I am pleased to present to you the 2001-02 Proposed Budget for the City of Monterey. The budget proposal contained herein is a financially balanced plan. We will not spend more on operating expenditures than the City receives in operating revenues. This may appear to be a basic principle, but it is an important one. Many governmental agencies have spent beyond their means and suffered the consequences.

The process of crafting a budget plan can be summarized in three broad steps: 1) estimate funds available, 2) gather input as to what the community’s priorities are, and 3) develop a spending plan that addresses as many of these priorities as possible, given available funding. As for the first step, the amount of revenues estimated to be available to fund programs in the General Fund in 2001-02 is $43.3 million. Because of the recent slowing of the economy, this projection is only 2% more than is estimated to be collected in the current fiscal year. Revenue projections will be discussed in more detail later, but the biggest single factor holding revenue growth to such a modest increase is our projection of no growth next year in the Transient Occupancy Tax.

The next step in the budget process is to gather input on community priorities from as many sources as possible. This is done in a number of ways including feedback from City FOCUS surveys, comments made at Community Forums, comments sent in through the mail, email or telephone, and input from the City Council.

GENERAL FUND RESERVES

All required General Fund reserves are fully funded. This includes a Reserve for Economic Uncertainty of $6.3 million, which is equivalent to 15% of the proposed General Fund operating expenditures less estimated budget savings. This type of reserve is extremely important to cities like Monterey whose tax base is heavily reliant on one industry. In Monterey’s case tourism, of course, is that industry and it accounts for more than one-half of General Fund revenues.

In this proposal, we are also recommending that Council set aside and appropriate $250,000 in a Reserve for Capital Facilities Maintenance and $425,000 in a Reserve for Operational Contingencies. The Reserve for Capital Facilities Maintenance was depleted two years ago when the facility used by the Monterey Center for Children and Families was refurbished, and we recommend replenishing it. This reserve is used to repair, refurbish and maintain City facilities. Even though we have new or expanded facilities as top priorities of the City (e.g. Sports Center, Civic Center, Catellus East), it is very important to be sure we can adequately maintain our current facilities.

The Reserve for Art Acquisitions currently receives an allocation of $25,000 per year from the General Fund. This reserve is used to fund such acquisitions as the On the Golden Road sculpture, the California Grizzly Bears sculptures and the State Seal and bronze plaques in front of Colton Hall. Included in next year’s budget is a recommendation to increase the annual contribution to the reserve to $30,000.

We are also recommending that the Reserve for Operational Contingencies be increased to $425,000. This reserve is used to mitigate the effects of extraordinary operational (as opposed to capital) contingencies that arise. A good example is the energy crisis currently gripping the state. The energy market is volatile enough right now that it is difficult to precisely budget for these costs. Nevertheless, we have included a 25% increase in gas and electricity costs in next year’s budget. Should that increase prove to be insufficient, a portion of the Reserve for Operational Contingencies will be used to address the budgetary shortfall.

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GENERAL FUND REVENUES

As mentioned above, we estimate that total General Fund revenues will amount to $43.3 million for 2001-02. Transient Occupancy Tax (T.O.T.) makes up 29% of that General Fund revenue total, making it the City's largest revenue source. The City experienced a very strong 10.7% growth in T.O.T. in fiscal year 1999-00. In the current fiscal year of 2000-01, we are projecting that we will add to that base (albeit at a more moderate 3-4% growth rate) and end the year with $12.5 million in T.O.T. revenues. For next year, 2001-02, we expect the General Fund to again receive $12.5 million in T.O.T. which represents no growth over the current year. With the economy softening as it has in recent months we determined that it would be prudent to be somewhat conservative in our estimates going forward. Besides the General Fund portion, an additional $2.4 million in T.O.T. (16% of the total) is estimated for the Neighborhood Improvement Fund in 2001-02.

