MEMORANDUM 06-113

TO: Mayor Hornaday / Homer City Council

FROM: Walt Wrede

DATE: July 18, 2006

SUBJECT: FY 2007 Budget Priorities

At the Committee of the Whole Meeting on July 24, the Council is scheduled to spend some time talking about budget priorities for next year. This is a good opportunity for the Administration and the Council to share information about what they see as priorities. I know that it is very helpful for me to hear what the Council thinks is important before I and the Department Heads set about the task of putting together a budget for your review this fall.

We will not have the time to get into too much detail at this meeting. That will come later on in the process when we have better revenue and expenditure projections and we can provide you with more precise budget assumptions. The purpose of this meeting is to have a general discussion about broad budget principles and goals. In other words, what are important priorities and what direction do we want to take the City in terms of revenues, expenditures, and overall fiscal policy.

Following is a brief summary of the Fiscal Priorities that I have and would like to discuss with you. These are top priorities but they are not listed in any particular order. We clearly will not be able to afford all of this. I hope this list contributes to the discussion and helps us establish what is most important.

• General Fund Balance: The auditors have recommended that the General Fund Balance be at least the equivalent of half (six months) of the annual operating budget. That amounts to approximately $5 million dollars or around double what we have now. I think that we should try to move in that direction, perhaps with a phased approach over a few years.
• Depreciation: Although the City has done much better in recent years in terms of depreciation, it could and should do better. I will be looking to increase the amount we contribute over last year.
• PERS: We all know about how the annual employer contribution keeps increasing. In 2007 we will be at 22 percent or around $1 million dollars. In addition, I believe we should be talking about starting to pay down the City’s unfunded liability. The costs to the City over the long term of not doing so are enormous. The Manager’s budget that will be submitted for review will address this issue.
• COLA: You will recall that the Council asked us to come back with a salary and benefit survey, and some recommendations regarding employee compensation generally, including a COLA. We decided not to bring this back to you at mid-year but to make it part of the discussion for the 2007 Budget. Council should assume that the Administration will ask for a COLA and try to fit it into the budget.
• Cash Leave Reserve Fund: We will be proposing that a Cash Leave Reserve Fund be created in which budgeted contributions each year are allowed to carryover from one fiscal year to another.
• Emergency Management Fiscal Authority: As you know, we have recently adopted a Pandemic Flu Emergency Response Plan and A Wildfire Mitigation Plan. Many city staff are currently taking National Incident Management training and we recently let a contract for an update to the City’s Emergency Operations Plan. All of this planning and training has made a number of things clear; not the least of which is that the Manager has very limited authority to spend money on disaster response in a real emergency. We also have no real pot of money set aside for that purpose. Soldotna recently passed an ordinance that gives the Manager authority to spend up to a certain amount at a moment’s notice in a disaster or emergency if necessary, provided that the Council is notified and/or approves within 48 hours.
• City Hall: It would be prudent to appropriate some money into a City Hall Construction Fund. This money could be used for various studies and other pre-development activities that will be needed to push this project forward. It could also be used as a local match to leverage other funding sources.
• Capital Projects Fund: I would like to see the City make regular deposits into the Special Projects Fund and reserve its use to capital projects. The fund could be used to provide a local match, to make bond payments, as collateral, and as a revolving loan fund. Having this fund available could help us leverage other funds and as you know, Cities increasingly have to rely upon their own resources to get things done.
• Port and Harbor Enterprise Fund: We need to adequately fund depreciation and to make sure that we have enough reserves available to cover our bond sale obligations, as noted by the auditors. Steve, Regina, and I are discussing ways to accomplish these goals without raising slip or other fees.
• Department Budgets: Relatively small increases in Department budgets tied generally to inflation and increases in fixed costs such as fuel, electricity, PERS etc.