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j CITY OF SAN LEANDRO MEMORANDUM DATE: January 8, 2008 TO: Department Heads Division Managers Department Financial Managers FROM: John J Jermanis, City Manager SUBJECT: Fiscal Year 2008-09 Budget eparation Guidelines We are at that time of year when we kickoff the development of the City's next fiscal year budget, for 2008-09. Last year we worked well together at "holding the line" on cost increases, with exceptions to required mandates and contract obligations. I would like to again extend my appreciation to the employees and departments for their past contributions and program sacrifices that have allowed us to maintain current operations. During FY 2007-08, however, the City restored many previously reduced or cut services, built up reserves and provided more for capital and maintenance projects. Unfortunately, our current fiscal strength is being challenged by factors including the cyclical State budget deficit, the 911 fee challenge, several lawsuits and the real estate slowdown which is reducing our projected real property transfer tax and sales tax revenues. This combination of increased services (and costs) and shrinking revenues could mean our expenditures/revenues balance may be negative in FY 2008-09. Again, we ask your assistance in developing a responsible City budget which provides high quality City services balanced against our ongoing budget challenges and limitations. The State of California continues to struggle with its projected $14 billion deficit. How the State proposes to resolve its shortfall and its impact on the City remains uncertain. As a result of Proposition lA legislation, the City has gained additional protection against State "takeaways" but may still be affected by changes to the way revenues are allocated to local governments. The State, upon a proclamation of "severe fiscal hardship" and with 2~3 vote from each house, may propose borrowing from City funds. This potential borrowing could begin in the 2008-09 fiscal year and would need to be weighed against the long-term funding of City programs. The FY 2007-08 year end projection process is critical to identifying potential savings and securing program continuance. Each year our Fund Balance carryover is critically important in balancing our budget. As a result, please apply greater emphasis when reviewing current year activity and in developing your June 30, 2008 year end projections. Identified savings will be applied to the 2008- 09 Budget and provide greater security to existing basic programs from possible expenditure reductions. G:\BUDGE7~2008-09\Budget Manual\Budget Preparation Guideline Memo 1-8-08.docx