Other significant revenues include Sales Tax which is estimated at $7.4 million in 2001-02 making it the second largest General Fund revenue source, amounting to 17% of projected revenues. This estimate represents a 4% increase over the revised estimate for the current year. For the 2001-02 fiscal year we anticipate Property Tax receipts to be $3.8 million, generating 9% of all General Fund revenues. We are projecting that $2.5 million will be collected in Utility Users Tax next year. We are projecting modest increases for the telephone and water utility taxes. However, for the gas and electric utility taxes a 25% increase has been factored in. Of course, City gas and electricity expenditures will also be going up considerably, likely off-setting this revenue increase. We will monitor this utility revenue/expenditure balance and report back to Council as further information becomes available.

A word of caution on City revenues that are controlled by the State: if recent history is any teacher, when the budget road gets rough at the State level there seems to be little resistance in Sacramento to pulling long relied-upon municipal revenue streams and letting local officials figure out how to balance their budgets. This appears to have already happened with regard to the $250 million in Education Revenue Augmentation Fund (ERAF) relief money that was recently cut out of the proposed State budget because of energy and economic woes. This could happen to other revenues as well, such as the Vehicle License Fee backfill which is currently not Constitutionally guaranteed, so we must stay alert.

To help get ahead of the curve on issues like this we have included in the budget funding to join the League of California Cities’ statewide Grassroots Network to protect local control and reduce the likelihood of city revenues being taken by the State. If Council approves this budget proposal, this will authorize the Council’s League representative to sign the ballot approving the League Grassroots Network.

SPECIAL FUNDS

The City has a number of other funds including Special Revenue Funds, Proprietary Funds and Trust Funds. Special Revenue Funds and Trust Funds are accounted for very much like the General Fund but their resources can only be used for specific purposes. Examples would be the NIP Fund, Gas Tax Fund and Scholtze Trust Funds. Proprietary Funds are accounted for more like a business, and their operations are meant to be funded by user fees. Examples of this type of fund include the Parking Fund, Marina Fund and Vehicle Management Fund. All of these "other funds" are programmed with balanced operating budgets. Several funds are also paying for capital project expenditures including the Gas Tax Fund, Tidelands Trust Fund, Sewer Line Maintenance Fund and Parking Fund.

One of the City’s newer Proprietary Funds is the Presidio Public Works Authority Fund, which was established in 1998. In this Fund we account for all operational activities, capital projects, and revenues associated with the municipal services contract between the City and the U.S. Army at the Presidio of Monterey.

Services provided to the Army include maintenance of buildings, streets, sewers, storm drains and water systems and other special projects. Most recently, maintenance of the heating and cooling (HVAC) systems at the Presidio was added to the services provided as was management of their refuse contracts.

The proposed operating budget for this fund is $3.1 million, all of which is reimbursable by the Army. Over and above the actual cost to provide services to the Presidio, this budget also includes a payment to the General Fund of $281,000 for the overhead and administrative support the City provides to support this contract.

The Storm Water Utility Fund is in year four of a five year rate phase-in plan. Projected revenues for 2001-02 exceed operating costs in this Fund by $140,000. We are recommending in the 2001-02 Capital Improvement Program budget that this $140,000 be used to fund a portion of the $325,000 North Fremont Storm Drain Phase I project. Normally we would recommend that the Storm Water Utility Fund pay for the entire project. However, this Fund currently owes $1.9 million to three other funds (Sewer Line Maintenance Fund, Sewer Main Fund and General Fund) for past loans for storm drainage projects. An example would be the Del Monte Outfall project which alone cost over $1 million. Because of this debt, we are recommending in this budget that the General Fund pay for the remaining $185,000 on the North Fremont project.

