• Budget Overview (presented by Interim City Manager Brenda Bauer)

• Proposed Staffing Changes (presented by department directors)

• The need to build reserve funds
  It is necessary for the city to maintain reserve funds sufficient to support regular operations and cash flow, to provide the capacity to respond to unexpected events, and to ensure access to credit markets. The city’s mid-year report projected year-end reserves of $78,000, which was less than the $500,000 to $1,000,000 which had been set as a goal by the Council and the city administration.
• The need to access the municipal bond market to refund existing debt and obtain new financing
  In August, credit rating company Moody’s Investors Service placed the city of Bainbridge Island on “credit watch.” This designation limits the city’s ability to borrow funds. Some of the city’s debt is due to be refinanced in the next year, and it is necessary to have the ability to secure new financing options. Establishing appropriate cash reserves will be an important step toward restoring the city’s credit rating.
• The need to bring recurring expenditures in line with recurring revenues
  Recent city budgets have included a level of expenditures that exceeded recurring revenues. It is necessary to align expenditures with revenues to ensure sustainability, allow for the creation of reserves, and improve long-range planning to effectively support priorities.
• The need to absorb significant cost increases and revenue reductions in the coming biennium that are beyond city control
  Pending increases in costs related to employee health plans, state-mandated pension contributions, and existing contract commitments total close to a million dollars.

1. Voluntary separation program
   The city instituted a voluntary separation program that was accepted by three employees, resulting in reduced labor costs beginning in fall, 2010.
2. Personnel changes
   To achieve additional reductions in personnel costs, the city developed a strategy to reorganize the work of city departments. This reorganization, represented in the current proposed budget, will impact about 40 employees through the elimination of some positions, reduction in hours for others, and many significant changes in job responsibilities.
   The reorganization is necessary to meet a dramatic change in the size of the organization – a reduction of nearly a third since 2007, when there were 152 full-time equivalent employees (FTEs). The budget submitted includes approximately 111 FTEs. This would bring the city to 1998 staffing levels, and would be comparable to 1991 levels in staff per capita of island population. It will result in a savings of $600k in 2011 as compared to 2010 actual expenses.
3. Elimination of cost of living increase and changes in medical plans
   In August, city employees agreed to the elimination of cost of living wage increases in 2011. The city’s largest union also agreed to a change in medical coverage which will reduce costs.
4. Reduced spending for remaining 2010 activities
   Ongoing rigorous management of operational expenses has resulted in projected year-end expenditures under budget for 2010.

Despite these steps, significant additional action is required to create a budget that achieves the goals identified for the coming year. Below is a partial list of initiatives that have been proposed to bring the 2011 budget into alignment with the stated reserve goals of $2.4 million and service delivery targets:

1. BITV: The City Council authorized the city manager to terminate the existing contract and open discussions for services at a reduced funding level. Reduction - $246k
2. BIAHC/Cultural Funding: The city eliminated operations funding to recipient organizations and eliminated project award funds. Reduction - $150k
3. BIAHC/Cultural Element Implementation: The city eliminated funding for organizational support and cultural program management. Reduction - $75k
4. BIAHC/2% Arts Administration: The city eliminated funding for administration and management of public art program. Reduction - $20k
5. BIAHC/2% Arts Projects: The city eliminated funding for new public art projects, conservation and repairs. Reduction - $5k
6. HHHS/Human Services Funding: The city reduced funding to recipient organizations by 25%. Reduction - $81k
7. HHHS/Human Services Element Implementation: The city reduced funding for administration and management services by 88%. Reduction - $103k
8. BIDA/Winslow Way Communication: The city eliminated funding for the Main Street program and restricted remaining funds to use for mitigating the impacts of Winslow Way reconstruction. Reduction - $24k
9. Friends of the Farms: The city provided support for farm property management. Increase - $20k
10. Other: The city reduced funding in several other areas including knotweed eradication, voter registration efforts, Storm and Surface Water Management education, and the Municipal Judge staffing level. Reduction - $143k

Revenues:

1. Business License: The current graduated fee structure will be replaced with a $65 annual fee. Increase - $140k
2. Commercial Parking Tax: The rate paid to the city on parking fees will increase from 24% to 30%. Increase - $90k
3. Increase parking fines: Fine amounts will increase from $20 to $50. Increase - $42k
4. Implement parking fine late payment penalty: An additional $35 fee will be charged for late payment of parking fines. Increase - $8k

Additional, significant actions will be required to develop a 2011 budget that closes this remaining gap. It is essential that the city make the difficult decisions necessary to operate within the recurring revenues it receives and to create adequate supplemental funds to address cash flow and emergencies. Resolving these issues in the current budget cycle will improve sustainability and will accelerate the capacity to support city priorities in the future.