ITEM:		PUBLIC HEARINGS
16.	CONSIDER ADOPTION OF MID-YEAR FISCAL YEAR 2008-2009 BUDGET ADJUSTMENT
Meeting Date:			February 26, 2009	Budgeted:	N/A
From:			Darby Fuerst,	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Rick Dickhaut	Cost Estimate:	N/A
General Counsel Approval: 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. District staff has reviewed income and spending patterns since July 1, 2008 and determined that adjustment of the Fiscal Year 2008-09 budget developed last spring, and adopted June 16, 2008, 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:

Revenue	Adopted	Change	Amended
Property Tax	$1,432,000	$0	$1,432,000
Permit Fees	250,000	(50,000)	200,000
Connection Charges	300,000	150,000	450,000
User Fees	3,670,400	0	3,670,400
Recording Fees	12,000	0	12,000
Interest	50,000	0	50,000
Project Reimbursements	1,157,600	(70,000)	1,087,600
Legal Fee Reimbursements	30,000	0	30,000
Other	8,000	0	8,000
Subtotal	$6,910,000	$30,000	$6,940,000
Line of Credit Proceeds	0	180,500	180,500
Capital Equip. Reserve	98,000	0	98,000
Flood/Drought Reserve	57,000	0	57,000
From Fund Balance	1,209,000	(134,700)	1,074,300
Total	$8,274,000	$75,800	$8,349,800
Expenditures	Adopted	Change	Amended
Personnel	$3,194,300	($161,300)	$3,033,000
Supplies & Services	1,017,300	60,200	$1,077,500
Project Expenditures	3,691,000	169,200	$3,860,200
Capital Assets	236,400	5,700	$242,100
Capital Equipment Reserve	60,000	0	$60,000
Debt Service	0	2,000	$2,000
Contingency	75,000	0	$75,000
Total	$8,274,000	$75,800	$8,349,800

As the table indicates, net revenue increases are $210,500 and net expenditure increases are $75,800, resulting in a reduction in the budgeted use of reserves of $134,700. Detailed information regarding the proposed changes, as well as their effect on the 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 Fiscal Year 2008-09.

BACKGROUND: The Board of Directors adopted the original Fiscal Year 2008-09 budget on June 16, 2008. The paragraphs below summarize the original budget, proposed mid-year adjustments to the budget and projected general operating reserves.

Revenues

The 2008-09 adopted budget anticipated revenue sources in the amount of $8,274,000, including $98,000 from the Capital Equipment Reserve and $57,000 from the Flood/Drought Reserve. It was projected that these revenues would be less than budgeted expenditures resulting in the use of $1,209,000 from the General Operating Reserve. This use of General Operating Reserves was attributable to the decision to pay for expansion of the Aquifer Storage and Recovery (ASR) Project on a pay-as-you-go basis. As of December 31, 2008, actual revenue collections totaled $2,728,085 or about 33% of the budgeted amount. Revenues for the first half of each fiscal 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 fiscal year. District staff has analyzed the revenue activity for the first six months of the fiscal year, as well as activities scheduled for the second half of the fiscal year, and recommends various adjustments to the revenue portion of the budget as discussed below:

• Connection Charge revenues have been increased by $150,000 based on actual receipts through December 31, 2008.
• Permit Fee revenues have been decreased by $50,000 based on collection data from the first six months of the fiscal year.
• Anticipated project reimbursements have decreased by a net amount of $70,000 (Exhibit 16-A) due to changes that will be discussed in the expenditure section of this report.
• Line of Credit proceeds in the amount of $180,500 have been added to the revenue budget to fund MPWMD 95-10 Desalination Project costs to be incurred during the remainder of the fiscal year.

User Fees, the District’s largest revenue source, have not been adjusted because they are based on California American Water’s (CAW) billings to customers and the amount of CAW’s rate increase that will be retroactive back to January 1, 2009 is still unknown. The original budget assumed that CAW would be granted about 50% of its requested rate increase of approximately 80%.

The cumulative effect of these revenue adjustments is an increase of $210,500 in projected revenues for Fiscal Year 2008-09.

Expenditures

The original budget envisioned expenditures of $8,274,000 in the fiscal year ending June 30, 2009. As of December 31, 2008, actual expenditures totaled $2,670,860, or approximately 32% of the budgeted amount. This low percentage is not unusual because project expenditures for the first half of each fiscal year are historically low. District staff has analyzed the expenditure activity for the first six months of the fiscal year, as well as activities scheduled for the second half of the fiscal year, and recommends various adjustments to the expenditure portion of the budget as discussed below:

• The personnel portion of the budget has been reduced by $161,300 as shown on Exhibit 16-B. Adjustments to this portion of the 2008-09 budget reflect changes to the General Manager’s contract and other adjustments related to two positions that have been vacant for a large portion of the fiscal year.

• The supplies and services portion of the budget was increased by $60,200 as shown on Exhibit 16-C. The majority of the increase is a $50,000 addition for legal services due to the number of pending California American Water (CAW) rate cases before the California Public Utilities Commission and the Draft Cease and Desist Order issued by the California State Water Resources Control Board.

• As presented on Exhibit 16-D, project expenditures decreased by a net amount of $169,200. Some of the larger adjustments are as follows:

1. Funding for the MPWMD 95-10 Desalination Project was increased by $180,500 to reflect the cost for work that is expected to be complete during the remainder of the fiscal year.
2. The amount budgeted for Certified Landscape Irrigation Audits has been reduced from $450,000 to $200,000 to reflect the amount that is now anticipated to be expended this fiscal year.
3. Funding in the amount of $75,000 was added to the water conservation portion of the budget for school retrofits.
4. The amount budgeted for conservation rebates was increased from $200,000 to $300,000.

• Capital Assets were adjusted by a net amount of 5,700, and $2,000 was added to the budget for debt service on funds used from the line of credit with Bank of America.

The cumulative effect of the adjustments to the expenditure side of the budget is a net increase of $75,800 in projected expenditures for Fiscal Year 2008-09.

General Operating Reserves

The difference of the adjustments to revenues and expenditures results in a reduction in the use of general operating reserves of $134,700. After this amount is subtracted from the original budgeted use of $1,209,000, the result is a budgeted net decrease of $1,074,300 in general operating reserves during Fiscal Year 2008-09. This use of reserves netted with the audited surplus of $121,130 from Fiscal Year 2007-08 changes the estimated general reserve carryover at June 30, 2009 to $528,201 (Exhibit 16-E). This amount equates to about 6.3% of the new operating budget amount, which is still above the minimum of 5% established by the Board during the 2005-06 budget process.

EXHIBITS

16-A Reimbursements

16-B Personnel Costs

16-C Supplies & Services

16-D Project Expenditures

16-E Reserves Analysis

U:\staff\word\boardpacket\2009\20090226\PubHrgs\16\item16.doc