AgdaPkt 2003-03-10 - Laserfiche WebLink

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e -i REPORT To the Honorable Mayor and City Council From the City Manager March 10, 2003 Subject Guidelines for FY 03104 General Fund Budget Cuts Recommendation It is recommended that the City Council endorse the policy delineated in scenario "B" in this report, as a way of dealing with our deficit for fiscal year 03/04. Background - (Our Problem) Redwood City has projected deficits for the next four years caused primarily by the downturn of the economy and i ^creased retirement system contributions. Redwood City needs to bring expenditures and revenues into balance. We must focus all of our energies in reducing expenditures and when possible increasing revenues. Our reserves are not a solution to this problem; rather they represent a strategy to give us time to bring expenditures and revenues into balance. In a nut shell, revenues are projected to expand 16% from FY 02/03 to FY 05/06, while expenditures are projected to increase 28% during the same period of time (these figures include 3 % @50 retirement for Fire, but do not include 3 % @50 retirement for Police; nor do they include any additional takeaways by the State). Why are expenditures increasing at a higher rate than revenues? The economic downturn has significantly limited our revenues. Expenditure increases are being driven by labor agreements that have future healthy wage increases which were negotiated several years ago. Expenditures are also increasing because of PERS for two reasons. First, our PERS rate is increasing significantly because of the drop in the stock market. Secondly, we have added the 3 % @50 retirement plan for Fire. Expenditures are also increasing due to significant jumps in health benefits and workers' compensation. The diverging lines of expenditures and revenues need to be brought together. We should use our "reserves" in a strategic way to give us time to accomplish this. Based on our five year projections from the budget, the following revenues and expenditures are relevant (see below). To these numbers we have added the 3 % @50 retirement plan for Police (this is the present City position offered in negotiations) and we have estimated a one million dollar a year loss to the State. These figures together give us our projected deficit over the next several years. Page 1 of 5