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6.B. - Page 2 of 10 Revised Forecast will continue to be updated to account for these and other impacts as part of the development of the FY 2020/21 Recommended Budget and beyond. ANALYSIS The City Council has a history of taking intentional, proactive, and strategic steps to ensure fiscal sustainability, including adopting a structurally balanced annual budget, funding long-term needs, and maintaining a 15 percent General Fund reserve level. In continuing these steps, staff is providing the revised preliminary ten-year General Fund forecast. This report focuses on the notable changes in assumptions from the February 24, 2020 Forecast for FY 2019-20. In addition to continuing current City operations, the February Forecast included numerous one or two- year General Fund expenditures to address City Council priorities. The Forecast indicated a FY 2019-20 net surplus of $916,000, with operating balances in FY 2020/21 and FY 2021/22. At this time, staff currently estimates a net surplus of $7,000 for FY 2019/20, and deficits beginning in FY 2020/21 if expenditures are not modified. The chart below displays a reconciliation of the change in net surplus from February to April. Reconciliation of net operating balance Original net operating balance (February 2020) $ 916,000 Reduction in revenue (6,142,000; Added COVID-19 costs through 3/31/20 (159,000; Reduced additional discretionary CaIPERS payment 1,500,000 Reduction in reserve requirement 765,000 Reduction in department expenditures due to vacancies 3,000,000 Reduced transfer out of UUT revenue to align with actuals 127,000 Revised net operating balance $ 7,000 The Revised Forecast has been developed during a time of extreme uncertainty and does not include additional expenditures associated with the City's response to the emergency incurred after March 31, 2020, which could be significant but are still unknown. Also, the Forecast does not assume additional Federal, State, or County revenues to offset COVID-19-related operating costs or revenue losses. Assumptions regarding revenues and expenditures are described further below. Revenue Update FY 2019-20 General Fund revenues and transfers in were forecast to be $165.3 million in February, but are now estimated to be $159.2 million, a decrease of $6.1 million. The chart below displays the primary variances. Page 2 of 8 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.ore 222