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14 Staff Report - 2004/05 First Quarter Budget Report DATE: TO: FROM: COUNCIL AGENDA REPORT October 14,2004 MAYOR AND TOWN COUNCIL DEBRA J. FIGONE, TOWN MANAGER MEETING DATE: 10/18/04 ITEM NO. SUBJECT: 2004/05 FIRST QUARTER BUDGET PERFORMANCE AND STATUS REPORT-AT THREE MONTHS ENDING SEPTEMBER 30,2004. A. ACCEPT 2004/05 FIRST QUARTER BUDGET PERFORMANCE STATUS REPORT. B. AUTHORIZE BUDGET ADJUSTMENTS AS RECOMMENDED IN THE ATTACHED FIRST QUARTER BUDGET PERFORMANCE _ REPORT. RECOMMENDATION: 1. Accept Fiscal Year 2004/05 first quarter budget performance and status report. 2. Authorize budget adjustments as recommended in the attached first quarter budget performance report. BACKGROUND: The attached Budget Performance Report covers the first three months ofthe fiscal year beginning July 1,2004 and ending September 30, 2004. The Budget Performance Report presents analysis and recommendations related to key General Fund revenues by category and expenditures by fund. A Capital Improvement Plan Status Report that provides an update on capital project activities through the first quarter, is scheduled for presentation to Town Council at a later date. PREPARED BY: ST' . 􀁃􀁏􀁬􀁮􀀮􀀢􀀧􀁉􀁔􀁾􀀭􀀭􀀭􀀭 Finance & Adm' strative Services Director SDC:pg N:\MGR\AdminWorkFiles\cnclrpts\FY 04-05 1stQCouncil Report.wpd Reviewed by: __Assistant Town Manager =iQL£Town Attorney __Clerk 1(2/Finance __Community Development Revised: 10/14/04 3:09 pm Refonnatted: 5/30/01 PAGE 2 MAYOR AND TOWN COUNCIL SUBJECT: 2004/05 FIRST QUARTER BUDGET PERFORMANCE AND STATUS REPORT-THREE MONTHS ENDING SEPTEMBER 30,2004. October 14,2004 Staffprovides to Town Council periodic updates on the status ofthe current year's adopted budget revenues and expenditures and the projected financial condition ofTown funds, concentrating most importantly on the Town's General Fund. Though financial results are limited to the first three months, staff is, able to provide an update based on early revenue trends for the current fiscal year. FY 2004/05 introduces some significant changes to Town revenues as a result ofthe State budget process, and in anticipation of Governor's recommendation that voters approve Proposition 1A in November. The revenue structural changes and related fiscal impacts to the Town are presented in . detail in the attached First Quarter Budget Performance Report. The revenue changes effective this fiscal year were part ofthe State budget bill finalized earlier this year, and will be implemented by -the State this fiscal year regardless of the vote on Proposition 1A. This report also informs the Town Council and community of the status of the revenues adopted to support the FY 2004/05 Adopted Operating Budget, and advises Town Council ofpotential future revenue challenges which may materialize if California voters do not approve Proposition 1A. As part ofthe State and local government's budget agreement process, revenue provisions enacted in the State's FY 2004/05 budget reduce two major revenues dedicated to the Town -Sales Tax and Vehicle License Fees (Car Tax), but incorporates replacement revenues to local governments for lost revenue in this and the next fiscal years. In addition, Proposition 1A attempts to secure the current revenue structure and state "backfills" at the FY 2004/05 level, and protect this base level of local government revenues with any future reductions subject to two-thirds legislature approval. DISCUSSION: This year's first quarter budget report reflects the continuing economic downturn experienced locally and nationally. It also discusses the potential for more severe future revenue decreases should Proposition 1A fail and state revenue "takes" increase from the present levels ofapproximately $2.3 million annually in property tax revenue as legislated for in FY's 2004/05 and 2005/06. In the FY2004/05 budget process, the Town prudently forecasted a slow economic recovery oflocal revenues, incorporating flat revenue growth in economically-sensitive revenues such as sales tax, franchise fees, business license and transient occupancy taxes. Specifically, the adopted budget incorporated approximately $1.4 million of "Tier One" reduction and revenue enhancements made Town-wide to balance operating expenditures with operating revenues. Staff also prepared "Tier Two" reductions ofan additional $1.4 million in Town-wide expenses in anticipation ofany further reductions made necessary by further State takes, or unanticipated reductions in economically sensitive revenues such as Sales Tax or Transient Occupancy Tax. PAGE 3 MAYOR AND TOWN COUNCIL SUBJECT: 2004/05 FIRST QUARTER BUDGET PERFORMANCE AND STATUS REPORT-THREE MONTHS ENDING SEPTEMBER 30, 2004. October 14,2004 At the first quarter end ofFY 2004/05, revenue trends are tracking in line with projections made at the Tier One level. There are however, major concerns about the Town's operating revenue base. These concerns center around the stability of the Town's share of property taxes generated by the community, the Town's share of sales taxes (formerly 1.0% ofthe 8.25%, now reduced to .75% of the 8.25% under the State's "Triple Flip" discussed below), and the Town's share of the car taxes collected by the state. The state also passed legislative action in the budget bill to reduce the car tax rate by two-thirds (0.65% versus 2.0% of vehicle value). The car tax revenue source is constitutionally guaranteed to local governments, but the State sets the taxation rate. Reducing the car tax rate by two-thirds amounts to approximately $1.2 million annually in lost revenues to the Town. However, the State has agreed as part of the FY 2004/05 budget bill to replace the $1.2 million in lost local cartax revenue with property taxes that otherwise would have gone to the State's General Fund. With the "Triple Flip" (first flip-State takes local revenues, second flip-replaces it to local governments with property tax, third flip-funds schools with State General Fund revenue), the State has pledged to replace, dollar for dollar, the .25% loss in Sales Tax with Property Taxes (for FY 2004/05, the .25% take ofSales Taxis forecastto be approximately $1,725,000). This Property Tax replacement funding will be paid twice a year with a clean-up payment in August. The remaining .75% Sales Tax still dedicated to the Town is paid monthly, which means the Town will incur some loss of interest "float" from the delay in the cash receipt for the .25% flip. Proposition lA contains provisions that would protect the agreements made with local government in respect to future State revenue "takes". The measure seeks to keep the local government funding level at the amount proposed in FY 2004/05. If lA is not successful, the continued stability ofthese revenue sources at the levels of funding experienced in FY 2004/05 cannot be guaranteed for FY 2005/06. Service Delivery in FY 2004/05 In preparing the adopted FY 2004/05 budget, the Town's goal was to identify reductions that would have the least impact on vital Town services and the organization's workforce. The recommended Tier I expenditure reductions were achieved through