Until now, the assumption has been that the existing rate structure in the Storm Water Utility Fund would be able to pay for its operating costs, current capital costs as well as repay the $1.9 million in past debts mentioned above. Because of the continuing need for capital expenditures in this area it has become apparent this is not the case. Therefore, as part of this budget proposal, we recommend using General Fund resources to pay off $400,000 of the debt owed to the Sewer Line Maintenance Fund. This would reduce the debt in that fund to $1.5 million. It would also have the side effect of freeing up additional funding in the Sewer Line Maintenance Fund for much- needed capital projects there.

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The Sewer Line Maintenance budget proposal includes $596,000 in operating expenditures and another $475,000 in the CIP budget for sewer line repairs. The operating budget in this fund is fully funded by current revenues. This fund is in better fiscal shape than the Storm Water Fund, but without the $400,000 debt repayment plan noted above, only $75,000 in new funding would have been available for capital repairs to sewer lines next year.

The Cemetery Fund continues to be a fiscal challenge. Even though fees in this fund are reviewed annually, we project a $31,000 operating shortfall next year which we are proposing the General Fund subsidize. In addition, the Cemetery Fund will require an advance from the General Fund of $119,000 to cover the debt service payments on the new columbarium. This amount will be recorded as an interfund loan as it is projected that over time sales of all niches from the columbarium will far exceed the total debt service costs. However, since the columbarium loan will be paid off more quickly than all niches will be sold, there will be a need for advances from the General Fund in the meantime.

The Marina Fund’s proposed budget of $1.4 million includes debt service on state loans in the amount of $477,000 and the final payment on a General Fund advance in the amount of $300,000. In addition, the Marina Fund transfers $75,000 to the General Fund each year to assist with the expense of maintaining Wharf II.

The proposed $5.3 million Parking Fund budget includes $1.9 million in debt service. The largest portion of that debt service payment is related to the Cannery Row Parking Garage. The parking Fund continues to budget $68,750 for its half of the cost of the WAVE shuttle subsidy program. The General Fund pays for the other half.

The Parking Fund budget for 2001-02 also includes a proposal for a new full-time Account Clerk in the Parking Administration division. Over the course of several years the administrative workload has steadily increased in this division. New programs, such as the 2-hour free discount parking program and the acceptance of credit cards at all parking attendant facilities, have been well received by our customers. However, they create additional administrative workload as well. This position would be fully funded by parking operation revenues.

We are proposing in the 2001-02 budget to add the position of Geographic Information Systems (GIS) Coordinator to the Information Services Division. This project has the potential to yield very valuable management information for several Departments. However, there is currently no one dedicated to bringing this complex project together. Therefore, we are recommending this position be added to coordinate the GIS for the City.

The Library Board of Trustees is currently working on a long-range plan for the Library building. The Board has proposed that up to $60,000 be budgeted in the Library Trust Fund in 2001-02 for architectural and associated consulting services to complete the second phase of the Library Facilities Master Plan. This funding will be used to translate the already-completed needs assessment and building program into schematic drawings and specific space allocations for an expanded library facility that can continue to meet community information needs.

CAPITAL IMPROVEMENT PROGRAM BUDGET

The proposed Capital Improvement Program (CIP) budget amounts to $12.7 million for fiscal year 2001-02. Of the total, $2.3 million is allocated for Neighborhood Improvement Projects (NIP). Some of the more notable projects being proposed for 2001-02 include $4.5 million for the construction phase of the Monterey Sports Center expansion, $1 million for the acquisition of the Catellus East parcel, $1 million for the Civic Center expansion, $1.2 million for street improvements, $500,000 for the widening of Highway 68, $475,000 for sewer improvements and repairs and $325,000 for North Fremont Storm Drain Phase I. Several of these high priority projects will be discussed in more detail below.

CITY COUNCIL PRIORITY PROGRAMS

This budget proposal represents an action plan for accomplishing the goals, objectives, and priorities of the City Council as representatives of the citizens of Monterey. The following discussion highlights some of the more significant programs that are being addressed within the proposed budget plan.

