ITEM:		PUBLIC HEARINGS
20.	CONSIDER ADOPTION OF MID-YEAR FISCAL YEAR 2010-11 BUDGET ADJUSTMENT
Meeting Date:			March 21, 2011	Budgeted:	N/A
From:			Darby Fuerst,	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Rick Dickhaut	Cost Estimate:	N/A
General Counsel Review: N/A
Committee Recommendation: N/A
CEQA Compliance: N/A

SUMMARY: Annually, the District considers its financial position after the end of the first half of the fiscal year (FY). District staff has reviewed income and spending patterns since July 1, 2010 and determined that adjustment of the FY 2010-11 budget developed last spring, and adopted June 21, 2010, is required. Included in the process was a review of staffing levels, supplies, outside services, current work assignments and other factors affecting the budget. The tables below summarize the proposed budget changes:

As the table indicates, net revenue increases, including $33,000 from grant funds, are $324,000 and net expenditure decreases are $253,100 resulting in a reduction in the budgeted use of reserves from $614,300 to $37,200. Detailed information regarding the proposed changes, as well as their effect on general operating reserves, is detailed in the background section of this staff note.

RECOMMENDATION: Following a presentation by District staff and a public hearing, staff recommends adoption of the proposed mid-year budget adjustment for FY 2010-11.

BACKGROUND: The Board of Directors adopted the original FY 2010-11 budget on June 21, 2010. The paragraphs below summarize the original budget, proposed mid-year adjustments to the budget and projected general operating reserves.

Revenues

The 2010-11 adopted budget anticipated revenue sources in the amount of $9,975,800, including $150,000 of Line of Credit Proceeds and $69,600 from the Capital Equipment Reserve. It was projected that these revenues would be less than budgeted expenditures resulting in the use of $614,300 from the General Operating Reserve. This use of General Operating Reserves was attributable to the decision to pay for expansion of Water Project 1 on a pay-as-you-go basis. As of December 31, 2011, actual revenue collections totaled $2,922,949 or about 28% of the budgeted amount. Revenues for the first half of each FY year are historically low because larger portions of the District’s three major revenue sources, user fees, property taxes and reimbursements, are collected during the second half of each FY. District staff has analyzed the revenue activity for the first six months of the FY, as well as activities scheduled for the second half of the FY, and recommends various adjustments to the revenue portion of the budget as shown in Exhibit 20-A and discussed below:

• Water Permit fees have been increased by $60,000 and Water Distribution System permit fees have been increased by $62,000 based on FY-to-date collections.

• Connection Charge revenues have been decreased by $200,000 based on lower than expected receipts so far this FY.

• Anticipated project reimbursements for conservation and Water Project 1 activities have increased by $362,000 due to changes that will be discussed in the expenditure section of this report.

• Other reimbursements were increased by $7,000 due to several minor adjustments.

• Grant funds in the amount of $33,000 were added to the budget to offset several items to be discussed in the expenditure section of the budget.

The cumulative effect of these revenue adjustments is an increase of $324,000 in projected revenues for FY 2010-11.

Expenditures

The original budget envisioned expenditures of $10,590,100 in the FY ending June 30, 2011. As of December 31, 2010, actual expenditures totaled $3,965,011, or approximately 38% of the budgeted amount. This low percentage at the mid-way point of the FY is not unusual because project expenditures and fixed asset purchases for the first half of each FY year are historically low. District staff has analyzed the expenditure activity for the first six months of the FY, as well as activities scheduled for the second half of the FY, and recommends various adjustments to the expenditure portion of the budget as discussed below:

• The personnel portion of the budget has been reduced by $151,700 as shown on Exhibit 20-B. This reduction is due to a vacant budgeted Water Conservation Analyst position in the Water Demand Division that is not going to be filled during the current FY, and partial year vacancies in the Chief Technology Officer and Office Specialist II positions.

• The supplies and services portion of the budget was increased by $38,600 as shown on Exhibit 20-C. Decreases to several line items were offset by an addition $70,300 to Data Processing costs to fund use of a Consultant during the time the Chief Technology Officer’s position is vacant.

• As presented on Exhibit 20-D, project expenditures decreased by a net amount of $88,700. Some of the larger adjustments are as follows:
1. Funding for rationing implementation testing in the amount of $50,000 was eliminated.
2. The amount budgeted for water efficiency training and education for the public was decreased by $25,000.
3. The amount budgeted for Certified Landscape Irrigation Audits has been increased by $110,000 to reflect the amount that to be expended this FY.
4. The amount budgeted for rebates was increased from $400,000 to $600,000 due to expansion and increased use of the program.
5. Expenditures for Water Project 1 fencing, grading and paving, Well No. 2 rehabilitation, and Well No. 1 & 2 soundproof enclosures, in the amounts of $54,000, $156,000 and $42,000, respectively, were deferred to FY 2011-12.
6. Budgeted funds of $55,000 for rental of a temporary generator for Water Project 1 were deleted.

• Capital Assets decreased by a net amount of $51,300 as shown on Exhibit 20-E. The most significant changes were the addition of $23,000 for grant funded software for the Integrated Regional Water Management Plan; and removal of $25,000 for topographic data and elimination of $30,000 for software development that will not take place this FY.

The cumulative effect of the adjustments to the expenditure side of the budget is a net decrease of $253,100 in projected expenditures for FY 2010-11.

General Operating Reserves

The difference of the adjustments to revenues and expenditures results in a reduction in the use of general operating reserves from $614,300 to $37,200, resulting in an estimated general reserve carryover of $900,488 at June 30, 2011 as shown on Exhibit 20-F. This amount equates to about 8.7% of the new operating budget amount, well above the minimum of 5% established by the Board during the 2005-06 budget process.

EXHIBITS

20-A Reimbursements

20-B Personnel Costs

20-C Supplies & Services

20-D Project Expenditures

20-E Capital Assets

20-F Reserves Analysis

U:\staff\word\boardpacket\2011\20110321\PubHrg\20\item20.docx