ITEM:		PUBLIC HEARINGS
16.	CONSIDER ADOPTION OF MID-YEAR FISCAL YEAR 2004-05 BUDGET ADJUSTMENT
Meeting Date:			February 24, 2005	Budgeted:	N/A
From:			David A. Berger,	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Rick Dickhaut	Cost Estimate:	N/A
General Counsel Approval: N/A
Committee Recommendation: The Administrative Committee reviewed this item on February 7, 2005 and recommended approval.
CEQA Compliance: N/A

SUMMARY: Annually, the District considers its financial position after the end of the second fiscal quarter. District staff has reviewed income and spending patterns since July and determined that adjustment of the budget developed last spring and adopted June 21, 2004 is required. The tables below summarize the proposed budget changes:

Revenue	Adopted	Change	Amended
Property Tax	$840,000	$250,000	$1,090,000
Permit Fees	95,000	10,000	105,000
Connection Charges	350,000	25,000	375,000
User Fees	2,000,000	100,000	2,100,000
Recording Fees	12,000	0	12,000
Interest	75,000	(20,000)	55,000
Project Reimbursements	224,000	75,000	299,000
Legal Fee Reimbursements	18,000	0	18,000
Grants	50,000	0	50,000
Other	5,000	0	5,000
Subtotal	$3,669,000	$440,000	$4,109,000
Capital Equip. Reserve	30,000	0	30,000
From Fund Balance	1,027,300	(127,300)	900,000
Total	$4,726,300	$312,700	$5,039,000
Expenditures	Adopted	Change	Amended
Personnel	$2,585,200	$0	$2,585,200
Supplies & Services	554,500	301,000	855,500
Program Expenses	1,169,400	2,900	1,172,300
Fixed Assets	103,000	1,200	104,200
Other	314,200	7,600	321,800
Total	$4,726,300	$312,700	$5,039,000

As the table indicates, net revenue increases are $440,000 while net expenditure increases are $312,700. The difference results in an anticipated decreased use of general operating reserves of $127,300 during fiscal year 2004-05.

RECOMMENDATION: Following a presentation by District staff and the public hearing, staff recommends adoption of the proposed mid-year budget adjustment for Fiscal Year 2004-05. The Administrative Committee reviewed the proposed mid-year adjustments on February 7, 2005 and voted 3 to 0 to recommend approval.

BACKGROUND: The Board of Directors adopted the 2004-05 budget on June 21, 2004. The paragraphs below summarize proposed mid-year adjustments to the budget and fund balance.

Revenue

The 2004-05 adopted budget anticipated revenue collections in the amount of $3,699,000. In addition to the budgeted revenues, it was projected that $1,027,300 would be utilized from prior-year fund balances to pay the $4,726,300 in planned expenditures. As of November 30, 2004, actual revenue collections totaled $1,413,858 or about 38% of the budgeted amount. District staff has analyzed the revenue activity for the first six months of the fiscal year, as well as changes in activities scheduled for the second half of the fiscal year and recommends various adjustments to the revenue portion of the budget as discussed below.

In December 2004, the District received approximately $526,000 in property taxes. Due the fact that the District had less taxes shifted to the State of California than was anticipated at the time the budget was prepared, this is about 63% of the budgeted amount. Based on this first installment, the budget for property tax revenue has been increased by $250,000. User fee revenues received year-to-date have also been higher than anticipated and the projected revenue for 2004-05 has been increased by $100,000 to $2,100,000. The amount of District reserves available for investment has declined and interest yields have continued to stay very low resulting in a projected reduction of $20,000 in interest revenue for the fiscal year. Connection charges and permit fees have been increased $25,000 and $10,000, respectively, due to higher than anticipated collections during the first half of the fiscal year. These revenue amounts may be even higher if the Pebble Beach Company starts to sell its water entitlements before year-end, and if updated fees for processing permits and providing other services are implemented before the end of the fiscal year. The amount for project reimbursements has been increased by $75,000 for anticipated reimbursements from the Wastewater Reclamation Project for legal costs related to the implementation of Ordinance No. 109. The cumulative effect of the above adjustments is a net increase of $440,000 in projected revenues for Fiscal Year 2004-05.

Expenditures

The original budget envisioned expenditures of $4,726,300 in the fiscal year ending June 30, 2005. As of November 30, 2004, actual expenditures totaled $1,502,151 or approximately 32% of the budgeted amount.

A review of the personnel portion of the 2004-05 budget indicated that no changes to the budgeted amounts are required. The supplies and services portion of the budget was increased by $301,000 as shown on Exhibit 16-A. The majority of the increase is due to unbudgeted legal fees in the amount of $250,000 for the Seaside adjudication lawsuit, the implementation of Ordinance No. 109 and several California Public Utilities Commission matters not anticipated at the time the budget was prepared. As previously mentioned in the revenue section of this report, the cost of legal fees for the implementation of Ordinance 109 are to be reimbursed by the Wastewater Reclamation Project, therefore, the revenue side of the budget has also been increased by $75,000. Professional fees have also been increased by $24,000 to cover the funds that were expended this fiscal year for advocacy services in Sacramento. There were a total of five payments of $8,000 each, three of which occurred in this fiscal year. Conference expenses, the category used to pay for meeting room rentals, was increased by $6,000 to cover the cost of room rentals for Board and other meetings not anticipated when the budget was prepared. Lastly, data processing costs was increased by $5,000 due to higher than anticipated hardware failures.

Fixed asset expenditures have been increased by $1,200 to purchase a tool box and truck rack for a new vehicle recently purchased. As shown on Exhibit 16-B project expenditures increased by a net amount of $2,900. The sole increase to this category was for hydrological technical support for the Seaside adjudication lawsuit in the amount of $52,500. There were two decreases for a total amount of $49,600. The first was an anticipated decrease of $5,600 for power costs at Sleepy Hollow and the second was a decrease of $44,000 for spawning habitat restoration work at Sleepy Hollow. This amount will not be expended until next fiscal year due to delays in acquiring the necessary permits for the project.

The “Other” expense category includes annual accruals for the Flood and Drought Reserve, Capital Equipment Reserve, election expense, annual reimbursement of the capital cost of the office building and the contingency. The increase of $7,600, shown in the “Other” category in the table in the summary section of this staff note, reflects an adjustment to the contingency amount based on the net increase in the Supplies & Services and Program Expenditure categories.

The cumulative effect of the adjustments to the expenditure side of the budget is an increase of $312,700 in projected expenditures for Fiscal Year 2004-05.

Fund Balances

The net effect of the proposed mid-year budget adjustment reduces the amount to be used from general operating reserves in 2004-05 by $127,300.

Additionally, while the budget for fiscal year 2003-04 anticipated the use of $1,798,800 of general operating reserves, the final financial statements for that fiscal year indicated that the amount actually used was only approximately $913,200. The difference of $885,600 represents additional fund balance to be carried forward to the budget for fiscal year 2004-05, and that amount will also be adjusted accordingly in the amended budget document.

EXHIBITS

16-A Mid-Year Budget Adjustment – Services and Supplies

16-B Mid-Year Budget Adjustment – Project Expenditures

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