PUBLIC FACILITIES

For many years one of the top priorities of the Community has been Window on the Bay project, and great progress has been made. Programmed into next year’s CIP budget is $1,000,000 that will come from the General Fund Reserve for Window on the Bay – Catellus Acquisition. This will provide the resources necessary to match existing State Coastal Conservancy and Packard grant money that is set aside for the purchase of this parcel. The City’s option price is $3.96 million and the transaction must close escrow by February 2002.

The Monterey Sports Center Expansion is another high priority project that is very close to getting underway. Fundraising for this popular facility has already begun and construction management services have been secured. The current plan is to fund this $5.5 million project with $1.5 million in donations and $4 million from the Sports Center Expansion Capital Project Fund. The actual construction phase is expected cost $4.5 million and that amount is included in next year’s CIP budget.

This CIP budget also includes a $1 million appropriation for the Civic Center Expansion project to pay for preliminary costs necessary to get the project underway and prepare for the construction phase. This project consists of a new office building on Madison and Van Buren Streets that will house Planning, Engineering, Building Safety, Construction Management, Housing, Information Services and Finance. Future phases include the renovation of the first floor of Colton Hall as a museum, remodeling of the second floor of Few Memorial Hall, and expansion of the El Cuartel public safety building.

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As part of the funding plan for this project we are recommending in this budget that $1,050,000 be added to the Civic Center Capital Reserve in the General Fund. It should be noted that $750,000 of this amount would come from the eventual sale of the Parmalee Victorian house. We would then recommend that the entire reserve of $5,993,000 be transferred to the Civic Center Capital Project Fund. It is from these resources that the $1,000,000 in next year’s CIP budget will be appropriated. Staff will return to Council at a future date when the Civic Center plan is more fully developed and present the financing plan for this project in more detail.

One new priority we recommend adding to the list is the development of a maintenance needs analysis and financing plan for the City’s street, sewers and storm drains. As we press on with the high priority facility expansion programs noted above, we should remain ever-mindful that funds must be identified to maintain the critical infrastructure assets the City already owns and is responsible for.

Toward that end, I am happy to say we have included approximately $2 million in next year’s budget proposal for just such infrastructure needs. It breaks down as follows: streets, $1.2 million (this includes funds to improve Del Monte Avenue); sewer line repair, $475,000; and storm drains (North Fremont Phase I), $325,000. In addition to these funds for infrastructure maintenance, there is in excess of $700,000 in the CIP budget for other repair and maintenance projects.

HISTORIC PRESERVATION

One program that can be removed from the list of Council Priorities because it has been completed is the development of the Lower Presidio Historic Park and Museum. The museum exhibits are in place and ready for viewing in time for the grand opening on Memorial Day. We have included a budget of $55,000 for next year to staff this facility and fund operating costs. We have also included a proposal to upgrade an existing part-time temporary Office Assistant II position in the Museum to a 30-hour Regular part-time position. With the addition of the Presidio Museum the need for clerical support has increased. This position would provide such support to the Colton Hall Museum as well as the Presidio Museum.

To encourage property owners to participate in historic preservation, the proposed budget includes $100,000 in the Housing program and General Fund for historic preservation grants. This funding level is $15,000 higher than last year as this program has been successful and demand is expected to continue.

HOUSING

If there was one key priority that emerged from the Community Forum and Mayors’ Housing Forums held this Spring, it was the need to address the issue of affordable housing in the Monterey Peninsula area. Because of that input, we are recommending that two new items be added to the list of City Priorities: 1) a review of our inclusionary housing ordinance and affordable housing programs, and 2) expanded housing programs for seniors. This additional programming will require the staffing necessary to implement these new programs. Therefore, we are proposing the addition of a Housing Administrative Analyst on a three-year contact for the Housing and Property Management Division of the Community Development Department.

