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One-time vs. Recurring Expenditures The 2006 Proposed Budget is $33.5 million. Approximately 99°/o of this budget is recuming in nature (i.e. the same expenses are expected to he incurred at the same level or higher in '07, '08, and each year thereafter). In the context of making budget cuts, we've heard some Counciln�ambers suggest that some of the proposed budget items are one-time in nature and could be eliminated or put off to another year. In some cases, that is true, hut not in most. For example, the 2006 Proposed Budget includes $43,000 for various Skating Center improvements. These are not one-time in nature. As was detailed in the Oval Task Force Reports, as well as various other Staff reports, the Skating Center needs to set aside at least this much, just to repair and replace components when they reach the end of their useful lives. In this particular case, the $43,000 (or amounts close to that) will also be requested in future years. The same on-going obligations will be realized with the County Road C streetscape maintenance ($25,000), and Police Records Management System software sup�ort and maintenance ($25,000). With only 1°/o of the total budget being one-time in nature, you can see how challenging and frust�ating it can be in trying to balance the budget from year to year. This ring's especially true when you consider that the vast majority of one-time costs are in police, fire, streets and utilities, and parks. Using City Reserves As has been shared previously, it would be contrary to governmental best practices to use reserves for on-going operations. Typically, reserves are used for unforeseen events or circumstances. On a cautionary front, having a strong reserve level was one of the reasons the City received a bond rating upgrade in 200L Furthermore, the use of reserves will in effect reduce the amount of funding that is available for future budgets. Here's why: The City has approximately $4 million in reserves in its General Fund. This is the fund that is used to provide police, fire, street maintenance, legal services, and other functions. By investing the $4 million in a portfolio that earns 5°/o, the City eams $200,000 annually. 100°/o of these earnin,gs are used to provide General Fund pro,grams in the current bud e�t vear which means we need less tax IeW dollars. Now, suppose that we spend $500,000 in General Fund reserves, leaving only $3.5 million left to invest. At 5°/o interest, the City earns $175,000 annually instead of $200,000. The net result from spending the reserves is that we i�st 'lost' $25,000 in fundin,g for the next bud e�t vear. Thus, spending reserves to meet on-going operating costs is not a best practice. The same effect holds true for all other funds including the Tax Reduction Fund. This particular Fund was established with the intent of capturing the investment earnings and using it to pay for General Fund programs. Spending reserves out of the Tax Reduction Fund, in effect means less monies to provide for police, fire, street maintenance, etc. This in turn, would require additional monies from the property tax levy. �