A policy established in 2009 for the coming fiscal year to cap financial transfers from public utilities to the general fund at 50 percent will have to wait, according to statements made at Thursday’s Budget Committee meeting and by City Council President Lonnie Mixon this week.

But the committee also decided to maintain the current 60 percent transfer limits for next year’s budget.

“There will be a resolution on the July 26 council agenda to delay the implementation of the 50 percent (cap) until 2013,” Mixon stated Monday. “We are working at the 60 percent level at the present time.”

The long-standing practice of using a high percentage of profits – more than 80 percent in recent years – from the electric, water, sewer and gas departments to fund city government has been criticized by some officials and was a frequent refrain during the 2008 municipal elections.

Those transfers were noted by Standard & Poor’s in its upgrade this year of the city’s bond credit rating, which stated it as one reason for qualifying its increase for Fairhope’s rating from A+ to AA- on a scale where AAA is the highest.

“In our opinion, the rating is constrained by the general fund’s dependence on transfers from the city’s utility funds,” the June 16 report stated. “Historically, the city has relied on sizable transfers from the electric, gas, water and sewer utility funds to the general fund. For fiscal 2009, transfers totaled $5.1 million compared with $15.9 million of total general fund revenues.”

The S&P’s report stated that, despite the increased transfers, the utility funds continue to demonstrate sound financial operations and that “the city has also taken steps in the past several years to reduce the importance of transfers to the general fund.”

The high percentage of those transfers diverted money from the utilities instead of reinvesting it, leading to upgrades and repairs going unmet in those departments for years, according to several council members who have sought to find ways to reduce the transfers.

To remedy the problem and reduce transfers so funds could stay in the utility departments was one of the main reasons for passing last year’s two-cent sales tax, its council supporters stated at the time.

The council’s adoption of the tax in April 2009 was followed by a resolution in May to cap transfers at 50 percent starting in FY 2011. The council budgeted an anticipated $3.8 million from the new tax revenue this year, with half of that amount restricted to a special reserve account and the remainder available for use in the general fund.

The expectation of some $2 million additional revenue in the general fund led to a budget last September that limited transfers at approximately 60 percent this year. That limit was seen as a transitional step before the 50 percent cap went into effect with the new fiscal year starting Oct. 1.

Last week, the committee faced the transfer issue again during two days of meetings with senior staff and department heads to review a draft budget prepared primarily by City Treasurer Nancy Wilson, City Administrator Gregg Mims, Financial Reporting Manager Rose Fogarty and General Superintendent James Gillespie.

That draft budget showed a surplus of $410,392 in the general fund with transfers from utilities at a 64 percent level, according to a memo summarizing the budget by Mims, which Mixon questioned.

“My question is how did we get from 60 percent to 64 percent from this fiscal year to the next,” Mixon said. “I thought we were just going to stay the same as last year, once we decided to delay changing the 50 percent (cap).”

The proposed FY 2011 budget showed total utilities transfers at $5,439,302 compared to $4,897,104 for the current year’s amended budget.

“Starting with that percentage we were way in the hole,” Fogarty said, regarding the development of a balanced budget to the committee. “We discussed among the four of us using percentages at 63 or 64 percent. We can go back to 60 percent if you want.”

She calculated budget figures during the Thursday meeting at the 60 percent level, which changed the transfers to $5,099,345 and left a budget surplus of $70,439.

“That’s how it’s been done year after year,” Mixon said, regarding the increase of transfers to balance the budget, while arguing that the budget for FY 2011 should maintain the 60 percent limit.

The council-appointed committee – comprised of Stan Grubin, chair, Mixon, Chuck Zunk and Pam Caudill – voted unanimously to recommend a budget to the council that maintained the 60 percent limit on transfers from the utilities to the general fund.

“My thought is these are all wonderful ideas, but there are four other council members,” Mims said. “We’ll go to 50 percent, 40 percent or 60 percent. But just tell us what you want us to do one time. My point is we’ll do whatever you want us to do, but can we set the goal post up and mark the lines? I don’t want to go through this nine times.”

The meetings last week were the second year of a new procedure for how the city prepares its annual budget. In years past the mayor’s office prepared the budget with little input from the council or department heads, according to city officials and staff.

That changed last year when the council-appointed Financial Advisory Committee held two days of hearings with department heads, from which a budget was developed showing the departmental budget, the mayor’s budget and the FAC budget, which the council would eventually adopt.

That new procedure also drew criticism from some in the community, that an unelected committee had such a large role to play tin the development of the city’s budget.

This year the Budget Committee was appointed to preside over the budget process. The budget has been prepared without direct consultation by the mayor, according to city staff. Kant could not be reached for comment by press time.

The committee meets again tomorrow to review the changes recommended at last week’s meetings, Grubin said.

The committee will finalize its version of the budget and forward it to the FAC and the council, which will adopt the final budget.

“It is important to remember that utilities’ transfers in prior years varied up in the 80-plus percentage ranges,” Grubin said.