With the addition of new programs as well as priority projects such as Window-on-the-Bay, Catellus and Osio Plaza, this Division's workload has increased over time. The more recent focus on affordable housing issues has identified an even greater demand by the community for housing services. The recommended position will not burden the General Fund as it is funded only from Housing Funds at a first year annual cost of $62,000. The cost for administration would increase only slightly to approximately 13.7% of the total proposed Housing budget, well within required guidelines. Approving this contract position would ensure that the Housing Division can continue to meet current program and service commitments, and meet the increasing demands by the community for more and different housing programs and projects.

One focus of the new position will be to identify new revenue sources (federal, state, private grants, etc.) to fund new projects and programs. Our experience has been that new grant funds could easily exceed the cost of the position.

In addition to ongoing housing programs such as rehabilitation loans and downpayment assistance loans, the Housing budget for 2001-02 has over $1.2 million programmed into it for new housing programs or opportunity buying of the Van Buren properties. More information about the proposed Housing budget will be presented for Council consideration in a separate report.

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SOCIAL

In this budget we are recommending that the Lead Preschool Instructor positions at the four preschool sites be upgraded from 20 hour part-time seasonal to 30 hour regular part-time positions. While the City Preschool program is well attended (approximately 120 families throughout the year) and held in high regard, continual turnover of staff has proven costly. This is due in great part to the relatively low wage currently being offered and the absence of benefits. Consequently, it has become difficult to recruit and retain qualified instructors. Routine turnover of staff is unsettling for young children and does not allow the opportunity to establish trust and confidence with the parents. If approved, these additional hours will allow time for our Lead Instructors to do lesson planning and meet with parents if necessary. So as not to be a burden on the General Fund, we propose funding this program upgrade with adjustments in the fee schedule. Rates for two, three and four days per four-week session would go from $60, $70 and $80 to $109, $119 and $129 respectively. We believe these rates would still represent a very good value for our participating families.

We are also recommending the upgrade of three other positions in the Recreation and Community Services Department. In the Administration Division the workload has reached the point that a 30-hour Regular Part-time Office Assistant II is required rather than the part-time temporary hours currently being used. In addition, we recommend increasing the current 30-hour Office Assistant II at Hilltop Park Center to a full-time 40-hour position. This position provides clerical support to the Recreation Superintendent as well as the five Community Center Directors. Finally, we propose increasing the hours from 20 to 30 for the Building Maintenance Craftsworker dedicated to the Sports Center. Every time a temporary employee turns over we lose valuable institutional knowledge of the multiple systems in the Sports Center such as lights, pool, HVAC, etc. Continually retraining on these systems takes a considerable amount of time.

Another example of a program that is now up and running and will therefore be removed from the list of priorities is the Monterey Center for Children and Families. This has been one of our highest priority projects and it opened for business last Fall. Between NIP and General Fund money the City invested over $400,000 for repairs and renovation of this facility. With a current enrollment of 58 children, this program is helping local families by providing quality childcare at a reasonable price.

Use of the Monterey Sports Center has grown considerably over the last eight years. This extremely popular facility now hosts between 2,000 and 3,000 customers per day. Along with this growth in patronage, staffing has increased from 68 to more than 150 employees. The number of full-time staff directly supervised by the Sports Center Manager has become a deterrent to efficiently performing other duties assigned to this position. Expanding programs such as the renting out of this facility almost all 52 weekends of the year, the Playship program and an increased marketing effort all add tasks the Sports Center Manager must personally be involved in. In short, as the Monterey Sports Center grows in popularity, so does the need for someone to assist in the administrative responsibilities that are ever-present.

To help with this situation, we have included in this budget a request for a new full-time Sports Center Operations Supervisor. This management level position would help coordinate between the Sports Center Manager, the needs of the facility and the public. With the expansion close at hand, guest relations will be very important. This position will play an important role in communicating information to Sports Center staff as well as other departments regarding the expansion process. Because of the growth of this successful facility, this position is essential to the retention of professionalism, continuity, safety and service excellence. Staff is confident that even with the addition of this position we will still meet or exceed existing cost recovery policies.

