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CITY COMMISSION GOALS In FY 2008, the City Commission and I engaged in a series of meeting with all City employees and a broad spectrum of community leaders to discuss their vision of Alma’s future. Using the information from the goal setting sessions, the City Commission established the following set of goals:

Diversify the local economy- both retail and industrial. More housing options. More recreational opportunities. Maintain and improve our infrastructure.

In many ways, the four goals established by the City Commission are complimentary to each other, go hand-in-hand and are the logical extension of the goals established in 2005 and 2006. In the FY 2011 goals setting session, the City Commission reaffirmed their support for these four goals. The four goals are major goals that will require a multiyear effort to truly bring to fruition. During the goal setting session, the City Commission envisioned diversifying the economy by improving the retail sector in the downtown historic section, continuing progress on improving the riverfront for mixed use development, active recruitment of the industries, and continued efforts to encourage the medical community development. The community has already taken a number of steps towards diversifying our local economy. In 2009, improvements, renovations, and new businesses slowed down but there were still some signification improvements made in the community. Some of the more recent developments include:

The expansion of the Hogan Center at Alma College will provide the college with a new state of the art athletic training facility and gymnasium.

United Way has converted the former Wilcox Health Center into a center for non-profit organizations.

The City of Alma opened the new Transportation Center on Willow Run Drive

We have also had a number of new businesses open in the downtown such Pizza One, Permanent Images, Yost Auto and Edna Bells Confectionary. When the City Commission looked forward, they recognized that FY2011 was going to be a challenging year for the State of Michigan and all its local units of government. We anticipate that the State of Michigan is likely to make further cuts to their budget which in turn will mean that we are likely to feel the impact on the local level. With that thought in mind, the direction was to prepare a budget without major capital projects that would preserve the basic operations of the City. The City Commission did not want to eliminate the goals and objectives set in prior years. However they recognized that in light of the fiscal constraints facing the City, it would be difficult to undertake major projects in this year. That being said, the City Commission recognized that Alma, like most cities, faces a growing underground infrastructure problem that will need to be addressed if it is ever going to be solved.

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ALMA ECONOMY The Alma economy is in a very complex state of transition. Some sectors of the economy are doing well while in other sectors, we are struggling. We are experiencing growth in the medical sector. On top of being named one of the top 100 hospitals in the country, Gratiot Medical Center has undergone a $58 million transformation to a state of the art facility. The health care industry is the number one employer in Alma and in Gratiot County. Education is another important sector in Alma. Our local school district opened a new middle school in the fall of 2006. Alma College maintains its standing as one of the premier institutions of higher education in the State of Michigan. Recently, Alma College announced plans to dramatically increase their enrollment over the next two decades. Alma College is nearing completion on the expansion of the Hogan Athletic Facility. The regional agricultural sector has a major impact on our economic health. Agriculture provides a good balance to the industrial and commercial sectors. A good year for the farmers can significantly improve the local economy. In the rural areas just outside of Alma, it is likely that a large wind turbine farm will be constructed over the next couple of years. The developer has gone through the site plan review with the four affected townships. The recent real estate market continues to be a frustrating one. As in the state and country as a whole, our real estate market is having its challenges. The number of homes sold in 2009 is roughly the same as in the past seven years. The price of residential property has been fluctuating for the past year. Overall the value of residential property was down in 2009. Compared to prior years, we have more homes on the market and they are taking longer to sell, averaging six months. Unlike last year, we do have some vacant storefronts in the downtown. The industrial sector is still being challenged. The former Oxford Automotive facility is now owned and occupied by Merrill Fabricators. They are hoping to expend their workforce from the current 204 employees to over 250 by year’s end. Merrill is a welcome addition to the community. They provide greater diversity of our economy. They specialize in custom large high quality fabricated equipment. They make products for a wide variety of industries. Fortunately for us, Merrill continues to invest in their plant and equipment. Many of our existing industrial base companies are in the automotive sector. Several are struggling to meet the demands. Several have proven that they are up to the challenge. One factory is bringing more work to their plant in Alma because we meet their productivity standards. Alma Iron and Metal has opened their new facility on Williams Street. Their state of the art scrap processing center will help local industry and encourage more recycling. The area has attracted the attention of the Great Lakes Energy and Research Park. If we are successful in landing the energy park, the City may receive billions of dollars of new investment in the community. The energy park has the potential to transform the economy of all central Michigan. Our ability to attract the energy research park depends, in large part, on the decisions that the State of Michigan makes about their energy master plan.