a combination ofoperational efficiencies, salary savings from vacancies, strategic staffing defundings, overtime reductions, service and supplies reductions, training reductions, and equipment replacement postponements. PAGE 4 MAYOR AND TOWN COUNCIL SUBJECT: 2004/05 FIRST QUARTER BUDGET PERFORMANCE AND STATUS REPORT-THREE MONTHS ENDING SEPTEMBER 30, 2004. October 14,2004 While avoiding major impacts on services and the organization, the Tier One reductions have affected FY 2004/05 operations overall. Holding vacancies, staffing reductions, and reducing overtime results in the current workforce absorbing more of the workload, and thus limiting flexibility to respond to new opportunities andlor increased service demands. Response times associated with non-public safety requests have increased and new policies may need to be implemented to align resources with community demands for service. Park and street maintenance cycles have been extended or reduced, as well. Continued limited training funds in the adopted FY 2004/05 budget will mean that employees will forego some opportunities for enhancing knowledge and skills however, we are keeping a pool of funds intact for priority training opportunities. Over the longer-term, Tier One reductions made in the FY 2004/05 budget are not sustainable without incurring more significant impacts on services. Tier Two reductions for FY 2004/05 are available for implementation should they become necessary due to economic downturns not anticipated in the budget development, or as a result ofstate action should the protections"in Proposition 1A not be in place. FY 2005/06 AND BEYOND: CHALLENGES AHEAD In August, 2004, staffupdated its five-year General Fund financial operating plan. With the ongoing uncertainty of developments at the state level, staffs longer term planning horizon is seriously impacted, however planning tools continue to indicate more balancing steps will be necessary unless the Town's operating revenues increase more than expected in future years. The updated plan used cost assumptions based upon estimated costs of labor and benefits which represent approximately 70% of General Fund operating costs and other expenditures, and modest increasesin revenues based upon an assumption assumption of gradual economic recovery from the downturns experienced in recent years. The plan continues to project revenue shortfalls ranging from $500,000 to $1,000,000 annually that must be managed pro-actively by the Town. To address this, the Town is continuing its multi-prong efforts to achieve operational efficiencies, cost reductions, non-vital service level reductions, and revenue enhancement efforts to balance on-going revenues with expenditures in future years. As the budget tightens each fiscal year, the ability to reduce operational expenditures without severe impacts becomes increasingly challenging. A concerted effort is being made this year to thoroughly explore our service delivery approaches for best practices, efficiencies, and where resources could be redirected. An analysis of fees for cost recovery levels will also be undertaken. PAGE 5 MAYOR AND TOWN COUNCIL SUBJECT: 2004/05 FIRST QUARTER BUDGET PERFORMANCE AND STATUS REPORT-THREE MONTHS ENDING SEPTEMBER 30, 2004. October 14,2004 The Town continues to communicate with Town residents, Town staff, and the Town's bargaining units to increase understanding of the fiscal situation and to solicit ideas. The goal is to minimize the impact on Town services and maintain the Town's quality community while sustaining the Town's fiscal health. ForFY 2004/05 andFY 2005106, the Town will use approximately $500,000 of one-time funding sources to address the additional property tax State "takes" that local governnient representatives and the Governor agreed upon in developing the state budget (to gain the Governor's support of Proposition 1A). To be fiscally responsible, the Town uses conservative estimates for economically-sensitive revenue projections in its long-term planning tools. If the economic rebound is sooner or stronger than projected, expenditure reductions will be re-evaluated and brought to the Town Council to identify priorities. FORMAT OF THE REPORT The attached Budget Performance Report includes a financial overview comprised of: a brief discussion of the Town's financial condition; the FY 2004/05 financial outlook; a summary of the performance of the Town's primary General Fund revenue sources and necessary budget adjustments; and a look ahead at the FY 2005106 budget process. Included in the report is a schedule ofGeneral Fund Operating Revenues vs. Operating Expenditures for FY 2004/05 with actual revenue and expenditure totals for the first three months of the fiscal year. The report explains the departmental expenditure reduction plans recommended to balance revenues and expenditures for the current year. Also provided is a five year fiscal perspective developed through the Town's long-term planning process. The look forward includes important issues that staff will track, analyze, and advise the Town Council on as we wrestle with funding needs in the longer term horizon. The Town's Five Year Financial Projections are presented on a summary basis, under two fiscal impact scenarios. One is an optimistic approach where Proposition 1A is approved by California voters which thereby protects the Town from additional State revenue "takes" in the future and also includes a gradual recovery of economically sensitive revenues such as Sales Tax and Transient Occupancy Tax. The other is an unfavorable scenario which assumes Proposition 1A is not approved and thereby includes the potential for additional state revenue takes, coupled with the effects ofa slow recovery in the next five years in economically sensitive revenues. The report concludes with a discussion ofstrategies staffwill be using to address the fiscal concerns raised by the Five Year Financial Plan, both in developing the FY 2005106 budget and in the current year budget administration. PAGE 6 MAYOR AND TOWN COUNCIL SUBJECT: 2004/05 FIRST QUARTER BUDGET PERFORMANCE AND STATUS REPORT-THREE MONTHS ENDING SEPTEMBER 30,2004. October 14, 2004 ENVIRONMENTAL ASSESSMENT: This budget report is not a project defined under CEQA, and no further action is required. FISCAL IMPACT: The attached First Quarter Budget Performance Report includes a section providing a detailed list ofrecommended expenditure and revenue budget adjustments recommended for the first quarter of FY2004/05. Upon approval ofthe recommended budget adjustments by Town Council, the adopted appropriations for the fiscal year will be adjusted accordingly. Attachment: Budget Performance Report for the Three Months Ended September 30, 2004 TOWN OF LOS GATOS BUDGET PERFORMANCE REPORT FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 October 18, 2004 FINANCIAL OVERVIEW -EXECUTIVE SUMMARY Status of FY 2004/05 Adopted Budget: First Quarter results continue to reflect slow recovery in the Town's General Fund operating revenues. Examples of this are in the case of Transient Occupancy Tax. First quarter collections are trending lower than first quarter