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equipment, training, and licensure. The presence of these requirements along with limited staffing has necessitatedthe use of an outside contractor. New Fundin� Obli�ations for 2007 Projected inflation for 2007 is expected to be approximately 3.5%, and becomes a new funding obligation for the following year as it results in higher operating costs for the City. Inflationary effects alone translate into nearly $1 million citywide in added operating costs. In addition to inflationary effects, the following new funding obligations will come �r, -] u7c in 2007: 1) Gymnastics Center -$30,000 annually for operating costs 2) Reservoir Woads/Ce�etery property parking lot -$10,000 one-time appropriation 3) Arena refrigeration system, dasher board and flooring replacement -$250,000 one-time appropriation — Aside from these inflationary impacts, potential new funding obligations may also come in the form of increased funding for the asset replacement program, park improvement program, or new initiatives. The Council will need to hold fi�rther discussions on whether to pursue this. Retired Fundin _� Obli�ations for 2007 The following funding obligations will be retired and will come Off-1111e in 2007: 1) A reduction in Police and Fire Dispatch costs. As the County transitions to a new 911 Dispatch Center, the associated costs will gradually move from the local level to the County level. 2007 Dispatch costs are expected to decline by approximately $100,000 2) Pedestrian safety improvements. A one-time appropriation of $15,000 had been made in the 2006 Budget. This appropriationwas not requested for 2007 3) Traffic safety model. A one-time appropriation of $25,000 had been made in the 2006 Budget, but is not included in the 2007 budget. Funding for 2007 and in the future is expected to come from new development Discussion on Cost In�uts that Out�ace Inflation Unlil{e many other industries, municipalities are primarily charged with providing services, rather than tangible commodities. As such, the City's largest operating cost is personnel-related. In an effort to attract and retain quality employees the City must maintain a compensation and benefit package that not only is competitive with other cities, but also comparable to private- sector firms for which we also compete with for employees. Absent staffing reductions, personnel-related costs are expected to outpace inflation in 2007, due to this competitive pay plan and anticipated l�eal�hcaz�e costs. The total citywide personnel costs for 2006 are $12.5 million. Preliminary proj ections show personnel costs rising to $13 million in 2007 – an increase of 4.25%. _� Fii�.l aci�i ��er};y�relat�d �s�i� i I�aiiti� a�ro►� �3�c�n�l� ar� a3sc� �x�,ec l�c� �c� uut�are iizi�aicat�. '��i� �c� �L»�.�]. CIS� i� i L}se�c� tiik�i ('�1L��*QYIe� «Snr�r L y�a�a�ns�� reaEi��d a�� t��z �,��it•�� n�L �xtix� for other businesses but also eonsurners. The cost to operate Police and Fire vehicles and the City's maintenance fleet will be significantly impacted. In addition, the costs to provide heat and electricity to all city facilities are expected to increase faster than inflation. Currently, the City incurs approximately $200,000 in fuel purchases and $662,000 in electrical, heating, and cooling costs each year.