.00% 8,386,858 $0Total Revenue: $149,408,992 $66,926,069 44.80% $147,549,220 ($1,859,792)

This mid-year review focuses on the major revenue fluctuations and key projection adjustments. Secured Property Tax (-$36,528) During the first half of FY 2012, Secured Property Tax revenues totaled $19,593,067, which was $437,877 or 2.3% more than the $19,155,190 received for the same period in FY 2011. FY 2012 assessed value growth was 3.15%, up from 1% in FY 2011. Property Transfer Tax (-$600,000) This revenue source got off to a rocky start in FY 2012, declining in each of the first six months. During the first half of FY 2012 (June through November reports), Property Transfer Tax revenue decreased by $587,643 or 11.8% to $4,396,590, from the $4,984,233 received for the same period in FY 2011. This decrease is due primarily to a $56,608,124 or 16.3% decrease in the dollar value of property sales, to $290,163,376 in the first half of FY 2012, from $346,771,500 for the same period in FY 2011. The number of property sales transactions decreased by 4, from 445 in FY 2011 to 441 in FY 2012. Supplemental Tax (-$1,000,000) During the first half of FY 2012, Supplemental Tax revenues totaled $217,746, which was $56,826 or 35.3% more than the $160,920 received for the same period in FY 2011. Instead of experiencing the increase in the dollar value of property sales that Staff expected, property sales have declined (See Property Transfer Taxes above). The

Attachment 1

2

County Auditor-Controller has been unable to provide an estimate of the total for the year. As a result, Staff has lowered the FY 2012 projection by $1,000,000. Sales Tax (+$539,653) For the first half of FY 2012, Sales Tax revenue totaled $7,227,269, which is $467,721 or 6.9% more than the $6,759,548 received for the same period in FY 2011. Staff increased the FY 2012 projection by $539,653 because of the increase in the revenue base that occurred in the second half of FY 2011, and the addition of a major retailer in FY 2012. Utility Users Tax (UUT) (-$655,452) UUT revenue in the first half of FY 2012 decreased by $73,977 or 1.1%, to $6,842,705, from the $6,916,682 received for the same period in FY 2010. As a result, FY 2012 projections were lowered by $655,452, due to slower than expected growth in this revenue source. Transient Occupancy Tax +$300,000 Transient Occupancy Tax (TOT) revenue increased by $449,358 or 20.6% in the first half of FY 2012 to $2,630,575, from $2,181,217 for the same period in FY 011. This increase was due to double digit growth at nine of the twelve major hotels tracked by City staff. As a result, the FY 2012 projection was increased by $300,000. Business License Tax (BLT) +$121,000 For the first half of FY 2012, BLT revenue totaled $933,676, which is $192,756 or 26.0% more than the $740,920 received for the same period in FY 2010. The increase so far resulted from Finance staff audits and better than expected receipts from cannabis dispensaries. Parking Fines ($0) For the first half of FY 2012, Parking Fines revenue showed an increase of $121,279 or 2.6% to $4,876,346 in FY 2012, from $4,755,067 for the same period in FY 2011. However, ticket writing decreased by 5,135 or 4.4%, from 116,364 in FY 2011 to 111,229 in FY 2012. The vehicle booting program, which started in October 2011, has generated $324,188 (in mostly one-time revenue) and is expected to account for all of the growth reflected in the revenue projection. Moving Violations -($300,000) For the first half of FY 2012, recorded Moving Violations revenue showed a decrease of $36,291 or 24.5% to $111,950 in FY 2012, from $148,241 for the same period in FY 2011. Revenues from this source have steadily declined since FY 2009, and the FY 2012 projection was lowered from $600,000 to $300,000.

Attachment 1

3

Interest Income (-$500,000) For the first half of FY 2012, Interest Income totaled $2,403,536, which is $97,931 or 4.2% more than the $2,305,605 received for the same period in FY 2011. However, this revenue source will be trending lower than projected in the second half of the fiscal year since (1) the Federal Reserve Board (the Fed) has continued an aggressive program to force all interest rates significantly lower; (2) the US economy is weaker, increasing the demand for fixed income securities; and (3) the European crisis has created a “flight to quality” all over the world, resulting in increasing prices and lower Treasury interest rates on Treasury securities. Short-term interest rates were already close to zero and, during the period, long-term rates declined sharply.

Attachment 2

FY 2012 General Fund Expenditures (7/1/11 – 12/31/11)

Note: We are working on options to bring departments with a projected General Fund deficit into balance by the end of the year.