collections received in the prior year's first quarter. Sales Tax actual revenues are also trending slightly below the amounts received the first quarter last year. On a positive note, the first quarter Property Tax collections, comprised of mostly Property Transfer Taxes, are trending positively in comparison to the first quarter of the prior year. Department expenditure totals for the first quarter FY 2004/05 appear to be favorable, with spending at the end of the first quarter below the 25% benchmark level used for three months of 12 months operations. With only three months of data available and the uncertainty of voter approval of Proposition lA, it is difficult to predict revenues and expenditures for the whole year, so further adjustments may be necessary during the fiscal year. A large unknown that exists at this time is what will be the fate of the historic budget compromise and agreement between the state and local governments. The uncertainty is centered upon what will happen in the future if the local government revenue protections provided in Proposition 1A fail to be approved. In light of this uncertainty and being aware that the local economy's recovery remains tentative, staff continues to monitor fiscal developments very closely. Any mid-year course corrections or budget adjustments necessary will be brought to Town Council's attention at the earliest opportunity to balance operating revenue and expenditures. State Budget Fiscal Impacts to Town for FY 2004/05: The FY 2004/05 budget package makes major changes to the structure and amount of Town General Fund operating revenues and places a constitutional amendment before the voters to protect local government revenues. It should be noted the revenue changes discussed later in this report are not dependent upon the results of the November 2004 election where voters will decide whether or not to approve the proposed constitutional amendment (Proposition lA-Protection of Local Government Revenues). They are approved as part of the State's FY 2004/05 budget and will be implemented this fiscal year. Proposition lA is a part of the budget bill, but its protections center upon future fiscal years. Proposition lA includes provisions for "backfill" funding for lost revenues formerly received by the Town and places restrictions on the state's ability to make further additional revenue "takes" from local government. Specifically, the budget package approved by the legislature and the Governor includes these key elements: Places a Constitutional Amendment before the State's Voters -As part of the budget agreement crafted between the state and local governments, the Legislature approved Proposition 1A for the November ballot, which will place restrictions on future legislative authority to reduce or reallocate local revenues from the sales tax, property tax, or vehicle license fee (VLF). If Proposition 1A passes, the state would be prevented from: • Reducing local sales tax rates or altering the method of allocation • Shifting property taxes from the Town to fund other state programs • Decreasing VLF revenues without providing replacement funding • Enforcing unreimbursed mandates (with certain exceptions) As background, the Legislature approved Proposition 1A as an alternative to Proposition 65 (placed on the ballot through the initiative process). Proposition 1A prohibits further state revenue "takes" from local government as itemized above. However, Proposition 1A still contains provisions for additional state revenue "takes". Specifically, starting in FY 2008/09, in an emergency, by a vote of two-thirds of both houses of the Legislature and the approval of the Governor, the Town's share share of property tax could be "taken" or shifted to other state programs, but it must be repaid, with interest, within three years. The state could also approve voluntary exchanges of sales and property tax revenues among local governments within a county. These transfers of taxes and funds would not need voter approval. Eliminates the Statutory VLF Trigger and Backfill -The FY 2004/05 budget bill sets the VLF rate at 0.65 percent of vehicle value ( the former rate was 2.0 percent, the difference was made up to local governments in the form of a VLF "backfill") and eliminates the trigger mechanism that increases the VLF rate in the event that the state's General Fund has insufficient funds to make the required backfill payments to cities and counties. The budget bill permanently replaces the Town's VLF "backfill" revenues with an additional amount of property taxes equal to the former "backfill" amount. This will be accomplished by reducing the Town's contribution to ERAF (Educational Revenue Augmentation Fund). Shifts Property Taxes to K-14 Districts -The budget bill shifts $1.3 billion of property taxes from cities, counties, special districts, and redevelopment agencies to K-14 district schools in 2004/05 and 2005/06 for the fiscal benefit of the state. The estimated Town share of the $1.3 billion shift is approximately $490,000 for FY 2004/05 and the same amount for FY 2005/06. The $490,000 shift amounts for the next two years were considered by the Town in its FY 2004/05 budget to be "one-time" additional state revenue takes. This judgment was made under the assumption that further takes would be disallowed under Proposition 1A. Provides No Funding for Most Mandates -Similar to FY 2003/04, the FY 2004/05 budget bill provides no funding to reimburse the Town for most state-mandated local programs. The state estimates these deferred reimbursements total over $1.5 billion state-wide to local governments, including more than $200 million for local agency compliance with mandated requirements in FY 2004/05. Reduces Booking Fee Authority and Reimbursements -The budget package prohibits counties from increasing their booking fees in 2004/05. Beginning in 2005/06, counties may impose booking fees to offset one-half (rather than all) of their administrative costs associated with booking and processing of arrestees. In 2004/05, cities and special districts continue to receive $38.2 million in booking fee reimbursements (Town share is approximately $84,000) through a continuous appropriation. The budget package eliminates this continuous appropriation effective July 1,2005. Effects of State Budget Package on FY 2004/05 Operating Revenues: As mentioned earlier, the changes to Town revenue structure is provided in the budget bill and will occur this fiscal year, regardless of the outcome of the election on Proposition lA. Presented below are the summaries of the state budget's impact to Town revenues in the FY 2004/05 Adopted Budget: Sales Tax -Sales Tax for the Town was adopted at $6.9 million for FY 2004/05. The state's Economic Recovery Bonds, approved by the voters in March 2004, are secured by a pledge of revenues from an increase in the state's share of the sales and use tax of one-quarter cent beginning July 1,2004. The Town's share of the tax will be reduced by the same amount and, in exchange, the Town will receive an increased share of the local property tax shifted from state property tax (ERAF) during the time the