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8.A. - Page 2 of 104 ANALYSIS The economic forecast for Redwood City continues to suggest budget reductions are necessary now and will be required for several additional years. The national economy is anticipated to experience an exceptionally sluggish recovery, and state and local governments are expected to lag considerably behind the overall economy. In addition, forecasts for the pandemic indicate a high likelihood of worsening public health conditions this winter and that the pandemic will have health and economic impacts for at least two years. Therefore, the Revised Budget proposes a reduction in expenditures of $7.7 million from the FY 2020-21 Adopted Budget, including a reduction of $6.3 million in the General Fund. The Revised Budget reduces funding in every department as a first step toward addressing the City's new financial realities. Beginning this year, staff will need to develop alternative service models for City services in order to best meet community needs while living within City resources. The Revised Budget is based on the strategy to: 1) Respond to immediate community needs resulting from the Covid-19 pandemic, with particular care for vulnerable populations; 2) Restore community cultural, economic and social vitality in partnership with community organizations and businesses; and 3) Reimagine public services in light of evolving community needs and limited financial resources. It also incorporates the City Council's affirmation in August of the City Council's top three priorities: housing, transportation, and children and youth for the upcoming year. In addition, the Revised Budget reflects that sustainability must continue to be a priority, and it commits resources to developing an Equity Workplan and examining diversity and equity in our organization and our community, in alignment with the City Council's decision to add equity as a Foundational Guiding Principle in the City's Strategic Plan. The enclosed Budget Message, Strategic Priorities and Goals, and Financial Summaries lay out the operating direction for the City as we navigate our way out of the series of crises that have befallen us in 2020. It recognizes this moment not only as a challenge, but also as an opportunity to reimagine our organization and our community for the better. With the Revised Budget, we continue to fund ongoing services from ongoing revenue, and use one-time revenues for one-time expenses. City operating revenues are expected to drop 8.1% or $13.1 million compared to FY 2019/20 and we estimate it will take at least five years for revenue to return to FY 2019- 20 levels. When combined with known increases for unfunded pension liabilities over the next 10 years, the City must take action to reduce operating costs and seek new revenues. As the pandemic has unfolded, we have made significant changes in what services are provided, and how they are provided, adapting rapidly to evolving information and priorities with creativity and determination. At every turn, City staff have risen to the occasion. Now and in the years to come, we must continue to draw on our proven ability to be nimble, responsive, collaborative and innovative. Page 2 of 4 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.ore 371