DepartmentFY 2012Adopted

FY 2012Adjusted

YTD Actuals + Encumbrances

% Budget Spent

Year-End Projected

Surplus/ Deficit

% Over/ Under

Mayor & Council 1,725,630 1,769,816 803,277 45% 1,769,816 0 0.0%Auditor 2,048,840 2,048,840 899,399 44% 2,008,840 40,000 2.0%City Manager 4,600,210 4,685,546 2,180,024 47% 4,528,388 157,158 3.4%Police Review Commission 537,129 539,441 179,468 33% 474,965 64,476 12.0%City Attorney 2,109,098 2,208,464 1,052,316 48% 2,208,464 0 0.0%City Clerk 1,917,743 1,953,760 784,061 40% 1,896,017 57,743 3.0%Information Technology 5,559,720 7,162,373 4,205,224 59% 6,794,373 368,000 5.1%Finance 5,390,910 5,460,058 2,657,626 49% 5,452,983 7,075 0.1%Human Resources 1,853,369 1,859,529 839,739 45% 1,830,182 29,347 1.6%Health Services 6,703,613 6,896,652 3,164,469 46% 6,896,652 0 0.0%Public Works 2,620,608 2,798,132 1,612,781 58% 2,574,171 223,961 8.0%Parks and Waterfront 5,220,516 5,409,087 2,985,989 55% 5,479,048 -69,961 -1.3%Fire 26,872,321 27,071,205 13,539,784 50% 27,071,205 0 0.0%Police 54,465,928 54,580,411 26,332,182 48% 55,812,130 -1,231,719 -2.3%Housing & Community Svcs. 5,195,122 5,371,464 2,679,120 50% 5,185,976 185,488 3.5%Planning 1,520,621 1,546,934 720,107 47% 1,409,177 137,757 8.9%Economic Development 1,885,242 2,010,095 1,334,292 66% 2,010,095 0 0.0%Berkeley Housing Auth 27,817 27,817 100% 27,817 0 0.0%Non-Departmental 19,349,689 21,194,868 12,944,832 61% 21,194,868 0 0.0%Total 149,576,309 154,594,492 78,942,507 51% 154,625,167 -30,675 0.0%

Attachment 2

2

 FY 2012 Special Funds Expenditures (7/1/11 – 12/31/11)

Note: Special Funds are non-discretionary funds allocated for specific purposes (e.g. Community Development Block Grant, Sewer Fund, and Parks Taxes).

DepartmentFY 2012Adopted

FY 2012Adjusted

YTD Actual + Encumbrances

% Budget Spent

Year -End Projected

Surplus/ Deficit

% Over/ Under

Mayor & Council - - Auditor 113,895 113,895 44,879 39% 106,675 7,220 6.3%City Manager 307,009 299,602 89,782 30% 277,070 22,532 7.5%Police Review Commission - City Attorney 1,550,264 2,427,317 1,739,477 72% 2,426,227 1,090 0.0%City Clerk - Information Technology 2,545,811 3,709,748 1,507,640 41% 3,369,586 340,162 9.2%Finance 2,136,517 2,160,677 759,325 35% 1,525,307 635,370 29.4%Human Resources 1,232,249 1,266,929 537,348 42% 1,188,401 78,528 6.2%Health Services 15,950,376 16,975,542 7,094,304 42% 16,746,413 229,129 1.3%Public Works 89,944,546 119,345,014 68,770,849 58% 108,533,469 10,811,545 9.1%Parks and Waterfront 18,993,435 21,167,983 10,079,936 48% 19,366,796 1,801,187 8.5%Fire 8,316,216 6,737,734 2,800,408 42% 6,737,734 - 0.0%Police 4,375,938 4,469,281 2,011,674 45% 3,681,579 787,702 17.6%Housing & Community Svcs. 10,854,612 14,939,496 6,839,921 46% 13,682,712 1,256,784 8.4%Planning 9,500,330 11,135,758 5,206,439 47% 10,402,728 733,030 6.6%Economic Development 2,007,281 2,305,392 1,916,277 83% 2,305,392 - 0.0%Rent Board 3,930,496 3,948,849 1,754,115 44% 3,948,849 - 0.0%Library 18,166,258 37,364,134 17,029,934 46% 37,318,578 45,556 0.1%Non-Departmental 29,848,249 33,460,194 16,426,451 49% 33,460,194 - 0.0%Dual Appropriations Offset -58,648,159 -67,489,047 (67,489,047) 0.0%Total All Other Funds 161,125,323 214,338,498 144,608,759 67% 197,588,663 16,749,835 7.8%