one-quarter cent is being used to payoff the bonds (estimated to be between 9 and 14 years). This shift in revenues between the state and local governments governments and (ERAF) accounts is known as the "triple flip." Effects on the current year budgeted amounts are shown below: FY 2004/05 Post State Budget Revenue FY 2004/05 FY 2004/05 After Implementation of "Triple Flip" Type Budgeted Revised Effective 7/1/2004 Sales Tax $6,900,000 $5,175,000 Rate of 1% of 8.25% changed under budget bill (1% of to (.75% of 8.25% sales tax rate) for a period of 8.25%) between 9 and 14 years. Sales Tax $0 $1,725,000 (.25% of 8.25% sales tax rate) This amount now Replacement is dedicated to the state, but the "triple flip" With provisions of the state budget bill (SB 1096) Property Tax replaces the lost Town sales tax with additional state property tax to make the Town "whole". The amounts are paid twice annually by County , of Santa Clara with a final settlement paid in August following the fiscal year. Totals $6,900,000 $6,900,000 $6,900,0000 Motor Vehicle License Fees (Car Tax) -The budget package sets the VLF rate at 0.65 percent of vehicle value (one third of its former legally established rate of 2.0 per cent) and eliminates the trigger mechanism that increases the VLF rate in the event that the state's General Fund has insufficient funds to make the required backfill payments to cities and counties. The budget package permanently replaces the Town's backfill revenues with an equal amount of property taxes paid out of the state General Fund. FY 2004/05 Post State Budget Revenue FY2004/05 FY 2004/05 After Implementation of "Triple Flip" Type Budgeted Revised Effective 7/1/2004 Car Tax $1,700,000 $566,610 Rate reduced legislatively to 2/3rds of the former Including rate (2.0%). This tax is constitutionally dedicated State to local government. The Town continues to "Backfill" receive the tax collected, but at the reduced 1I3rd level (.65%). Car Tax $0 $1,133,390 The budget package permanently replaces the Backfill Town's VLF backfill revenues with an equal Eliminated amount of property taxes paid "in lieu". of car tax and Replaced revenue out of the property taxes forwarded by By an Equal the County to the State's General Fund. Amount of Property Tax Totals $1,700,000 $1,700,000 No change to total revenues Prior Fiscal Year Closing Results: The FY 2004/05 closing financial results demonstrate the positive effect of the Town's pro-active budgetary actions taken in response to the continuing flat revenue growth or downturns in key operating revenues experienced last fiscal year. In mid-FY 2003/04 the Town was able to take advantage of approximately $400,000 in actual current year savings from the adopted expenditure budget that .occurred as the result of selected hiring freezes, departmental efficiencies, and expenditure slowdowns that the Town could use to offset the forecasted revenue declines and keep the budget balanced. As a result, a formal mid-year FY 2003/04 expenditure budget reduction to meet the $400,000 budgetary reduction in FY 2004/04 estimated revenues was not necessary. Additionally, in February 2004, Town Council approved in concept a combination of budgetary reductions and revenue enhancements for FY 2004/05 totaling nearly $1.4 million of Tier I adjustments. General Fund Results for the FYE June 30,2004: The Town's General Fund reserves closed the year (unaudited) at a total of approximately $10.6 million (including the Town's Reserve for Economic Uncertainty intact at $3,678,000), compared to $10.9 million the prior year. The mid-year 2003-04 report forecasted total General Fund revenues (including transfers and authorized reserved but excluding GASB31 investment writedowns) exceeding expenditures by $76,300. GASB 31 write-downs of investment consists of "expensing" the loss of principal value on the investment portfolio. This typically occurs in a rising interest rate environment when the investments held in the Town's portfolio carry interest yields below higher rates available in the current market. The GASB 31 write-down marks the investment portfolio to true market value at June 30, 2004. This is a "non-cash" expense which is strictly an accounting entry with no impact to Town cash reserves. Excluding these write-downs, actual revenues over expenditures for the prior year (unaudited) actually finished ahead of mid-year projections by closing at approximately $198,000. General Fund expenditures totaled $24.3 million compared to the adjusted FY 2003/04 budget of $25.1 million. General Fund operating revenues for FY 2004/05 amounted to approximately $24.5 million, closing the year almost exactly equally the FY 2004/05 adjusted revenue budget of $24.5 million. It should be noted that operating revenues for FY 2003/04 included approximately $650,000 of transfers to the Town's General Fund from Internal Service Fund excess balances that the Town is using to supplant revenues during the current downturn in the economy. Unfortunately, these transfers cannot be sustained on an ongoing basis. The Town's five-year plan assumes decreasing amounts of this revenue available through FY 2008/09. If these transfers were reduced, FY 2003/04 operating revenues would be reduced accordingly to a level of approximately $23.8 million, or approximately $500,000 below General Fund expenditures in FY 2003/04. Scheduled labor cost increases and other operating expenditure increases in FY 2004/05 and future fiscal years will continue to necessitate an improvement in the Town's economically sensitive revenues to offset the cost increases likely to occur. The Town's efforts in the past three years including expenditure reductions, align user fees to cost of service delivery, operational reviews and service level adjustments, along with the ongoing efficiency efforts being implemented by the Town are anticipated to reduce the pressure on the Town's revenue base to keep pace with the cost of providing services and provide discretionary funding for other initiatives such as funding future capital improvements. GENERAL FUND-KEY REVENUE ANALYSIS FY 2004/05 In the following presentation are recaps of significant General Fund revenue sources as of the first quarter ending September 30,2004. Staff monitors each revenue source closely, closely, and at this time is most concerned about one revenue source, Transient Occupancy Tax, that may require revision at mid-year when more data is available. Property Tax appears to be tracking favorably against budget estimates, but these early collection amounts cannot be used for estimates for the entire year because the first installment of secured property tax for FY 2004/05 is not typically received until December. FINANCIAL OUTLOOK FY 2004/05 • Sales Tax Revenue • Description The State Board of Equalization, with the implementation of the "triple flip," now allocates .75 cents of the 8.25 cents of local sales tax collected by merchants on retail sales and taxable services transacted within the Town of Los Gatos. The lost .25 cents of local sales tax is being replaced by the state with an equal amount of property tax. Revenues are remitted to the