We have included $10,000 in the proposed budget to provide public internet access at the Monterey Youth Center. These three additional stations will complement the other points of internet access in the City such as the Library, Archer Park Center and Senior Center.

For retention and recruiting reasons similar to the Preschool program already mentioned, we are also recommending in this budget that three part-time temporary Senior Library Page positions be upgraded to 30 hour Regular Part-time positions. We believe that this upgrade will increase the desirability of the position by offering more hours, greater security and enhanced benefits.

In order to better maintain our facilities in light of ever-increasing use, we are also including in this budget proposal a full-time Facility Attendant. This position will work for the Public Works Department but will provide maintenance and set-up services to primarily the Library, and secondarily to the Senior Center. In the case of both facilities, program growth and facility usage have proven current maintenance staffing levels to be inadequate. This is another example of our attempt to balance the upkeep of our existing facilities with the addition of new programs and facilities.

Technology and electronic resources are increasingly critical to the library services provided by the City of Monterey. The Library's existing integrated computer system is over seven years old and must be upgraded in order to continue to take advantage of enhanced capabilities. The budget for 2001-02 includes $143,000 for the second year of a 3-year phased upgrade of this system. The City of Pacific Grove's Public Library is a partner in the Library's computer system, and upon the approval of the Pacific Grove City Council, Monterey will be reimbursed approximately 1/3 of the cost of this upgrade.

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PUBLIC SAFETY

During this current fiscal year the Police Department began implementing one of the Council Priorities related to public safety: creation of a Reserve Police Officer unit. The first of six Reserve Officers has already been hired. In this unit, citizen volunteers who undergo an extensive training program will ride along with patrol officers (in uniform) to assist them in their duties. A Reserve Officer force can augment the regular officers in the field to provide higher visibility and can be called in to assist in securing crime scenes to free up regular officers to conduct investigations. Most importantly, this program would provide an opportunity for volunteers in the community who have expertise in a variety of areas to offer their skills to the City of Monterey.

The relationship between the City and local schools has been enhanced in the current year by the addition of a third School Resource Officer (SRO). The two existing SROs have proven to be highly effective but the third position allows us to dedicate a full-time SRO to Monterey High School to address safety concerns. The other two positions allow us to provide expanded DARE instruction and provide better coverage for Colton Middle School as well as the elementary schools. Next year’s budget includes grant funds and General Fund resources to continue this expanded program.

The proposed budget includes $12,000 for the purchase of three additional defibrillators. This would bring the total number of units in the Police Department to six and put one in the Sports Center as well. This will expand the City’s ability to support "code blue" (life threatening) medical calls. Portable defibrillators are used on CPR patients to assist in restoring a heartbeat, blood flow and breathing. Police officers on the beat often have the opportunity to be first on the scene of many medical aid calls. This equipment will allow them to be better prepared to handle certain life threatening situations when they occur.

The addition of several valuable new programs in the Police Department over the last few years has increased the administrative burden to the point that we are recommending the addition of a full-time Office Assistant II in the Community Services Division. Programs needing additional support include the Youth Diversion Coordinator, Reserves, SROs, Explorers, Volunteers and most recently, the Police Chaplain Unit.

In the current year’s budget, Council authorized the replacement of our two oldest fire engines. These units are on order and are expected to be delivered early 2002. For the fiscal year 2001-02 budget, the Fire Chief has recommended we also replace and upgrade our current Rescue Unit. We have therefore included in this budget a recommendation that we purchase the approximately $200,000 vehicle by way of a capital lease, as we are doing with the two fire engines currently being built. Due to the current rescue unit’s relatively small size (3/4 ton chassis), it is not capable of carrying about half our present inventory of rescue and hazardous materials equipment used to handle a variety of emergencies. Rescue equipment that cannot be carried is stored at Fire Station #3 and must be retrieved when needed.