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REVENUE OUTLOOK The main challenge for managing the City and preparing the budget continues to be finding enough revenue to adequately fund the services expected by our citizens. The primary governmental functions are funded through the City’s General Fund. Maintaining a steady flow of revenue to the General Fund has become very difficult. The two main sources for the general fund are property taxes and state shared revenue. The General Fund is responsible for general governmental operations such as police, fire, parks, street lights and elections. The General Fund has experienced very little revenue growth over the past eleven years. The graph below shows all General Fund revenues compared to the Consumers Price Index. The years Fy2006, Fy2007 and FY2008 included one-time revenue from the Supplemental Environmental Project. From FY 1998 to FY 2011, our General Fund revenues have actually decreased by 2%. Over the same time frame, the CPI has increased by 38%. This means that the City is only able to purchase two thirds of what we could in FY 1998. The overall impact has been to reduce the size of our workforce, eliminate elective services, defer and delay capital projects, and defer maintenance. Long term, the City needs to find a revenue source that maintains at least an inflationary increase in General Fund revenues. Most traditional government services are budgeted in the General Fund. This year I have also included the growth in the State of Michigan budget as a point of comparison. Much has been said about the challenging state budget. In comparison, our budget has faced much more severe challenges.

Property taxes have been stressed over the past nine years by the closure of the two largest industrial facilities. Before closing, the Total Petroleum refinery represented 16% of our tax base and Oxford Automotive constituted another 10%. To our credit over the past ten years, we have been able to regain our loss of the tax base through growth and increased valuations. In FY 2011, we are forecasting a modest decrease in property tax revenue. With the recent decline in property values, our taxable and the state equalized value (1/2 market value) have become roughly the same. For years, our SEV was higher than our taxable value. Residential and commercial properties have continued to increase. The table below shows average increases in real property by class:

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

$

General Fund

CPI

State Budget

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Property Class Average Increase

Commercial -2.9% Residential -7.1% Industrial -0.1% Weighted Average -5.6%

The individual values for parcels of each class will vary based on neighborhood and condition of property. The taxable value of the property is capped and controlled by Proposal A. Under Proposal A, individual parcels will not have an increase in the taxable value by more than inflation or 5% whichever is less. In 2010, the inflationary factor as set by the state, capped the increase in taxable value at negative 0.003%. This is the first time the capped rate was negative. The state cap means that unless each parcel increases by the rate of inflation, it is impossible for the City to receive an inflationary increase from property taxes. Under Proposal A limitations, the City of Alma has lost the equivalent of 2.56 mills of property taxes. The City of Alma has been undergoing another transformation. Since 2000, the proportion of the property tax that has come from personal property taxes has decreased. This is attributable to two factors. First, the loss of the Total Petroleum Refinery in 2000 and the bankruptcy of Oxford Automotive in 2004 have reduced the personal property of the two largest industries in Alma. Second, changes in the state depreciation tables used to calculate the taxable value of personal property tables was revised to more rapidly depreciate most personal property. This had the effect of lowering the taxable value of personal property for all commercial and industrial enterprises in the state. The graph below illustrates the shift from personal property towards greater reliance on real property.

-

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

2003 2004 2005 2006 2007 2008 2009 2010

PersonalReal

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The graph, however, does not capture the impact of the Brownfield Redevelopment. Most of our growth in the last two years has been in brownfield projects which increases our taxable value but does not increase revenue to the City of Alma. These projects are important since they allow us to attract industries that would not otherwise locate in Alma. The brownfield projects clean-up contaminated sites that would not otherwise be marketable and the same time provide needed employment in the area. The City of Alma has four components to its millage rate. The table below has the City Manager’s recommended millage rate for each of the four components.

