The first draft of the fiscal year 2011 budget left Mayor Jimmy Lunsford disappointed.

“This is the first budget I’ve worked on that is not fun,” the mayor told city council members during a meeting Tuesday.

Lunsford had presented a draft of the budget to council members earlier at the work session, seeking their input and suggestions. “Right now, with the preliminary numbers, we have a $460,000 deficit,” Lunsford said.

That draft includes a 2.5 percent merit pay increase and a 2.5 percent cost-of-living increase, which total about $560,000. It also includes about $700,000 in capital expenditures not covered by grant projects.

Details are not finalized, but Lunsford said he met with department heads this week and challenged them “to tweak the budgets, if it’s nothing more than $5,000 here and $5,000 there” in an effort to reduce expenses.

Lunsford said if expenses cuts are not enough to offset the deficit, he likely would recommend the council use funds from the city’s surplus to offset the expenses for this fiscal year. “We have a small surplus,” he said. “It’s enough to get us through this year, but as we proceed into the next year, we’ve got to make some decisions. And we’ve got to make sure we’re cognizant of how the hospital fits into our situation.”

Troy Regional Medical Center, which is owned and operated now by the city’s health care authority, benefits from the city’s allocation of a 1-cent sales tax to the hospital’s operation. “It’s my recommendation, and I’ve expressed it to the hospital board as well, that the 1-cent sales tax (allocation) end on Sept. 30, 2011.”

Sales tax revenue is the primary funding source for the city. But Lunsford said many residents and taxpayers might be confused about just how much of the 9-cent sales tax collected on each dollar actually funds city operations.

“That sounds like a lot of money,” he said. “But of that, four cents goes back to the state for miscellaneous reasons; two cents goes directly to the boards of education (both city and county) and of that, the county commission gets 25 percent of one cent; two cents flows to the general fund of the City of Troy; and one cent – hopefully temporarily – is allocated to the operations of Troy Regional Medical Center.”

Moreover, the mayor said, sales tax revenues are not increasing year-over-year at the rate they once were. “We’ve been surviving and growing by growing the tax base because our sales tax collection is nominal,” he said, offering comparisons in area municipalities of three- to four-cent sales taxes allocated for city operations.

“I’ve done the projections on sales tax (revenues) for the remainder of the fiscal year, and it looks like we’re going to be about equal to 2006,” he said, adding that Troy is better positioned that some cities of similar size because of growth in the tax base and economic development.

The council is set to address the budget in September.

In other business, the council:

Awarded a $2,707,059 bid to Newell Roadbuilders Inc. for the construction portion of the extension of the main runway at the Troy Municipal Airport. Lunsford said he also “received, signed and returned the documents for the FAA approval and funding of the project.” The FAA is providing $2,870,520 in grant funds for the project, and the city is required to make a $75,540 match. “We’re getting a nearly $3 million project for $75,000,” Lunsford said. Engineering and administrative costs are not included in the Newell bid.

Heard a report from the mayor on upcoming increases in utility costs. Lunsford said the city has been in negotiations with Southern Wholesale Energy, which operates Alabama Power Company, and as a result the city will see a nearly 4.5 or 5 percent increase in utility rates Jan. 1, 2011. “And we’ll have another 4 and a half or 5 percent increase come Jan. 1, 2012,” he said. Lunsford said he has yet to analyze how that will impact the city budget or residents, saying that the city still benefits from utility rates much lower than other comparable municipalities, thanks to the Federal Energy Regulatory Commission caps on the rate increases, which are specific to the type of contract the city has with Alabama Power. “However, I anticipate within the next month we’ll be getting our two-year notice (of intent to end that contract) so we’ll begin negotiation for a market-based rate,” Lunsford said. “We’ll take with Southern Company, but we’ll also be considering other options at that time.”

Approved tax abatements for two economic development projects. While neither project is finalized, both are in the negotiation stage and Lunsford said offering these tax abatements on any purchases during the initial construction and opening phase is key to recruitment. “And these are only the taxes approved under the state-approved abatement law,” he said.

And, still on the topic of sales tax and city revenues, the mayor referenced both these prospects, saying, “hopefully we’ll get them and in two years we’ll not have any of these problems.”

Granted a 90-day extension on a dilapidated building order for 116 Murphree St. Property owner Martha Sanders asked for the extension to allow time to make roof, electrical and siding repairs. “All we really want is to get it looking good and bring it up to code like all the other historic houses on that street,” said Johnny Witherington, council member.

Declared 203 Todd St. a nuisance, which is the first step in the process of allowing city crews to address weed issues at the property. The property has been taken over in foreclosure and the Bank of America has been uncooperative and uncommunicative I our efforts to get things done,” Witherington said.

Approved a contract with Local Government Services Inc. for Greg Fender to act as the city’s agent in the proposed sale of Charter Communications to CoBridge Telecom. “He’ll go out and audit the books and make sure we’re got all our franchise fees before the transfer,” City Clerk Alton Starling explained during the work session.

Approved a lounge-liquor license for the Hurt Brothers Lounge at 5351 Highway 231 South. The lounge had been operating with a restaurant-based liquor license, which requires that 80 percent of its revenue comes from the sale of food. The reapplication for a license is an effort to bring the business into compliance with ABC licensing regulations, said an ABC agent.