Town on a monthly basis. This revenue is placed in the General Fund for umestricted uses. Analysis The San Jose Mercury News reported on September 14, 2004 that Silicon Valley's unemployment rate fell nearly a full percentage point to 5.5% in August. That is down from 6.4% in July and it is much better than the 8.1% reported in August 2003. The numbers suggest things were a bit better in August than in July. But even if the worst of the downturn is over, economists say the recovery still isn't trickling down to the workers. Staff is encouraged that one local internet based business continues to gain momentum and its growth is offsetting some declines in other businesses. The Commerce Department reported retail sales fell by 0.3% in August 2004, following a 0.8% gain the previous month. In recent months, overall retail sales have exhibited a seesaw pattern, up one month and down the next. Quarterly and Annual Revenues 5-Year History lEI Fiscal Year Total Estimated Revenues oFiscal Year Total Actual Revenues o I st Quarter Actual Revenues "'I /j-Al---------------//, /JL $10,000,000 $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 . $1,000,000 $_ 􀀮􀁊􀁤􀀮􀁊􀀬􀀽􀀡􀀽􀁾􀁩􀀽􀀭􀁢􀁾􀁾􀀭􀀭􀁢􀁾􀁾􀁾􀁾􀁾􀀽􀁾 FY 200I FY 2002 FY 2003 FY 2004 FY 2005 FY 2001 FY 2002 FY 2003 FY2004 FY2005 1st Quarter Actual Revenues $ 2,400,559 $ 1,490,292 $ 1,336,124 $ 1,515,570 $ 1,514,045 Fiscal Year Total Actual Revenues $ 9,429,256 $ 6,953,880 $ 6,928,817 $ 6,914,526 Fiscal Year Total Estimated Revenues $ 6,900,000 1st Quarter Percent of Total 25.46% 21.43% 19.28% 21.92% 21.94% Recommended Budget Revision No Change FINANCIAL OUTLOOK FY 2004/05 • Property Tax Revenue • Description Property Tax is one of the Town's largest revenue sources, accounting for 20.02% of the Town's budgeted General Fund revenue for FY 2004/05. Property Tax distributions are largely received in the third and fourth quarters of the fiscal year, meaning revenue receipts are not reflected proportionately in the chart below, by quarter. Property Tax is levied at one percent of the assessed value of the property, of which the Town currently receives approximately 9.5 cents on each dollar paid to the County Assessor's Office. The assessed value of real property appraised by the County Assessor is the 1975-76 assessment role value, adjusted by a two percent inflation factor thereafter. When property changes hands or new construction occurs, property is reassessed at its current market value. Real property values critically impact revenues. With the passage of Proposition 13, voters in California limited the tax rate that can be imposed by the Town on property. With this limitation on rates, the higher the aggregate property value, the higher the revenue generated. Analysis According to the County Assessor's FY2004/05 Annual Report,. Los Gatos experienced an overall 6.47% increase in assessed value in FY 2003/04. This favorable trend is offset by a continuing decrease in commercial property values which declined last year reflecting the weak local economy and its effect on local office building and shopping center valuations. FY2005 Quarterly and Annual Revenues 5-Year History $6,000,000 /: ----I $5,000,000 /';-􀀭􀁾􀀭􀁾􀀭􀀽􀀭􀀭􀀮􀀽􀀷􀁉􀀽􀀽􀁭􀀱 :􀁾􀁯􀁯:􀁯􀀬,􀁯:􀁯􀁯 􀁾/ill.􀀭􀁾􀀻􀀺.􀀭.-.;-..-.--. --.-;=􀀺􀁾-=.􀀭:􀀮:-􀀭,,􀁉=􀁉􀁉-􀁾: FY 200 I FY 2002 FY 2003 FY 2004 o Ist Quarter Actual Revenues oFiscal Year Total Actual Revenues G Fiscal Year Total Budgeted Revenues FY 2001 FY 2002 FY 2003 FY 2004 FY2005 1st Quarter Actual Revenues $ 167,302 $ 141,085 $ 126,035 $ 86,045 $ 102,035 Fiscal Year Total Actual Revenues $ 4,472,583 $ 4,784,476 $ 4,977,119 $ 5,207,381 Fiscal Year Total Budgeted Revenues $ 4,952,893 1st Quarter Perceut of Total 3.74% 2.95% 2.53% 1.65% 2.06% Recommended Budget Revisiou No Change FINANCIAL OUTLOOK FY 2004/05 • Motor Vehicle In-Lieu Fee (Car Tax) • Description The State of California imposes an annual Motor Vehicle License Fee (MVLF) on the ownership of a registered motor vehicle, based on the vehicle's sales price. This fee is "in-lieu" of a personal property tax on the vehicles. For those vehicles brought into California from out of state, the fee is based on the vehicle's market value at the time of California registration. After the Department of Motor Vehicles collects this fee, the State remits the funds to the cities and counties on a monthly basis. The State allocates the MVLF revenue, less a small allocation for administrative costs, by way of a complex formula involving population and property tax revenues. The Town has pledged this revenue as collateral for repayment ofthe 1992 Certificates ofParticipation. Analysis The FY 2004/05 state budget bill permanently reduced Motor Vehicle In-Lieu fees to a 0.65% tax rate from the prior rate of 2.0% and established a property tax backfill to local governments for the loss of revenue due to the rate reduction. Total budgeted FY 2004/05 revenues therefore, reflect the remaining 1/3rd of car tax revenues ($570K) and a 2/3rds backfill ($1.1 million) of property tax totaling $1,700,000 in total revenues to the Town. Revenue growth is projected to be steady but flat in FY 2004/05 in this still slow economy. First quarter revenues however, are falling far short of the quarter percent mark due to structural changes in the Car Tax backfill. Backfill revenues to local governments are now funded by the State's semi-annual property tax payments (and an August clean-up payment) rather than monthly Car Tax payments, meaning the revenue stream is not comparable to prior years at this time. Quarterly and Annual Revenues 5-Year History $1,800,000 /;'-=.----------;=---1 11-------$1,600,000 $1,400,000 $1,200,000 $1,000,000 -$800,000 $600,000 $400,000 $200,000 $_ 􀁗􀀺􀀽􀀡􀀺􀁾􀀫􀀢􀀭􀀧􀀽􀁢􀀽􀀡􀀺􀀺􀁃􀁌􀀮􀀺􀀺􀀮􀀻􀀮􀀭􀀡􀀽􀀺􀀡􀀽􀁾􀀭􀁲􀀭􀀡􀀽􀀽􀀽􀀭􀁾􀀭􀀭􀀭􀀢􀀽􀀽􀀧􀀽 o 1st Quarter Actual Revenues o Fiscal Year Total Actual Revenues lEI Fiscal Year Total Estimated Revenues FY 2001 FY 2002 FY 2003 FY2004 FY 2005 $ 566,610 1,133,390 1st Quarter Actual Revenues $ 401,646 $ 423,699 Fiscal Year Total Actual Revenues $ 1,597,247 $ 1,600,588 Fiscal Year Total Estimated Revenues-Car Tax Reduced 1I3rd FY 2004105 Revised-Car Tax. Replaced by State with VLF "In Lieu" Property Tax. FY2003 $ 458,164 $ 1,722,801 FY 2004 $ 200,978 $ $ 1,298,455 FY2005 209,019 1st Quarter Revenue Percent of Total Recommended Budget Revision 25.1% 26.5% 26.6% $ 1,700,000 15.5% 36.9% No Chauge FINANCIAL OUTLOOK FY 2004/05 • Transient Occupancy Tax Revenue • Description The Town of Los Gatos levies a 10 per cent Transient Occupancy Tax on all hotel/motel rooms within Town limits to help fund Town services provided to transient lodgers. Analysis The Transient Occupancy Revenues received in the first quarter of the fiscal year reflects the drop in occupancy rates for nearly all Town hotels and motels. There are reports that corporate travel budgets were reduced during the recent war in Iraq, along with concerns about terrorism. The Town expects the occupancy rates to improve with the reestablishment of air travel and normal business activity. The first quarter of FY 2004/05 reflects a decrease from the prior year. As a result, we may be recommending a small revision in this revenue source at mid-year. An encouraging