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Director Ponty showed more overheads and said the four main expenditure categories were employee cost at 69%, supplies and services at 17%, Internal Services at 13%, and Fixed Assets at 1%. He said that the Gann Appropriations Limit formula (amount of the tax revenues a City receives that can be appropriated) established a limit of $61,736,000 for Redwood City. Director Ponty advised that staff is requesting the Council to approve appropriations of $37,939,943, an amount considerably less than the top limit. Director Ponty used an overhead to show a Five Year General Fund Projection summary (Report, Roman Numerals 14 and 15) through 2002/03. He said that these figures reflected a projected 4% increase in salaries and benefits, and all other city expenditures to increase at 3% per year; property taxes and sales tax to increase at 4.5%, with other revenues increasing at 3.5%. Director Ponty said these projections included the commitment to CIP with $700,000 transferred from the General Fund each year. He said the revenues were beginning to "reflect the decline in development revenues... as we reach build out in the Redwood Shores area." He said these figures do not include the proposed Pacific Shores Development. Director Ponty said the Budgets were balanced in each of the next two Fiscal Years, and beginning in the third year the projection was for a deficit of .96% in 2000/01, .85% in 2001102, and .72% in 2002/03. He said each of those figures represented less than one percent of the General Fund, which is "very manageable." City Manager Everett said that Director Ponty had done a great job in using strict criteria to estimate projected revenues within 2%, the standard used to measure projected budgets. He said, "If you use that 2% category, you basically are looking at somewhat of a balanced Budget." City Manager Everett said that as 2000/01 approaches they would be able to factor in the current economic indicators and make better and more accurate estimates of revenues and expenditures. In response to Council Member Leipzig's comments, City Manager Everett concurred that if the future numbers were "2% off in a good direction" the projected deficits would disappear, and if the opposite occurred, the projected deficits might double. Director Ponty showed a graph of the sales tax received since 1994 through 1997 with construction, food products, and miscellaneous holding firm, general retail rising slightly by 1997, and transportation peaking in 1997 and then slightly declining due to the loss of an automobile dealership. He said the sixth category, business to business services, now the leading sales tax revenue producer, showed the most dramatic growth but, as evidenced on the graph, was quite volatile. He said there were no economic models to explain or predict business to business revenues. Director Ponty said that category was dominated by a handful of businesses and the City was becoming quite dependent on that revenue. He BUDGET STUDY SESSION MINUTE BOOK NO. 57 JUNE 29,1998 MINUTES Page No. 008 PAGE 4