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While the budget cuts remain in place for the 2005 Proposed Budget, they become largely masked due to other factors - primarily inflation. Inflation increases the City's Budget by approximately $300,000 annually just to sustain operations at their current levels. The 2005 inflationary impacts effectively 'wipe out' the budget cuts enacted in 2004. Holding all other factors constant, if the City desires to keep spending flat (absorb inflation) approximately $300,000 in budget cuts would have to be enacted. . . each year! To demonstrate the effect of inflation, consider the costs associated with one (1) Staff Accountant position. Typically, the Staff Accountant is hired at the entry level - the level at which someone with minimal experience in the profession is paid at. Under the City's current pay structure, that individual might receive a starting annual salary of $35,000. However, one year later, that employee is eligible to receive a salary increase reflective of their advancing experience and skills, institutional knowledge, and overall performance. After one year, the Staff Accountant's new salary might be $38,000, or a $3,000 increase. While this may not seem like much, if you multiply this same effect by the City's 155 employees, as well as the supplies, materials, vehicles, and other service inputs, the inflationary effect citywide is relatively large. The inflationary effect described above demonstrates how difficult it is to achieve structural budget balance without systematic revenue increases. Identifying where the 2004 Budget Cuts fall The following information tries to address the specific inquiries in at least a summarized form. The original inquiry submitted by Councilmember Schroeder is shown in boldface followed by Staff s response. We reduced the Insurance premium by $100,000 by going to self insured. The amount reduced was $50,000 in the tax-supported funds, and is shown on Page 35 of the Budget Book. While the full reduction is continued into 2005, future budget years will require some increases. We reduced the COLA to 2.3 % or $55,000. The reduced COLA from 3% to 2.3% did 'save' the City approximately $50,000 between the 2004 Proposed Budget and the 2004 Final Budget. These savings don't transfer to future budget years. We reduced Conf/training by $5,000. The Conferences/training budgets were reduced in a number of departments. Again, the reduction occurred between the 2004 Proposed Budget and the 2004 Final Budget. These reduced amounts do not necessarily transfer to future budget years. With regard to the 2005 Budget, Staff has requested what they feel is an appropriate training budget based upon the training needs. The Council has at its discretion the ability to cut this line-item budget, although some impact will be felt. 4