sign is that according to the Fall 2004 forecast from the Travel Industry. Association of America (TIA), Americans will take 278 million person-trips during September, October and November 2004, an increase of3.1 percent over last fall. A person-trip is one person on one trip traveling 50 miles or more from home, one way. "Consumers' pent-up demand and corporate America's healthier bottom line are merging to create a ripe environment for the travel market," remarked Dr. Suzanne Cook, senior vice president of research for the Travel Industry Association of America. Quarterly and Annual Revenues 5-Year History IlEI Fiscal Year Total Estimated Revenues oFiscal Year Total Actual Revenues o 1st Quarter Actual Revenues FY2005 􀀭􀀭􀀭􀀭􀀭􀀭􀁾 FY2002 FY 2003 FY2004 $1,400,000 />􀁾􀁉􀁁􀀧􀁉􀀭􀀭􀀭􀀭􀀭􀀭􀀭􀀭􀀭􀀭􀀭􀀭􀀭􀀭􀁉 $1,200,000 Vi Vi-􀀧􀁾􀁾􀁾􀁾􀁩􀁬􀁬 􀁾􀁩􀁬􀁬􀀢􀀬􀀱 $_ 􀀮􀁪􀀮􀀮􀀮􀁣􀀮􀀮􀀡􀁾􀁾􀀢􀀢􀀢􀀧􀀺􀀧􀁾􀁾􀁾􀀢􀀢􀀢􀀢􀀢􀀧􀁾􀀭􀀭􀁔􀀧􀀮􀀮􀀮􀀺􀀡􀀽􀂱􀀽􀀡􀀽􀀻􀁾􀀽􀀽􀁾 FY 2001 FY2001 FY2002 FY 2003 FY2004 FY200S 1st Quarter Actual Revenues $ 154,501 $ 122,227 $ 113,874 $ 91,170 $ 87,668 Fiscal Year Total Actnal Revenues $ 1,286,276 $ 788,408 $ 713,064 $ 829,025 Fiscal Year Total Estimated Revenues $ 900,000 1st Quarter Percent of Total 12.01% 15.50% 15.97% 11.00% 9.74% Recommended Budget Revisions: No Change FINANCIAL OUTLOOK FY 2004/05 • Interest Income Revenue • Description The Town earns Interest Income revenue by investing cash not immediately required for daily operations in a number of money market instruments. These investments are made by the elected Town Treasurer within parameters as stated in the Investment Policy approved by the Town Council. The Town's goal is to achieve a competitive rate of return while protecting the safety of those funds. Interest Income revenue for the Town is primarily dependent upon two factors: the cash balance in the Town's investment portfolio, and the yield on those funds. Analysis Interest income has been impacted negatively by the historically low interest rate environment seen in recent years. The average yield on a five year maturity Treasury Bond was 3.26%. Additionally, cash balances have decreased due to the Town-wide Capital Improvement Program emphasizing street reconstruction in recent years Quarterly and Annual Revenues 5-Year History $3,000,000 /' r<=, $2,500,000 􀀯􀁾 -1-= $2,000,000 $1,500,000 􀀯􀁾-$1,000,000 /'--.n-I = i, /---, $500,000 $-····,'E , FY2001 FY2002 FY2003 FY2004 FY2005 o 1st Quarter Actual Revenues oFiscal Year Total Actual Revenues Ii!I Fiscal Year Total Estimated Revenues FY2001 FY2002 FY2003 FY2004 FY2005 1st Quarter Actual Revenues $ 725,385 $ 90,608 $ 290,191 $ 375,888 $ 315,212 Fiscal Year Total Actual Revenues $ 2,835,006 $ 2,267,979 $ 1,336,711 $ 1,0271554 Fiscal Year Total Estimated Revenues $ 931,836 1st Quarter Revenue Percent of Total 25.6% 4.0% 21.7% 36.6% 33.8% Recommended Budget Revision No Change FINANCIAL OUTLOOK FY 2004/05 • Business License Tax Revenue • Description The Town of Los Gatos requires businesses to obtain a business license if a business is located within Town litJ;lits, or if an agent of a business conducts operations within Town limits. The Business License Tax is based on the type of business activity. Activities such as retail sales, wholesale, and manufacturing are based on estimated gross receipts, on a sliding scale. Other Business License Tax revenues are based on flat fees as set forth in the Town Code. Annual business license renewals are due and payable in advance on January 2nd of each year. New business license applications for flat-fee based businesses are pro-rated by quarter, from the date of application to the end of the year. Analysis The Business License Tax revenue received in the first quarter is primarily comprised of new Business License fees. First quarter collections were slightly ahead of the prior year, an encouraging sign of slow recovery. During preparation of the FY 2004/05 budget, staff anticipated the softening economy would affect Business Tax fees based on gross receipts. These revenues comprise approximately 40% of the Business License fees while flat fees make up the other 60% of revenue. Budgeted revenues were therefore established at a small amount above actual amounts received in FY 2003/04. Quarterly and Annual Revenues 5-Year History $1,200,000 /! $1,000,000 -, $800,000 i= $600,000 /:l $400,000 /1-$200,000 $-FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 o I st Quarter Actual Revenues o Fiscal Year Total Actual Revenues Iiil Fiscal Year Total Estimated Revenues FY 2001 FY 2002 FY 2003 FY 2004 FY2005 1st Quarter Actual Revenues $ 44,720 $ 50,655 $ 40,683 $ 45,619 $ 50,458 Fiscal Year Total Actual Revenues $ 1,000,281 $ 995,699 $ 970,554 $ 1,041,865 Fiscal Year Total Estimated Revenues $ 1,050,000 1st Quarter Revenue Percent of Total 4.47% 5.09% 4.19% 4.38% 4.81% Recommended Budget Revision No Change FINANCIAL OUTLOOK FY 2004/05• Franchise Fee • Description Franchise Fees are collected by the Town for the privilege of operating a utility service within Town limits, and in lieu of a business license. Franchise Fees are currently received from Comcast for cable television services, PG&E for gas and electric service, and Green Valley for solid waste collection services. Analysis First quarter results are trending moderately higher than the prior year, a potential encouraging sign in the recovery of the local economy as franchise fees are collected on a percentage of total sales for garbage, cable . television, electric and gas utilities. Quarterly and Annual Revenues 5-Year History 􀁾􀀭􀀭􀀭􀀭􀀭􀁾 lEI Fiscal Year Budgeted Revenues o 1st Quarter Actual Revenues oFiscal Year Total Actual Revenues $1,000,000 $900,000 $800,000 $700,000 $600,000 􀁾 $500,000 /i-)-$400,000 $300,000 $200,000 $100,000 $-FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2001 FY2002 FY 2003 FY2004 FY2005 1st Quarter Actual Revenues $ 57,507 $ 82,327 $ 76,398 $ 66,174 $ 74,273 Fiscal Year Total Actual Revenues $ 929,865 $ 990,861 $ 897,157 $ 930,997 Fiscal Year Budgeted Revenues $ 957,000 1st Quarter Revenue Percent of Total 6.18% 8.31% 8.52% 7.11% 7.76% Recommended Budget Revision No Change RECOMMENDED BUDGET ADJUSTMENTS FY 2004/05 Expenditure Appropriations Non-Departmental Program 1111 The FY 2004/05 expenditure budget in Non-Departmental program 1111 is recommended to be increased by $300,000 to provide funding the Town's share of animal shelter capital costs as per the agreement with the City of San Jose, approved in final form on June 20, 2004. The budget increase is funded by drawing down the General Fund Reserve for Animal Shelter. FY 2004/05 Estimated Revenues Police Department Program 4030 Booking fees originally thought to be de-funded in the state budget were in added in the late stages of the budget process. Booking fee revenue of approximately $84,000 will be added to FY 2004/05 estimated revenues. Library Trust Fund-Program 7710 The Library's History Project revenues are being deposited to the Library Trust fund. They include donations and royalties paid to the author, Library Director Peggy Conaway. Estimated revenues are for FY 2004/05 are recommended to be increased by $13,000 13,000 in the Library Trust Fund 710-Program 7720. FINANCIAL