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accreditation process in 2004, followed by a similar re-accreditation process earlier in 2008, resulting in accreditation and recognition as one of the few public works agencies in the nation conforming to best management practices of the American Public Works Association. ? In FY04 and FY05, over $1.0 million in ongoing expenditure and service reductions were achieved in the Road Fund, primarily through the elimination of the in-house street overlay program and the organizational restructuring and consolidation of Public Works divisions and work crews, resulting in the elimination of supervisory positions. ? In September 2005, the council reviewed and discussed the financial status of the Road Fund and chose not to direct that Road Fund service reductions be made to stabilize the fund. Instead, in February 2006, the council directed that one-half of the funding for the Street Trees/Median Maintenance Program be shifted from the Road Fund to the Stormwater Fund, resulting in $655,000 of financial relief to the Road Fund beginning FY07. These cost reductions, efficiencies and funding realignments were implemented as a partial remedy for stabilizing the Road Fund O&M activities, with the hope that additional revenue sources for O&M would eventually be realized as an outcome of the council’s strategic goal around transportation funding. However, insufficient additional resources have been identified to date, while at the same time the cost of road O&M activities continues to grow, resulting in a projected operating loss for the current year of over $2.6 million and reducing the projected year-end fund balance to $210,000—a level far below the policy- recommended target of two month’s working capital. In FY10, the Road Fund is expected to generate a $3.2 million annual operating deficit, with that annual deficit growing to well over $5 million in the out years of the forecast. In the absence of explicit and deliberate actions, the fund will deplete all available fund resources and become insolvent sometime in the fall of 2009. On the other hand, a set of $4 million revenue and/or reduction solutions implemented by the beginning of FY10 would eliminate the projected future annual operating deficits and restore the fund balance to the policy-recommended level. Illustrative Effects of $4 Million Service Reductions Attachment A illustrates the types and magnitude of street and traffic infrastructure program reductions which would be required if a strategy of service reductions alone were employed to correct the structural deficiency between Road Fund revenues and expenditures and restore the fund balance to the policy- recommended two months’ working capital within the six-year forecast period. The attached summary of illustrative reductions (Attachment A) is intended to represent a list of the specific services which likely would be eliminated in a reduction strategy and provides examples of the types and magnitude of service level changes which would be required in order to achieve expenditure reductions of this scale. Attachment A also contains additional narrative detail about the service implications of these service reductions. If directed to make street service reductions of this magnitude, the City Manager would return within the next couple of months for a more detailed discussion of the precise service reductions and eliminations to be implemented, as well as the legal and practical implications of those actions. City Manager’s Recommended Interim Funding Strategy As an alternative to implementing the types of service reductions described in Attachment A, which would have a detrimental and long-lasting impact on the City’s transportation service system, the City Manager has directed that staff explore the implementation of one or more new revenue options, focusing in the short-term on the two options described in the following paragraphs. ? Franchise Fees on City and Other Utilities – The City has made a significant investment in the road right-of-way over the years and has historically charged a variety of utility providers for the use of Z:\CMO\2008 Council Agendas\M081112\S081112A.doc