MEMORANDUM 09-105

TO: Mayor Hornaday / Homer City Council

FROM: Walt Wrede

DATE: August 10, 2009

SUBJECT: FY 2009 Budget reductions

At the last meeting, Council discussed the latest revenue report and took note of the fact that after the first six months of FY 2009, the City’s tax revenues are about $350,000 below projected revenues in the budget. If we assume trends will be the same over the next two quarters, the City could be $700,000 under projected revenues. That does not include the fact that the City lost approximately $120,000 in revenues from the terminated KESA contract. Further, most business owners who have contacted me say that the worst is yet to come and that the third quarter will be pretty bad.

Most of our discussions so far about the decline in sales tax revenues have been focused upon next year’s budget, FY 2010. However, the problem is not something we have to deal with six months from now. The problem is immediate. If revenues this year fall significantly below the budget, the end result will be a big hit to the General Fund Reserve Account. Council has worked to gradually build the fund balance to recommended levels over the past few years. This would negate those gains. Further, it would reduce any options the Council might have to balance next years budget by using a portion of the reserve account, if it chose to do so.

To that end, I wanted to confirm that we are taking immediate action to reduce expenditures in this year budget (FY 2009) to the extent we can with just over five months remaining in the budget year. The goal is to minimize cost overruns and reduce the impact to the GF Reserve Account .The steps we are taking include:

• Vacancies: Vacancies are not being filled automatically. Each vacancy is being reviewed on a case by case basis. Department heads must demonstrate that positions must be filled. To date, there are several positions that we plan to leave vacant for now and several in which we promoted employees on an interim basis with the understanding that the position may not be filled permanently.
• Budget Cuts: I am asking all Department Heads to go over their budget and present options for cutting expenditures this year.
• Overtime: We will be taking immediate steps to review all overtime and only use it only if absolutely essential.
• Travel, and Training Cost will be suspended until further notice with the exception of training that is mandated or essential to perform the job.