SUMMARIES, PROJECTIONS AND RECOMMENDATIONS General Fund As stated earlier in this report, the attached Schedule of FY 04105 General Fund Operating Revenues vs. Operating Expenditures presents budget to actual. data for the first quarter and comparison information from the prior year. In the last column, the Finance Department projects final balances for the fiscal year based upon the trends observed through the first quarter. Town of Los Gatos Schedule of General Fund Operating Revenues vs. Operating Expenditures For the period ended September 30, 2004 FY03/04 FY03/04 FY03/04 FY03/04 FY04/05 FY04/05 FY04/05 FY04/05 Final Adjusted 1st Qtr % Adopted 1st Qtr % Finance Balance Budget Actuals YTD Budget Actuals YTD Projection Revenues General Property Tax $ 5,207,381 $ 5,338,006 $ 86,045 2% $ 4,952,893 $ 102,035 2% $ 5,000,000 Sales & Use Tax 6,914,526 6,650,000 1,515,570 23% 6,900,000 1,514,045 22% 6,900,000 Franchise Fees 930,997 896,400 66,175 7% 957,000 74,273 8% 957,000 Transient Occ Tax 829,026 830,000 91,170 11% 900,000 87,668 10% 870,000 Business License Tax 1,041,865 1,035,000 45,619 4% 1,050,000 55,797 5% 1,050,000 Licenses & Permits 980,242 974,000 264,115 27% 1,317,055 509,490 39% 1,317,055 Motor Vehicle In Lieu 1,298,455 1,232,000 200,978 16% 1,700,000 209,019 12% 1,700,000 Intergovernmental 1,914,766 1,878,252 273,468 15% 1,670,135 218,368 13% 1,670,135 Charges for Services 2,523,786 2,310,186 1,023,697 44% 2,734,725 1,510,452 55% 2,734,725 Fines & Forfeitures 211,232 168,900 23,780 14% 174,950 25,797 15% 174,950 Interest 1,027,554 1,153,000 375,888 33% 931,836 315,212 34% 930,000 GASB investment to market adjustment per auditor! -990,147 0 0 0 Miscellaneous/Other 180,515 133,000 51,362 39% 456,078 410,812 90% 456,078 Authorized Use of Reserves 273,770 274,580 620,150 620,150 Fund Transfers 1,018,322 968,820 154,691 16% 809,920 143,801 18% 809,920 Total Revenues $ 23,362,290 $ 23,842,144 $ 4,172,557 􀁾 $ 25,174,742 $ 5,176,769 $ 25,190,013 Expenditures (includes elf but no encumbrances) Mayor & Council 136,867 143,700 29,166 20% 143,500 29,456 21% 143,500 Clerks 333,185 363,160 73,265 20% 335,410 67,263 20% 335,410 Attorney 225,633 230,060 49,643 22% 232,550 38,401 17% 232,550 Treasurer 76,668 56,560 10,542 19% 89,360 18,578 21% 89,360 Manager 1,839,812 1,911,740 374,363 20% 1,844,900 388,946 21% 1,844,900 Comm Development 2,265,370 2,455,768 419,448 17% 2,743,110 459,804 17% 2,743,110 Parks & Public Works 4,650,856 4,945,684 986,277 20% 4,441,290 890,874 20% 4,441,290 Police 9,160,567 9,062,584 1,941,424 21% 9,928,675 1,965,324 20% 9,928,675 Community Services 931,909 978,263 144,005 15% 934,430 151,071 16% 934,430 Library 1,835,122 1,805,470 405,557 22% 1,816,365 384,590 21% 1,816,365 Total Dept Expenses $ 21,455,989 $ 21,952,989 $ 4,433,691 20% $ 22,509,590 $ 4,394,307 20% $ 22,509,590 Non-Dept Expenditures and other uses General Government 1,922,557 2,197,221 221,585 --!Qli 2,665,152 166,846 6% 2,665,152 Total Non-Dept Expenses $ 1,922,557 $ 2,197,221 $ 221,585 --!Qli $ 2,665,152 $ 166,846 ----w; $ 2,665,152 Total Operating Expenditures $ 23,378,546 $ 24,150,210 $ 4,655,276 􀁾 $ 25,174,742 $ 4,561,153 18% $ 25,174,742 Net Operating Revenues Before Capital Trsfrs & Budgeted Beginning Fund Balance $ (16,256) $ (308,066) $ (482,720) $ $ 615,617 N/A $ 15,271 Budgeted Beginning Fund Balance Revenue Budgeted Use of Reserves for 2 Yr One-time State Take 421,000 421,000 Budgeted Use of Reserves for Parking Management 198,770 199,580 0 124,150 124,150 Budgeted Use of Reserves for Capital Projects 75,000 75,000 0 75,000 75,000 Total Budgeted Use of Reserves 273,770 274,580 0 620,150 0 0 620,150 Total Capital Reserves and Net Revenues Available 58,744 -233,066 -482,720 75,000 615,617 90,271 for Capital Projects Operating Transfers-Parking Mgmt Program 198,770 199,580 0 124,150 124,150 Capital Transfers-Budgeted Per 5 Yr elP 75,000 75,000 0 0% 75,000 0 0% 75,000 Net Surplus or (Use) of Reserves $ (290,026) $ (582,646) $ (482,720) $ (620,150) $ 615,617 $ (604,879) All Other Funds Guide to Presentation: Each of the following presentations groups financial summaries by governmental fund type-the types being Special Revenue Funds, Capital Projects Funds, Internal Service Funds, and Redevelopment Agency Funds. In each ofthe following projections a similarformat is presented. The fund information starts with beginning fund balances and adds current year revenues and subtracts current year expenditures resulting in ending fund balance. Budget amounts are also provided for revenues and expenditures, useful for comparing actual amounts received or spent to date versus budgetfor FY2004/05. Special Revenue Fund 􀁾 Special Revenue Funds, which account for the proceeds derived from specific revenue sources that are legally restricted to special purposes include the Town's Parking Fund, Solid Waste Fund, Community Development Block Grant Fund, Non Point Source Fund, Sewer Maintenance Fund, Landscaping and Lighting District Funds, and the Operating Grants Fund. Ofspecial note here here is the Parking Fund, which despite de-funding of2.2 positions in FY 2004/05 continues to indicate revenue shortfalls wherein costs of parking administration and enforcement are exceeding program revenues. The budgeted General Fund subsidy for this program for the fiscal year is $124,150 to provide a revenue source in this fund to balance operating revenues with operating expenditures. Staff is continuing to evaluate this program, as any shortfall in this fund must be covered at year-end with a transfer from the Town's General Fund. Special Revenue Funds Budget to Actuals Comparisons Parking Solid CDBG Non Point Sewer Operating Fund Waste Grants Source Maint. LIDs Grants Beginning Fund Balance (pre-audit) 319,109 1,014,995 170,019 81,726 22,047 Budgeted Revenues 669,750 149,585 135,416 158,570 543,590 44,050 9,496 Actual Revenues -1st Qtr 93,622 24,392 3,362 155,907 543,590 37,256 5,378 Budgeted Expenditures 669,750 331,738 336,716 158,570 543,590 52,713 42,535 Total Actual Expenditures -1st Qtr 129,351 129,351 35,360 5,900 50,849 170,043 14,450 4,716 1st Quarter Ending Fund Balance (35,729) 308,141 1,012,457 275,077 373,547 104,532 22,709 Capital Projects Funds -Capital Projects Funds are utilized to account for resources used for acquisition and construction of capital facilities by the Town. Funds included in this category are the GFAR Fund (General Fund Appropriated Reserve), Traffic Mitigation Fees Fund, Grant Funded CIP's Fund, Storm Drains Fund, Utility Undergrounding Fund, and the Gas Tax Fund. Capital Project Funds are tracking in accordance with the FY 2003/04 adopted budget. Staff is recommending no changes at this time. In developing the FY 04/05 capital program, staff reviewed scheduled projects for potential strategic slowdowns of expenditure activity. This slowdown will aid cash balances available for General Fund investment earnings, in light of the aggressive capital-spending plan over the past three years. If operating revenues will support it, staff still intends to maintain the General Fund's current year $75,000 revenue commitment to the Town's Capital Improvement Plan. The Grant