Meeting Date:

May 27, 2004



Staff Contact:

Rick Dickhaut

Program/Line Item No.:N/A



Cost Estimate:N/A


General Counsel Approval:N/A

Committee Recommendation:N/A

CEQA Compliance:N/A


SUMMARY:Exhibit 6-A is the latest draft of the 2004-2005 budget. Included in the draft are comparisons to the actual revenues and expenditures for fiscal year 2002-2003 as well as comparisons to the 2003-2004 budgeted amounts. Also included is additional information on projected revenues and expenditures including detailed listings of proposed capital asset purchases and project expenditures.The current draft budget is based on the requests as submitted by District staff and the expenditure reductions requested by the Administrative Committee at its April meeting, and additional expenditure and revenue adjustments made subsequent to the May 17, 2004 Board meeting.Exhibit 6-B details all adjustments that have been made to the draft budget since it was first presented to the Administrative Committee on April 13, 2004.


RECOMMENDATION:The Administrative Committee reviewed the draft 2004-2005 Budget on April 13, 2004, and requested that the original expenditure requests submitted by staff be reduced by 15%, and that the consequences of the reductions be stated.The Administrative Committee did not meet on May 11, 2004 due to the lack of a quorum.The Board of Directors discussed the amended draft of the budget at its May 17, 2004 meeting and recommended that staff make additional expenditure reductions.District staff recommends that the Board review the latest draft budget and again consider alternatives for balancing revenues and expenditures including increasing the user fee, which has not changed since 1992.




Expenditures: The Administrative Committee reviewed the initial draft of the 2004-2005 budget at its April 13, 2004 meeting.After discussion, the Committee requested that staffís initial expenditure request of $5,981,700 be reduced by 15%, or $897,300, before further review at the May 11, 2004 Administrative Committee meeting.The Committee also requested that staff include statements regarding the consequences of each reduction.After numerous adjustments to various budget categories, the proposed expenditure budget was reduced by $921,400, to $5,060,300.Exhibit 6-C is a listing of the adjustments that were made to the proposed budget subsequent to the April Administrative Committee meeting including the consequences for each adjustment.The Board of Directors discussed the amended draft of the budget at its May 17, 2004 meeting and recommended that staff make additional expenditure reductions.Attached, as Exhibit 6-D, is a listing of the expenditure adjustments, in the amount of $423,800, that have been incorporated into the latest draft.Annual salary and/or benefit adjustments are not yet included in the expenditure budget due to ongoing labor negotiations.Exhibit 6-E is a detail of the costs for a second well for the Districtís Aquifer Storage and Recovery (ASR) Project.These expenditure amounts are not included in the current draft of the budget.


Revenues:The user fee, which is currently 7.125% of water sales within the District, is the Districtís largest source of income.Of the 7.125%, 6.015% is currently allocated to the Mitigation Fund and 1.110% is currently allocated to the Conservation Fund.No portion of the user fee has ever been directly allocated to the Capital Projects Fund.The user fee, which can be adjusted by Board ordinance, has not been increased since July of 1992. Exhibit 6-F details the current user fee revenue, as well as additional revenue that can be generated by various user fee percentage increases.Exhibit 6-G shows the impact of various user fee increases on current bills of $25, $50 and $100.Property taxes are the Districtís second largest revenue source.††† However, since the 1991-1992 fiscal year, the District has lost over $4,850,000 in tax revenues that were shifted by the State of California to the Educational Revenue Augmentation Fund (ERAF).This includes just under $600,000 lost during the current fiscal year.During the next two fiscal years, the State is proposing to shift an even a larger amount of funds to ERAF.The latest estimate of the additional shift is 25% of net tax proceeds.Accordingly, $280,000 of property tax revenue has been removed from the current draft budget.Exhibit 6-H details the amount of taxes that have been lost due to the ERAF shift through the current fiscal year.In the latest draft budget, revenues for project reimbursements for costs related to the current ASR well, in the amount of $122,000, have also been removed.While it is anticipated that some of these costs might be reimbursed by Cal-Am, they have been removed from the revenue budget pending actual negotiations with Cal-Am.The revenue adjustments incorporated into this latest draft are shown in Exhibit 6-I.

Reserve Use:In recent years the budget has been balanced by utilizing large amounts of reserved funds for operational and project expenditures.The budget for 2004-2005, as revised on January 29, 2004, anticipated the use of District reserves in the amount of $1,760,800.While it is expected that actual use of reserve funds will be somewhat less than that amount, the Capital Project Fund will still have virtually no general reserves available for use in the 2004-2005 budget.The latest draft of the 2004-2005 budget still reflects the use of $937,500 of general reserves.This would result in the Capital Projects Fund being in a deficit position at the end of the fiscal year 2004-2005.Please note that the projected amounts of reserves to be carried over to the 2004-2005 budget have been revised upwards based on financial activity through April 30, 2004.


Discussion:The Board should again discuss items such as: 1) potential revenue increases, e.g. user fee, 2) proposed expenditure reductions, 3) possible construction of a second well for the aquifer storage and recovery project, 4) other potential ways of balancing the budget without the use of reserves and 5) replenishment of reserves.The final 2004-2005 budget will be presented for adoption at the regular Board meeting of June 21, 2004.