It will cost an extra $1 million in city funding to run the Lawrence public transit system in 2009.

And that was only one of several bad pieces of budget news city commissioners were presented with at a Monday study session.

“It has been a very dour hour,” City Commissioner Rob Chestnut said as city staff members briefed commissioners on what is expected to be one of the more challenging city budgets ever conceived at City Hall.

A big chunk of the challenge can be found in the city’s public transit operations. After reviewing new bids that are based on higher fuel prices and increased maintenance costs for older buses, city staff members believe it will cost $1.02 million in additional city funding to run the T system and its associated paratransit service. The city currently spends $1.7 million in city funding for the system.

Commissioners did not agree on a solution, but some commissioners have previously said all options – including eliminating the service – would have to be considered.

New Mayor Mike Dever repeated his previous idea of holding a sales tax election to let the public decide whether it wants to tax itself to support public transportation. He said an election in November would be ideal, because voter turnout is expected to be high for the presidential election.

His fellow commissioners, though, didn’t have a detailed discussion on the sales tax idea.

Other budget challenges that commissioners were presented included:

¢ The city is not expected to receive any new property tax revenues in 2009, unless commissioners agree to raise the mill levy. A slowdown in the real estate market has led to the lowest increases in assessed valuations in recent memory.

¢ Overall, the city’s $55 million general fund is expected to grow only by about $850,000, or about 1.5 percent. Most of the new money is expected from a modest increase in sales tax collections.

¢ City departments need to budget at least a 20 percent increase in fuel prices.

City Manager David Corliss said without some sort of tax increase, the city likely would need to plan on expenses increasing by 2 percent or less in 2009. He said that could result in cuts to city services that the public would notice.

“But we can do it,” Corliss said. “We spent less money in the general fund in 2007 than we did in 2006. That’s one reason we feel confident we can deal with changing economic conditions.”

Commissioners weren’t pushing the panic button at the afternoon study session, the first of many to discuss the budget that must be adopted by the end of August.

Chestnut said the city was still in solid financial shape because it is operating with about $11 million in general fund reserves. The key, he said, is ensuring the city doesn’t dip further into those reserve funds.

“Fiscally, we’re still in really good shape,” said Chestnut, a chief financial officer for Lawrence-based Allen Press. “We haven’t run out of road.”