FAIRHOPE, Ala. — Profits from Fairhope’s three public utility departments are expected to be $2.5 million lower at the end of the fiscal year (Sept. 30) than were projected in the 2008 budget, according to city financial reports.

“All the (utility fund) revenues are down,” said City Councilwoman Debbie Quinn during a council finance committee meeting Tuesday.

The council is expected to approve adjustments in the 2008 budget during its regular meeting Monday based on reports presented this week by Treasurer Nancy Wilson and Financial Reporting Manager Rose Fogarty.

“The revenues are very low,” Wilson said. “This next year is not a year for large capital expenditures.”

Fogarty presented two reports showing proposed budget adjustments for the city utility funds and the general fund.

“We’re anticipating a profit for all utilities of $3,929,862,” Fogarty said.

In the original FY 2008 budget, the expected profit from all utility operations was stated to be $6,449,754. The report recommended a proposed adjustment of minus $2,519,892, or the difference between the original budget figure and the projected profit at the end of this fiscal year.

The report organized the profit from operations for each of the city utility funds by original budget amount, proposed adjustment and current projections for year end as follows: (1) gas fund: original budget $1,318,299, proposed adjustment -$447,449, projection for year end $870,850; (2) electric fund: $2,623,329, -$1,393,895, $1,229,435; (3) water fund: $2,508,126, -$678,548, $1,829,577.

The report showed that the drop in overall profits was due in part to a projected $1,895,000 increase in the cost of energy for all utilities at year end.

“It’s these costs that we haven’t had any control over that have really hit us,” Fogarty said. “But we have also held the line on expenses.”

The report shows corresponding adjustments in total transfers from the utility funds to the general fund as follows: original budget $4,330,000, proposed adjustment -$596,631, projection for year end of $3,733,369.

In Standard & Poor’s “A+” long-term debt rating of Fairhope’s utility revenue bonds, it stated “the city’s substantial dependence on utility system transfers to support the general fund offsets these strengths” (strengths identified elsewhere that resulted in the A+ rating).

The credit rating scale by S&P’s regarding long-term debt is from AAA to C, with the “ratings from ‘AA’ to ‘CCC’ … modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories,” according to S&P’s Web site. “An obligor rated ‘A’ has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.”

The city’s financial statements report on the financial activities of the city as either utility (also called proprietary) funds or general (also called governmental) funds, according to the Comprehensive Annual Financial Report for the fiscal year ending Sept. 30, 2007.

“The city’s two kinds of funds — governmental and proprietary — use different accounting approaches,” the 2007 audit states.

The proposed budget adjustments for the city’s general fund show a projected decrease of $500,100 in licenses and permits related to construction.

Some council members said Tuesday that a moratorium on building permits and the downturn in the housing market were factors that contributed to that decrease in revenue.

“Revenues are down when construction is down,” Mayor Tim Kant said.

The proposed adjustments to the 2008 budget cover the overall budget of the city, which includes both general and utility funds.

“The total original budget was for $56,532,506 in revenue and $54,198,370 in expenses, with an excess in revenue of $2,334,136,” Fogarty said Thursday. “The amended budget would be for $56,790,588 in revenue and $56,419,975 in expenses with an excess in revenues of $370,613. The difference of $1,963,523 is largely due to an increase in cost of energy of $1,895,000, a decrease in utility revenues of $967,541, and a decrease in other expenses of $899,018.”

Fogarty explained that the decrease in revenues over expenses would have been greater if those expenses had not also decreased.

At the end of Tuesday’s meeting, Councilman Cecil Christenberry asked why the city makes budget adjustments.

“It’s how we work toward the next year,” said Kant, referring to the development of the budget for fiscal 2009.

“It’s another helpful piece of information,” Fogarty said.