The city council has been working toward a balanced budget that will provide a responsible fiscal basis for proceeding in to 2005. We were faced with several challenges, the most pressing of which were further reductions in state funding; increases in the cost of all goods and services due to inflation and rising fuel costs; increases in both liability insurance rates and workers' compensation insurance rates; and an unforeseen increase in the cost of employee pension benefits.

As a result of a change in the statistics used by the state to determine the current funds required to meet the future distribution costs of the PERS/TRS pension fund, the state has determined that the account is under-funded. What this means to the cities that participate in the program is that the rates for the pension plan will increase significantly over the next three years to ensure that an adequate amount of funds will be available to meet the obligations of the pension program in the coming years. The affected cities are without recourse, as the obligation for the benefits has already been made and even if the city of Homer was to consider moving to another pension program, they would be liable for the current under-funded amount.

Another area of concern to the council has been the low amount of depreciation funding. Prudent business practice is to set aside a fund in anticipation of replacement and maintenance for buildings, equipment and other infrastructure (this process is referred to as "funding depreciation"). For municipal entities the General Accounting Service Board (a national organization that sets standards for accounting, audits and general government management and financial reporting) requires that depreciation be funded. The budget, until just minutes before council adopted it, did not include any money for depreciation. Failing to follow the guidelines established by the GASB would have resulted in bad audit reports and a poor bond rating status among other things.

In addition to maintaining the required basic services and these financial requirements of operation, there was the need to maintain a comparable level of compensation for the employees; the desire to continue funding for the nonprofit organizations; and the potential need to acquire funding for the library construction which the voters approved in the October elections. With all of these expenses looming in the face of no additional revenue streams, we had our work cut out for us.

As we worked through the budget process, the staff has provided a baseline budget document and our task was to review it, work through potential options for increasing revenues and decreasing costs, and come out with a budget which meets as many of the needs as possible.

Beth Wythe is a member of the Homer City Council, which Monday adopted a balanced city budget for 2005.