Funded CIP fund displays a deficit balance because this grant fund expends Town dollars first, then provides documentation of these expenditures to the State of California or other granting agencies and is reimbursed for those costs, which eventually shoulci result with the fund "breaking even" or a zero fund balance (Dollars expended equal dollars received back in grant reimbursements). . Capital Project Funds Budget to Actuals Comparisons GFAR Traffic Grant Fund Storm Utility Gas Fund Mitigation CIP's Drains Undergd Tax Beginning Fund Balance 4,002,603 40,704 35,403 780,312 1,873,570 498,238 Budgeted Revenues 156,500 5,000 805,000 132,400 102,000 442,000 Actual Revenues -1st Qtr 45,783 45,976 9,573 147,050 Budgeted Expenditures 1,606,467 50,000 1,596,035 127,574 550,475 Total Actual Expenditures -1st Qtr 208,423 30,387 90,791 6,866 1st Quarter Ending Fund Balance 3,839,963 10,317 (55,388) 826,288 1,883,143 638,422 Internal Service Funds -Internal Service Funds are used to finance and account for special activities and services performed by a designated Town department for other departments on a cost reimbursement basis. Included in this fund type are the Equipment Replacement Fund, Worker's Compensation Fund, General Liability SelfInsurance Fund, Stores Fund, Management Information Systems Fund, Vehicle Maintenance Fund, and the Building Maintenance Fund. Internal Service Funds are tracking in accordance with the adopted FY 2004/05 adopted budget. No revision to adopted revenues or expenditures is required at this time. Staff believes there is still some potential for further operating transfers in future years from these funds as excess balances exist in amounts needed for funding in a number of these funds. Internal Service Funds Budget to Actuals Comparisons Equipment Workers Self Office Mmgtlnfo Vehicle Building Replacemt Comp Insurance Stores Systems Maint. Maint. Beginning Fund Balance 3,268,727 1,719,089 1,822,034 218,253 2,225,583 165,812 750,811 Budgeted Revenues 442,165 575,515 472,200 92,000 755,300 459,100 1,028,400 Actual Revenues -1st Qtr 110,550 ·133,679 110,417 18,023 184,410 114,775 249,836 Budgeted Expenditures 1,013,940 696,024 591,100 92,000 1,211,900 459,245 1,028,530 Total Actual Expenditures -1st Qtr 114,539 ·213,909 331,068 14,568 81,721 88,022 137,682 1st Quarter Ending Fund Balance 3,264,738 1,638,859 1,601,383 221,708 2,328,272 192,565 862,965 Trust and Agency Funds -Town Trust and Agency Funds have fund balances as of June 30, 2004 of $191,787 for Parking District #88 and $249,376 in the Library Trust Funds. No budget revisions are contemplated at this time for these funds. Redevelopment Agency -The Agency's FY 04/05 and FY 2004-09 Capital Improvement Plan adopted budgets are incorporated into the Redevelopment Agency's financial statements and year-to-date actuals as presented below. The Capital Projects Fund balances include approximately $2.4 million dollars of remaining unexpended funds from the Agency's $10.7 million dollar 2002 COP issue. The remaining proceeds of the bond issue are being used and appropriated for their intended purpose, eligible capital projects in the downtown project area such as the Downtown Street Reconstruction ($1.6 million), Downtown Parking Management Plan ($240K), Alley Improvements ($150K) and Santa Cruz AvenuelWood Road Gateway ($50K). Redevelopment Agency Funds Budget to Actuals Comparisons Capital Debt Low/Mod Total Projects Service Housing RDAFunds Beginning Fund Balance 3,500,385 4,144,431 3,482,900 11,127,716 Budgeted Revenues 590,750 3,360,970 972,165 4,923,885 Actual Revenues -1st Qtr 9,868 76,917 5,989 92,774 Budgeted Expenditures 3,000,752 3,518,184 261,650 6,780,586 Total Actual Expenditures -1st Qtr 364,374 636,071 190,396 1,190,841 1st Quarter Ending Fund Balance 3,145,879 3,585,277 3,298,493 10,029,649 Since 1992 redevelopment agencies across the state have been required to make Educational Revenue Augmentation Fund (ERAF) payments to.the State. In accordance with the State budget agreement, the ERAF payment was increased for FY 2004/05 & FY 2005106. The Agency's ERAF payment for this year and next year is estimated to be $303,000 annually, compared to $209,975 due to the State the prior year. The ERAF payment is anticipated to be made from RDA fund balance. Proposition lA does not contain specific protections for redevelopment agencies. They were not included because there are existing legal opinions opinions that conclude that redevelopment agency tax increment revenue is constitutionally protected from state revenue takes. There still exists however the potential that if 1A were to fail, it will be seen by the legislature as a signal from the public that the state is free to reallocate revenues at their sole discretion. increasing the vulnerability of the State increasing the ERAF payment amounts beyond the current levels. Some experts have speculated that the estimated payments currently at $303,000 could escalate to nearly $700,000 annually in the years following FY 2005/06. It is important that the Town continue to monitor 􀁤􀁾􀁶􀁥􀁬􀁯􀁰􀁭􀁥􀁮􀁴􀁳 on Proposition 1A and the state budget process to discourage the legislature from further State takes from Redevelopment Agency Tax Increment. It is essential to preserve the Agency's tax increment revenue as any take from this source will reduce the annual revenue stream. If a larger revenue take is enacted, the lowered revenue stream will reduce the total amount ofbonds the Agency can issue in the future. CONCLUSION First Quarter 2004/05 results continue to confirm staffs conservative estimates used in developing the revenue and expenditure estimates used to fund the adopted FY 2004/05 budget. Local economic developments are likely to influence any additional budget adjustments during the fiscal year. The Town expects that if voters approve Proposition lA, the Town's ability to manage its fiscal resources will be enhanced by more stability in the Town's operating revenue base in future years. Should Proposition lA fail in November, it is likely that the historic agreements between the state and local governments would be in jeopardy, leading to more fiscal uncertainty and potential future additional state takes beyond the approximately $2.1 million state take of Town revenues scheduled for FY 2004/05 and FY 2005/06. It is this overall financial strength of the Town that enables the Town to effectively manage the current economic recovery and its associated flat revenue growth through careful monitoring of revenue and expenditure trends and reacting to them pro-actively before a financial crisis presses upon the Town. Staff continues to closely monitor all current year revenue and expenditure activity, mindful of the necessity to balance operating revenues with operating expenditures. With the uncertainty of the vote on Proposition lA, now more than ever, we also need to be aware of the need to develop appropriate revenue sources for on-going operating and capital needs of the community for the future. It is equally important to ensure that the Town's limited resources are allocated to meet the basic priority service needs of the community.