Projections shared with city commissioners Thursday show City Hall will spend about $4 million more than it takes in next year.
That means commissioners face these options: cut spending, raise taxes or fees, or dip into the city's savings account.
"What all this tells me is that we are really going to have to watch our spending," Mayor Mike Amyx said. "That's what it is all about, because you have to have a certain level of reserve funds just to feel comfortable."
Amyx spoke in response to information presented by Ed Mullins, the city's director of finances, during annual budget discussions.
The City Commission is allowed to approve budgets that aren't balanced - and did so for 2006 - because it can draw on its fund balance account, which is money the city has saved over the years. But during the third day of hearings for the 2007 budget, Mullins warned commissioners that if his projections held true the city's fund balances would fall to levels below what city policy says is prudent.
Mullins' projections show the city's fund balances - which can be thought of as a savings account - dropping to about 12 percent of the city's total general fund spending. City policy recommends the fund balance remain above 15 percent. Mullins' projections show the situation in 2008 would become even more serious, with the city dipping into savings an additional $5 million, leaving a cushion of about 3 percent.
The numbers are causing some commissioners to consider an increase in the city's property tax rate.
"I won't support a budget that allows those fund balances to dip below 15 percent," City Commissioner Boog Highberger said. "This is the year I expect we'll see at least a bit of a mill levy increase."
Others, though, were more optimistic. City Commissioner David Schauner said he would consider allowing the fund balances to dip below 15 percent if the money was used for maintenance projects and other programs that would save the city money in the future.
He also said he wasn't yet convinced that Mullins' projections would hold true. Schauner noted the city has received similar projections in previous years only to see the city's financial situation end the year better than projected.
City Commissioner Mike Rundle said he did not want to dip below the 15 percent level, but he said he thought the city could find ways to control spending enough to not need a mill levy increase.
"If we can't do everything on the list, we'll just have to weed out some of the wishes," Rundle said.
During the three days of budget hearings, commissioners received requests from city department heads for $7.8 million worth of new projects or programs. That list almost certainly will not be entirely funded.
But Thursday, momentum continued to build for the single-largest request: $2.9 million to bolster the city's street maintenance. Amyx already has said streets will be a major priority as he considers the 2007 budget. Rundle on Thursday went further.
"I would say providing that funding is pretty much going to be a no-brainer," Rundle said. "If we can spend $1 in preventive maintenance to save us $7 or $10 in major repairs down the road, we've got to do it."
City staff members now begin preparing a recommended budget for commissioners to consider. That recommendation is expected in early July. Commissioners must approve the 2007 budget by early August.