Page 3 - 2020-21 Supporting Information Book_Revised

The Proposed Budget meets the City’s basic financial obligations. Essentially all
City employees are under active contracts, and the Proposed Budget fully funds those
contracts and the related employee retirement and benefit costs. While the Proposed
Budget requires significant expenditure reductions to balance, it preserves the City’s core
public safety functions and the City’s commitment to addressing homelessness. Finally,
this Proposed Budget includes no layoffs.

The Proposed Budget includes over $230 million in efficiencies and reductions,
including $80 million generated through civilian furloughs. I am deeply concerned about
the potential impacts to City services from these reductions. These are difficult decisions.
In light of the uncertainty we are facing, they are necessary decisions. The Proposed
Budget has put the City in a position to weather this crisis.

If revenues perform as projected, the budget is balanced. If we fare better - or if the
federal or state government provides quick relief - we may be able to roll back reductions
earlier than expected. If we fare worse, though, we will need our remaining reserves to
address the growing challenge. Thus, maintaining or increasing the cumulative reserves
in the Proposed Budget should be a critical priority.

Financial Policies

The Proposed Budget complies with many of the City’s major Financial Policies.
Unfortunately, it falls short of others.

Reserve Fund
The Reserve Fund Policy requires the Fund to have a minimum balance of 5
percent of all General Fund revenues. The Proposed Budget falls short of this goal for the
first time in seven years. The Reserve Fund will begin the year at $243 million, or 3.64
percent of General Fund revenues. The Fund has dropped below the 5 percent level due
to unbudgeted COVID-19 related spending in 2019-20, and projected revenue losses
associated with the response to the pandemic. The 2020-21 Proposed Budget begins the
effort to reverse these losses through a $12 million transfer to the Reserve Fund.

Consistent with the General Fund Reserves policy, the Proposed Budget also
includes an appropriation to the Unappropriated Balance - Reserve for Mid-Year
Adjustments of $30 million. While the primary intent of this funding is to cover the cost of
employee bonuses not yet been included into departments’ budgets, the funding could be
used to offset unanticipated operating shortfalls that occur during the year, protecting the
Reserve Fund. Taken together with the Reserve Fund, this account increases our
cumulative reserves to $273 million, or 4.10 percent of the General Fund.