Berkeley Housing Authority 3,352,293 3,356,624 766,250 23% 3,356,624 - 0.0%

Total General Fund 149,576,309 154,594,492 78,942,507 51% 154,625,167 (30,675) 0.0%

Attachment 2

3

Budget Assumptions Budgeted target savings for some departments are built into FY 2012 Adopted and

Adjusted General Fund budgets. Year-to-date payroll through 12/31/11 equals 50% of the payroll budget expended. Non-personnel YTD expenditures through 12/31/11 and generally assumed to be

fully expended, except for capital improvement project funding. Expenses are measured against the Adjusted Budget, which includes carryover of

funds from FY 2011 into FY 2012 as approved by Council. Second Quarter Variance Analysis The following variance analysis is an expenditure snapshot by City departments and is intended to present possible expenditure trends for this fiscal year. These expenditure trends do not indicate the status of a particular revenue fund. General Fund spending by department The General Fund is projected to end FY 2012 just slightly over budget. Salary savings generated by the hiring freeze and the deferred cost of living adjustments to the end of December are the main reasons most departments are under budget. The savings in other departments is offset by a $1.2 million overage in the Police Department. Police overtime, which has been a problem for several years now, is once again projected to be over budget. Higher overtime expenditures have been due to a significant number of vacant positions and the need to meet mandatory staffing levels to ensure public safety through the use of overtime. Another reason for higher overtime expenditures has been a number of unplanned special events. The Police Department has been proactively working to make corrections to bring overtime costs into line with the budget amount. Five vacant officer positions will be filled and two dispatcher positions have been filled and this will help with overtime costs starting in FY 2013. Special Funds spending by department Special Funds excludes the City’s General Fund and is made up of numerous dedicated revenue funds, enterprise funds, and state and federal grant funds. In general, revenues generated by these activities are restricted. Staff is projecting unspent funds totaling $16 million in FY 2012. This is due almost exclusively to several large capital improvement projects that are in progress and will not be completed in this fiscal year, as well as salary savings from the hiring freeze and the deferred cost of living adjustments. Public Works (General Fund +$223,961; Special Funds +$10,811,545) The vast majority of the unspent funds in the Public Works are attributed to pending capital projects. State Transportation Tax Fund ($775,303): The FY 2012 Street Rehabilitation

construction budget of $775,303 will not be spent in FY 2012 as the project will not go out to bid until the spring.

Attachment 2

4

Metropolitan Transportation Commission Grant ($1.4 million): The Berkeley Transportation Action Plan Transportation Demand Management Project and Parking Management Project funds will not be fully spent by June 2012 and will be carried over to FY 2013.

CALTRANS Grant ($891,439): Grant funding for the Berkeley Transportation Action

Plan Parking Management Project will not be spent in FY 2012 and will be carried over to FY 2013.

Sanitary Sewer ($3.6 million): Projected expenditures in this fund are expected to be

under budget by $3.6 million due to salary savings from vacant positions and under spending of non-personnel budget.

Parks Recreation & Waterfront (General Fund -$69,961; Special Funds +$1,801,187) Parks Recreation & Waterfront is projected to be over budget in the General Fund by $69,961. Personnel expenditures are projected to be over spent but will most likely be offset by non-personnel savings. In addition to salary savings and savings from the deferred cost of living adjustment, funds for capital projects in the Parks Tax Fund ($1.0 million), Capital Improvement Fund ($346,371), Measure WW ($167,906) and the Marina Fund ($594,234) will not be fully spent by the end of FY 2012. Only projects currently underway will have unspent funds carried over to the next fiscal year. Police (General Fund -$1,231,719; Special Funds +$ 787,702) The department projects to be under budget in the Special Funds by $787,702. This is due to salary savings and non-personnel savings in the Parking Meter Fund. Housing & Community Services (General Fund +$185,488; Special Funds +$1,256,784) Housing & Community Services is expected to finish FY 2012 with unspent funds of almost $1.2 million dollars. Almost $1.0 million of these funds are special revenue funds for the youth employment program with UC Berkeley, the Shelter Plus Care program, and state and federal Weatherization program funds that cannot be spent for anything else and must be returned. Planning & Development (General Fund +137,757; Special Funds +$733,030) Planning & Development is projected to finish with savings of $733,030 in all other funds. The savings is due to salary savings from vacant positions in the Permit Service Center Fund ($532,565) and Unified Program (CUPA) Fund ($93,743).