This inability to have equipment on scene when needed increases response time and the risk of injury or property damage. The type of rescue equipment used by the Fire Department is determined by both need and safety law. This upgraded vehicle will make more of that valuable equipment available when it is needed most.

Included in next year’s budget proposal is $5,000 to establish a Responsible Hospitality Resource Panel composed of community health and safety representatives. This panel would meet with establishments licensed to sell alcohol to discuss new rules and regulations or any problems that may exist. The goal would be to decrease the number of public safety calls for service and the number of alcohol related offenses.

Also included in the budget is $50,000 to purchase five battery backup units for City traffic signals. This type of safeguard has become more important recently because of the threat of rolling blackouts.

ECONOMIC

The Monterey Peninsula Hotel project remains the highest economic development priority in the City. The developers have encountered some delays, but staff has been informed that the project is still moving forward, albeit at a slower pace than that which was originally hoped for. The completion of this project would provide a significant increase to the City’s tax base, thus allowing us to provide more and better service to the community. This project will also rehabilitate and redevelop a currently "blighted" area on Cannery Row and provide public access to McAbee Beach.

The economic revitalization of the North Fremont business area and surrounding residential neighborhoods is another important priority. Staff will be asking Council at the budget hearing to consider adding $10,500 to the budget to match fees collected from a North Fremont Business Improvement District, should one be established. Staff continues to work with business owners and leaders in the North Fremont area toward that end.

The City continues to encourage retention and expansion of existing local businesses. We propose continuing the funding in the Economic Development budget for the commercial building façade grant program in the amount of $54,400. In addition, the City provides staff support and funding to business improvement districts such as the Old Monterey Business Association and the New Monterey Business District.

Cities continue to be subjected to legislation creating unfunded State and Federal mandated costs. We have included $72,900 in next year’s budget to pay for the City of Monterey’s portion of the 2001-02 Local Agency Formation Commission (LAFCO) budget. Unfortunately for Monterey, because of the way the legislation was crafted this fee is based on relative agency revenues throughout the County rather than use of LAFCO services.

In this message, I have discussed several of the Council’s Priorities and how we are proposing they be addressed in the City budget. For a complete list of proposed Council priorities, please see the attached "City Council Priorities for 2001-02".

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LONG-TERM GENERAL FUND FORECAST

For the 2001-02 fiscal year, we have a balanced budget and an unappropriated General Fund ending balance of approximately $312,000. Given our current revenue and expenditure growth assumptions, we will remain in balance for two more years beyond next year. However, in 2004-05 we project a $300,000 deficit followed by a $900,000 imbalance in 2005-06. This is far enough out that I am not overly concerned at this point. However, this trend may indicate that a structural imbalance exists between the General Fund revenue base and on-going expenditures. Since the Council adopted a Financial Policy mandating a balanced budget, this may mean that in the future we'll have to reduce program expenditures, find additional revenues, reduce reserves or make adjustments to priority projects. One potential major addition to the City tax base that has not yet been factored into our projections is the impact of the new Monterey Peninsula Hotel. That facility alone could generate sufficient revenues to the City to more than offset the potential deficits mentioned above.

The City of Monterey is in good fiscal health. However, as you know, there are many demands placed upon these resources. Rarely do we hear a proposal to discontinue an existing program. Yet new programs are considered, and some are added, every year. Financing plans for high-priority capital projects (e.g. Civic Center, Window on the Bay, Catellus, Sports Center, etc.) are being designed to not rely on the issuance of bonds if possible. This pay-as-you-go approach also puts demands on current resources. On top of that, City streets, sewers, storm drains and building facilities all continue to need more funding just to keep them in good repair. Balancing these competing priorities continues to be a challenge. Nevertheless, I believe the budget presented here is a plan that will accomplish many Council Priorities in a prudent and fiscally responsible manner.

Fred Meurer

CITY OF MONTEREY

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