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shortfall was funded by securing a loan for the amount of the <br />deficit (from the Sewer Development Fund with interest) to be <br />repaid over a two year period. There are two significant problems <br />with this arrangement. <br />First, the loans are short term and must be paid back during <br />the next two fiscal years. The paying back of these loans will <br />significantly harm the City's ability to adequately fund its <br />General Fund operations during these two years. In short, we <br />borrowed from Peter to pay Paul; now we have to figure out how to <br />pay Peter back without further harming the General Fund operations. <br />The second major problem with this arrangement is that this <br />gap between General Fund revenues and expenditures exists in the <br />structure of the budget and will be carried forward within the <br />framework of the budget until it's eliminated by either an increase <br />in revenues and/or a decrease in expenditures. So, in effect, we <br />have a double-barreled problem --we must pay back the loans and <br />eliminate the structural problem within the budget. <br />In order to prevent a serious reduction in services that the <br />City provides to the public, we must significantly reduce, if not <br />eliminate, the current operating deficit during this fiscal year. <br />Our failure to address this problem will result in significant <br />service reductions as early as the next fiscal year. <br />RECOMMENDATIONS <br />1. We recommend that the Council review and adopt fiscal <br />measures outlined in a Attachment "A". <br />- 3 - <br />