DAPHNE, Ala. — The Daphne City Council at its work session Monday debated using a portion of $830,000 in encumbered funds to help the city offset an estimated $400,000-$500,000 budget shortfall.

Encumbered funds are appropriations set aside in past years for capital projects that were never used.

Mayor Fred Small said the encumbered funds often come from differences in expected bids and accepted bids, when the city chooses a lower bid than what was originally budgeted.

“The encumbered funds were never designed to run the city,” Councilman Derek Boulware said. “I think we need to look at how the city can live inside its means.

“We can debate on what we should keep unencumbered. You’re still talking about using the reserve. It doesn’t change the philosophical question of ‘do we want the city to operate on its reserves?’”

Councilman August Palumbo asked Small what he plans to do with $196,000 reserved for road resurfacing.

“We’re going to use that,” Small said, adding that the $196,000 would be combined with the $500,000 annually appropriated, by ordinance, for resurfacing to U.S. Highway 98 and Whispering Pines Road.

“To me, the philosophical question we have is what are we willing to do today to our reserves and (for) our employees,” Councilwoman Cathy Barnette said.

Palumbo suggested deleting all of the encumbered funds, adding the total to the reserves and appropriating as needed.

“It’s money that’s not immediately needed,” he said. “We haven’t spent it yet. How long are we going to keep it in the bank?”

Councilman Ron Scott disagreed with Palumbo’s suggestion.

“I don’t think that’s a good policy,” he said.

The council was presented in its council packet last week four options to balance the budget, with the focal varying point being how much to draw from the city’s reserves.

The four options are as follows:

The following cuts are included in all four options:

Scott expressed favor for option three, which includes no layoffs or pay reduction and takes approximately $670,000 from the general fund, adding that he expects the option to be amended in some fashion.

Small said the city can legally enact a 5 percent franchise fee on Daphne Utilities to raise funds.

“That would give us approximately $525,000,” he said.

Boulware disagreed with Small’s proposal, saying he would expect the utility board to pass the extra charges onto the customers.

“What you’d be doing is taxing the citizens of Daphne,” Boulware said. “I don’t think this is the year for that. This is the year to look at what we operate on. We need to look under every rock.”

“It’ll be passed onto the people,” Palumbo said. “There’s no question to that The truth of the matter is our personnel costs exceed 70 percent of our budget. We have too many employees.”

Palumbo added that he’s not in favor of layoffs but, rather, attrition, or letting employees retire and not filling their positions.

“Everybody, including business, is tightening their budget,” Council President John Lake said. “There are still things that could be done to save the citizens money.”

Scott suggested council members review the list of encumbered funds and submit to the mayor recommendations for deleting items.

According to city finance director Kim Briley: the 2010 budget will have $9.9 million in unreserved funds and $1.3 million in capital reserve, not including $500,000 in encumbered funds.

“We’re looking at a $400-500,000 deficit,” Small said.

Barnette said she’d like to see the overtime pulled — saving $100,000 — and added that she’s not sure why only $25,000 was cut for training purposes. She’d also like to leave employee recognition out of the budget — saving $5,300.

“We’ve got a tremendous amount of cost to our equipment,” Barnette said. “I think we need to get a little more creative.”

When asked by Palumbo of which option Small favors, the mayor said he’s leaning toward option three.

“We cannot sustain any more layoffs,” he said, adding that the Public Works Department is working a skeleton crew.

“We’ve gone through and cut this budget three times,” Small said. “There’s nothing left to cut except personnel.”

Scott noted that a portion of city residents have not yet received their ad valorem tax invoices due to a clerical error. The expected total ad valorem revenue from these residents is between $300,000-$400,000, significantly decreasing the shortfall and necessity to draw from the reserves.

Lake said he, like Small, is in favor of option three.

“I know there’s a lot of people worried about furloughs and layoffs,” he said. “I think if it saves a person’s job, we all need to give a little bit.”

The council does not vote at its work sessions. The next business meeting is set for 6:30 p.m., Monday, in the council chambers at City Hall.