FAIRHOPE, Ala. — “We’re looking at a deficit in the general fund, which is something new for us,” City Treasurer Nancy Wilson said Monday at the City Council meeting when the Comprehensive Annual Financial Report for fiscal 2008 was accepted by the city.

The accounting firm of Hartmann, Blackmon & Kilgore PC, which performed the audit of the city’s financial records as required by state law, presented the CAFR, which was then formally accepted by the council.

A copy of the CAFR is available at the Fairhope Public Library.

“You did have a deficit for that fiscal year,” said Dennis Sherrin, one of the accountants who conducted the audit, referring to the fiscal year ending Sept. 30, 2008. “The city has always operated on a very tight margin. But in the past fiscal year, the lines (showing expenditures and income) did cross.”

Sherrin said his firm gave the city’s financial records “an unqualified opinion,” which is the highest opinion an auditing firm can give, meaning that all records presented meet applicable accounting standards.

Although HBK performed the audit, the city offices of treasurer and financial reporting provided all the financial and statistical information in the CAFR, as well as a section entitled, “Management’s Discussion and Analysis.”

“When reviewing the city’s finances, it is important to ask if the city as a whole is in better financial condition when compared with the prior year,” that section of the CAFR states. “An indicator of the city’s financial health is whether the fund balances of the governmental and net assets of the proprietary funds (that is, the city’s public utilities) decreased or increased as result of operating activities.”

During Wilson’s financial report to the council, she addressed the issue of the proposed 2 percent sales tax that is scheduled for a public hearing at 6 p.m. Monday.

“The 2 percent sales tax could result in $7 million in additional income by conservative estimates, according to information provided by the state,” she said. “I’m glad we’re discussing it and having an open discussion (at the two public hearings on the issue). It’s the responsible thing to do.”

Wilson said that the additional revenue could result in $2.45 million for the utilities for infrastructure improvements.

“It could also put $1 million in our cash reserves by the end of the year.”

Wilson said current cash reserves are approximately $1.9 million but with expected withdrawals for general fund operating expenses of between $250,000 and $300,000 per month, that reserve could be depleted by the end of the summer.

“The fund balance of the General Fund decreased by $620,233 during fiscal 2008, after net transfers and debt proceeds,” the CAFR states. “There were many factors contributing to this decline in fund balance. The downturn in construction and real estate development had a negative effect on license, permit and impact fees. On the expense side, insurance and gas and oil were markedly higher than the previous year. Most significantly, the City Council did not increase utility rates to offset the increased cost of energy. This resulted in a decrease in profits from operations of the utilities and a resulting decrease in the amounts transferred from the utilities to the General Fund. The transfers were $361,678 less than the prior year and $671,632 less than the original budget amount. The fund balance of the General Fund increased by $615,979 during fiscal 2007. The city’s enterprise funds consist of the Electric Fund, Natural Gas Fund, Water and Wastewater Fund and the Golf Fund. Income for the enterprise funds, before transfers to the General Fund, was $4,457,301. This was a decrease of $2,121,164 from the prior year.”

The public hearing on the proposed sales tax Monday will be moderated by Councilman Rick Kingrea and most city department heads and elected officials will be present, according to the city.

“I’m trying to hear from all residents (about the proposed tax),” said Mayor Tim Kant. “It’s running about 50/50 for and against.”