75A - BUDGET FY 2010- 2011 - EXHIBIT

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sources are Sales Tax (16.6 %), Property Tax (13.6 %), Property Tax in Lieu of Motor Vehicle Fees (13.5 %) and Utility Users Tax (12.7 %). Depressed home sales, volatility in energy costs and the decrease in the growth of personal discretionary income continue to affect the General Fund's two largest revenue sources, sales tax and property tax. Sales tax revenue is expected to decline by 10.3% to $32.7 million and property tax revenues are expected to decline by 7.8% to $26.8 million. Utility Users Tax revenue is expected to decline 5.5% to $26.5 million and Property Tax in Lieu of Motor Vehicle Fees is expected to decline 9.5% to $25.1 million. Revenues received from charges for services are expected to decline by 26.5 %, primarily due to a drop in building and construction activity. Revenue transfers into the General Fund will decrease by 39.8% to $7.3 million. Overall, General Fund revenues for the coming fiscal year are expected to decrease an additional 8.5% from budgeted FY 2009 -2010, and most likely establish the new revenue base line as we head into a slow economic recovery. Throughout the last two budget processes, we have provided information about Santa Ana's financial challenges, and the need for us to grow smaller as an organization to become more financially stable over the long term. The Mayor and City Council agreed that we should begin to make budget reductions over the next two to three years. Our original plan was to preserve high quality core services to the public and minimize the need to layoff City employees by keeping vacancies open, restricting travel, deferring large equipment and materials purchases, and taking advantage of additional vacancies created by the implementation of the 2.7% at 55 enhanced retirement formula. Unfortunately, the City has continued to experience rapid declines in revenues which accelerated the need for significant budgetary reductions. It became critical to contain and reduce expenditures quickly to prevent the depletion of General Fund reserves. Like most California cities, Santa Ana relies on these fund balance reserves to maintain a positive cash position during the course of the fiscal year, and especially during the first five to six months of each fiscal year, since the majority of the City's revenues are not received until December /January and April /May. Fortunately, as the revenue declines continued to emerge, we did not wait to take action. Departments developed reduction plans and suspended non - critical expenditures. Overtime was curtailed and /or eliminated. The Mayor and Council showed leadership in approving a series of budgetary adjustments throughout the 2009 -2010 fiscal year to ensure fiscal stability by year end. The rapid decline in the national and local economy has greatly complicated the process of maintaining a balanced budget that is fair to both residents and employees alike. The City relies on employees to provide quality, front -line services to the public as well as to support those direct service efforts. Costs associated with labor represent approximately 72.5% of total operational expenditures. Consequently, reducing labor expenditures by reducing the number of employees remains the City's best strategy for long -term sustainability.