ITEM:		PUBLIC HEARINGS
15.	CONSIDER ADOPTION OF MID-YEAR FISCAL YEAR 2011-2012 BUDGET ADJUSTMENT
Meeting Date:			February 23, 2012	Budgeted:	N/A
From:			David J. Stoldt,	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Suresh Prasad	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, 2011 through the end of December 31, 2011 and determined that adjustment to the FY 2011-2012 budget is required. The FY 2011-2012 budget was adopted on June 20, 2011. Included in the budget adjustment process was a review of staffing levels, supplies, outside services, current work assignments and other factors affecting the current budget. The tables below summarize the proposed changes to the budget:

As the revenue and expenditure tables indicate, net revenue decreases are $1,418,100 and net expenditure decreases are $1,316,200 resulting in an increase of $101,900 in the budgeted use of reserves and line of credit proceeds from $1,747,300 to $1,849,200. Detailed information regarding the proposed changes, as well as their effect on general operating reserves, is detailed in the background section of this report.

RECOMMENDATION: Following a presentation by District staff and a public hearing, staff recommends adoption of the proposed mid-year budget adjustment for FY 2011-2012.

BACKGROUND: The Board of Directors adopted the original FY 2011-2012 budget on June 20, 2011. The paragraphs below summarize the original budget, proposed mid-year adjustments to the budget and projected general operating reserves.

Revenues

The 2011-2012 adopted budget anticipated revenue sources in the amount of $9,674,200, including $727,100 from the Line of Credit Proceeds, $443,900 from the Flood/Drought Reserve and $75,000 from the Litigation Reserve. It was projected that these revenues would be less than budgeted expenditures resulting in the use of $501,300 from the General Operating Reserve (Fund Balance). The use of Reserves was attributable to the decision to continue paying for expenditures after the loss of District’s User Fees revenue. As of December 31, 2012, actual revenue collections totaled $1,481,259 or about 15% 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 15-A and discussed below:

• Property Tax revenues have been decreased by $62,000 based on prior year’s collections which had declined over the years due to decline in property values.

• Water Distribution System Permit Fees have been decreased by $50,000 based on fiscal year-to-date collections.

• Connection Charge revenues have been decreased by $100,000 based on lower than expected receipts so far this fiscal year.

• Project Reimbursements for conservation and Water Project 2 activities have decreased by $497,000 due to deferral of project costs and delay in approval of the Cal-Am General Rate Case.

• Other Reimbursements were decreased by $18,000 due to several adjustments in the permit processing.

• Grant funds were decreased in the amount of $691,100 due to delayed approval of the Grant contract.

The cumulative effect of these revenue adjustments is a reduction of $1,418,000 in projected revenues for FY 2011-2012.

Expenditures

The original budget envisioned expenditures of $9,674,200 in the FY ending June 30, 2012. As of December 31, 2011, actual expenditures totaled $2,916,746, or approximately 30% 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 $7,000 as shown on Exhibit 15-B. This reduction is due to various adjustments based on six months year-to-date expenditures.

• The supplies and services portion of the budget was reduced by $2,578 as shown on Exhibit 15-C. This reduction was due to transfer of funds from Services & Supplies to Fixed Assets.

• As presented on Exhibit 15-D, project expenditures decreased by a net amount of $1,309,200. Some of the larger adjustments are as follows:
1. Expenditures for Water Projects 1 & 2 were increased by $107,200 from $1,717,700 to $1,824,900 based on refined estimates for the projects.
2. A budgeted fund of $150,000 for Water Project 3 was reduced to $25,000 as most of the work was deferred to FY 2012-2013.
3. The amount budgeted for Tolling of Water Credits EIR was decreased by $50,000. This project will be deferred to FY 2012-2013.
4. The amount budgeted for conservation programs were decreased from $1,178,000 to $634,400 mostly due to delay in Cal-Am’s General Rate Case.
5. Reduction in IRWMP Grant expenditures due to delay in contract approval. Most of the work was deferred to FY 2012-2013.

• Capital Assets increased by a net amount of $2,578 as shown on Exhibit 15-E. The change was cause by transfer of funds from Services & Supplies to Capital Assets.

The cumulative effect of the adjustments to the expenditure side of the budget is a net decrease of $1,316,200 in projected expenditures for FY 2011-2012.

General Operating Reserves

The difference of $101,900 in adjustments to revenues and expenditures resulted in the use of line of credit and reserves as follows:

Description	Original Budget	Adjustment	Amended Budget
Litigation Reserve	$75,000	$175,000	$250,000
Capital Equipment Reserve	0	4,800	4,800
Flood/Drought Reserve	443,900	0	443,900
General Operating Reserve	501,300	(26,000)	475,300
Sub-total	$1,020,200	$153,800	$1,174,000
Line of Credit	727,100	(51,900)	675,200
Total	$1,747,300	$101,900	$1,849,200

The decrease in the use of general operating reserves from $501,300 to $475,300 was made to bring the reserve fund to a balance to zero. The above adjustments will result in an estimated reserve carryover of $344,491 at June 30, 2012 as shown on Exhibit 15-F. This amount equates to about 4.1% of the new operating budget amount, below the minimum of 5% established by the Board during the 2005-06 budget process.

EXHIBITS

15-A Revenues

15-B Personnel Costs

15-C Supplies & Services

15-D Project Expenditures

15-E Capital Assets

15-F Reserves Analysis

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