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Despite depressed home sales, volatility in energy costs and high unemployment, the [hvs <br />General Fund largest revenue sources appear tobestabilizing. Sales Tax revenues are expected <br />to increase by 9.7% to just over $35.9 rnUUon as the economy begins to recover. Both Property <br />Tax and Property Tax In-Lieu of Motor Vehicle License revenues are expected to remain flat at <br />$27.8 and $25.2 million respectively as the housing markets stabilize. Utility Users Tax <br />revenues are expected to decline 5.5y& to $2S rnUUon as a result of te(ecornmmunica,tions <br />customer base shifting from land-line phones to wireless services. Revenues received from <br />charges for services are expected to decline by 5.9%, due to a drop in paramedic <br />charges and subscription service activity. Revenue transfers into the General Fund will increase <br />by over $10 million as a result of internal service borrowing to balance the budget. Overall, <br />General Fund revenues for the coming fiscal year are expected to increase by 6.596 from <br />budgeted FY 2010-2011^ primarily as a result of internal service fund borrowing. <br />Throughout the last three budget processes, we have provided information about Santa Ana's <br />financial challenges, and the need for usto grow smaller essm organization to beconne more <br />financially stable over the long term. The City had experienced rapid declines in revenues <br />which accelerated the need for significant budgetary reductions. The Mayor and City Council <br />agreed that we should continue to make budget reductions over the next two to three years. <br />Our original plan was to preserve high quality core services to the public and minimize the need <br />to layoff City employees by keeping vacancies opem, restricting travel, deferring large <br />equipment and materials purchases, and taking advantage of additional vacancies created by <br />the implementation of the 2.7Y6at 55 enhanced retirement formula. <br />Fortunately, as the revenue declines continued to emerge, we did not wait to take action. <br />Departments developed reduction plans and suspended non-critical expenditures. Overtime <br />was curtailed and/or eliminated. The Mayor and Council showed leadership in approving <br />series of budgetary adjustments throughout the 2009-2010 and ZOlO'Z011 fiscal years to <br />ensure fiscal stability by year end, <br />In terms of reserves, it becomes critical to contain and reduce expenditures quickly to prevent <br />the depletion of General Fund reserves. Like most California cities, Santa Ana relies on these <br />fund balance reserves to maintain a positive cash position during the course of the fiscal year, <br />and especially during the first five to six months of each fiscal year, since the majority of the <br />City's revenUes are not received Until December/January and April/May. <br />The rapid decline in the national and local economy has greatly complicated the process of <br />maintaining a balanced budget that is fair to both residents and employees alike. The City <br />relies on employees to, provide quality, front-line services to the public as well as to support <br />those direct service efforts. Costs associated with labor represent approximately 7496oftotal <br />openntlona|expend1tu[es. Consequently, reducing labor expenditures by reducing the number <br />of employees remains the City's best strategy for long-term susta|mabiUty. <br />In December of 2008 the Citvs Executive Management Team deferred salary increases and <br />performance-based merit pay equating to 10YG of their compensation. In July 2009, the <br />majority of the bargaining groups (POA, PMA, FBA, FMA, SAMA, CASA), with the exception of <br />-4- <br />