An often-split Bainbridge City Council could agree on one thing Wednesday night – city finances need to be conservative and sustainable.

The budget-related meeting, one of many to come, was a show of forecasts and policies that will define fiscal-year 2009 and what the council and city can realistically accomplish.

Most of the discussion centered on ways to bring city finances out of the red and on the road to recovery. How to go about this is still not concrete; council-adopted policies to guide the mayor’s budget proposal are still in the works.

“Setting these policies, and changing or amending policies from the previous year should have been completed two months ago. We didn’t get to it,” council member Chris Snow said.

Two of the policies that will eventually go up for council approval were briefly showcased Wednesday. The first was an amendment of last year’s nine-point budget policy; the other is a direct response to the city’s current financial situation.

That particular draft policy would create a multiyear stabilization reserve or cash surplus. The proposal, set forth by council member Barry Peters, would amount to stockpiling $500,000 a year to use as a cushion for unexpected expenses and economic downturns. Peters hoped that the fund would reach a level equal to 10 percent of the city’s annual unrestricted revenue.

“If we go back to the year 2004, there were several million dollars of surplus of cash in our general fund. We have used up that surplus cash,” Peters said. “One critical missing policy is a policy that would have preserved that surplus at a prudent level. Our proposal now is to set that policy.”

Reserve funds are not a new idea. The city maintains two larger reserve funds: the so-called rainy-day fund and the contingency fund. The rainy-day fund was significantly tapped in response to the storms of December 2007, but is being paid back retroactively by a public works trust fund loans. The contingency fund (roughly $800,000) has only $212,000 left for the rest of the year – $500,000 of the reserve had to be frozen because the city did not have the money to sustain it.

Reserve funds are strictly capped by Washington State law, so it is uncertain if the proposed stabilization reserve would exceed the percentage allotted. The council may need to set a revenue-target surplus for the beginning of each year. The problem then becomes how to keep the surplus cash from mismanagement and whether the city has the money to set aside $500,000 each year to build it up.

“Do we have a capacity to do this?” council member Debbie Vancil asked. “Yes, we need reserves, but how do we ensure that it is kept for intended uses? I don’t see safeguards in here.”

The stabilization-reserve proposal was based on figures provided by Finance Director Elray Konkel. His brief overview of a draft six-year Financial Capacity Analysis drew assumptions based on economic trends, voter-approved bonds, revenue bonds and historic island statistics. The FCA draws the conclusion that the housing market, which helps contribute to a large portion of city tax revenue, will rebound by 2010.

“We are projecting the market will return in 2010 to 2004 levels,” Konkel said. “We are basing that on longer-term economic trends. Most of the long-term estimates state that real estate and mortgage will return by 2010, or mid-2009.”

However, some council members and members of the public are likely to view those assumptions as unfeasible, which could lead to calls for more conservative estimates, said Snow. He believes the FCA makes accurate conservative assumptions based on inflation and projected revenue.

“As the budget process goes forward some people will say the predicted revenues are totally unrealistic,” Snow said. “The problem is, there is no data that you can use to say revenue forecasts are unrealistically high or unrealistically low.”

“Part of the problem we are faced with is avoiding the rush to judgment – let’s see what is in the mayor’s budget,” said council member Bill Knobloch. “(The budget) is a living document, a work in progress, and through October as we massage it, and that is being polite, if I don’t see what I like I am going to propose budget cuts. We have to right-size who we are and what we can do.”

Knobloch also believes that proposed revenue bonds in the FCA are too much to levy on such a small population.

In stark contrast to the policy discussion, the second half of Wednesday’s meeting focused on aligning goals and priorities for policies and capital fund projects.

The mayor led the session, entitled “Setting Our Course,” which proceeded as a wish list of future projects based on public support. Eventually, council will have to decide which projects will be paid for by general revenues and which will have to go before voters, who will then decide if the project is worth taxing themselves.

“That in fact is the challenge that the city administration faces,” Snow said. “The community has a lot of expectations and desires, Those are either needs or wishes, depending on who you talk to. We are trying to get some agreement where to put the resources that we do have. Right now that doesn’t leave anything left over for new additions.”

While the principle of conservative and sustainable finances is an easily agreed upon notion, the details of how the remaining money will be allocated and how council policy should proceed is gearing up for a larger debate.

“The city does not have a common vision… (it should be) sustainability, period,” Knobloch said. “That addresses the environment, our money and our infrastructure. We might be forced to take a year off to provide basic essential services and next year might be the year where that is what we are doing.”

“What I hear the community asking for is conservative, sustainable finances,” Peters said. “I hear people saying back to the basics… that the job of local government is safe, local infrastructure and security.”

However, there is still concern that those services and needs cannot be met. According to the gap-analysis survey, the majority of local residents polled wanted safer non-motorized corridors for bikes and pedestrians. Providing those services could prove difficult.

“(Islanders) want safe places to bike and walk by our roadsides… (they) are frightened by the number of accidents,” Peters said. “Unfortunately, we can’t afford to do that unless the voters pass a bond for that.”