Millage Component Mills

General Operating 13.1300

Voted Street Millage 2.5000

Library Debt 1.6000

DART Operations 0.9604

Total Millage 18.1904 The City has the ability to raise the operating millage for the City. The General Fund could levy an additional 1.276 mills. There may also be the option to levy one mill for library operations; however, this should undergo a legal review before we consider the library millage. The State of Michigan appears to be slowly stabilizing their budget process. Their revenue stream appears to be more predictable. However, while it is better, the State still has a long ways to go before their fiscal house is in order. The state fiscal crisis is in part the result of the economy and in part the result of decision made by the state legislature and Governor. For the past two decades, the State of Michigan has been cutting their tax rates. Where at one time, Michigan was a high tax state; it is now in the middle of the pack. The voters approved the Headlee amendment in the 1980’s to limit the growth of state and local government within the State of Michigan. Michigan is currently $6 billion below the Headlee cap on state spending. Adding to the mix is a major re-write of business tax structure. The Michigan Single Business Tax was replaced by the Michigan Business Tax. The new tax is being touted as more fair tax that does not discriminated for or against any type of business. The new tax was designed to be revenue neutral. Since we are in the early stages of the implementation it is difficult to tell just yet whether the new tax structure will live up to its billing.

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Between the economy and the tax cuts, the State of Michigan has seen its budget shrink. For the past five years, the State has frozen or cut its appropriations for state shared revenue. In FY 2011, Governor Granholm has again proposed to freeze revenue sharing. Both the State House and the State Senate have yet to take up the revenue sharing portion of the state budget. The state budget is undergoing significant financial stress. The national economy is beginning to recover. It is too early to see a recovery in the state economy. There is great uncertainty about the State budget forecast. The legislature is struggling with this issue as they prepare the State’s budget. It is likely cities will have to work hard to receive the same revenue sharing allocation as in previous years. To complicate the budget, more and more counties are coming back into the revenue sharing formula. Additional funds must be added to the revenue sharing budget just to keep the previous allocation to cities the same. While this promise was made, the State has consistently targeted state shared revenue for cuts even though the underlying revenue sources have continued to grow. Last year when I presented the budget, I expressed concern about the ability of the City to maintain services without changing our revenue sources or revising the services that we provide. At the time I was envisioning that the City would need to begin the process to implement an income tax. I did not foresee the depths of the current recession and the local impact. In one this provides us with an opportunity to collect data that would be a worst case scenario for the income tax option.

-200,000 400,000 600,000 800,000

1,000,000 1,200,000 1,400,000 1,600,000

2002

2003

2004

2005

2006

2007

2008

2009

2010

Est

2011

Est

Do

lla

rs

Fiscal Year

State Shared Revenue

Constitutional

Statutory

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The long term trends remain. Our General Fund revenues continue to see no growth. This is not sustainable in the long term. At some point, we will have to change how we finance our General Fund operations. Cities have mainly two venues for raising revenues. We can either raise millage rates or we can implement an income tax. There are pros and cons to either option. The income tax approach will require that we perform a study to determine how much revenue could be raised by the income tax. Under the state law, a city income tax would tax 1% on city residents and tax 0.5% on non-residents that work in the city. The income tax does shift some of the tax burden to those that do not live within the city. If the city income tax option is chosen, there will need to be an extensive education campaign to teach our residents about the proposal, why it is needed and how it would impact them personally. In my budget proposal, I have included funds so that we could undertake an income tax study. The current economic climate is likely to produce a worst case scenario for an income tax. I also believe that the data produced from such a study will be helpful in our economic development efforts. It will help establish a better baseline of information of our local workforce. It may make sense to ask our neighboring communities if they would like to participate in the study as well. Our Major and Local Streets funds receive most of their revenue from gas and weight tax. The State’s Gas and Weight tax has not changed since 1997. The State charges a flat 19¢ per gallon. With the increase in gasoline prices, drivers drive fewer miles and choose cars with better gas mileage. At the same time, the asphalt, which is made from petroleum, has been rapidly increasing in cost as the price of petroleum increases. This has meant that our revenues for maintaining the streets have stagnated. We cannot provide the same level of service as we did ten years ago. The State of Michigan is facing a serious problem with transportation funding. If the State does not act soon, Michigan will not have sufficient funds to match federal transportation dollars. The State will start losing federal dollars that we have struggled for years to increase our share. If the State is successful in no longer being a donor state in the new federal transportation act, the problem will become even bigger. The State Legislature is currently debating the various options. For our budget, we assumed that gas and weight tax would be unchanged from prior years. Over the past few years, we have been undertaking several major capital improvement projects in both Water and Wastewater. We have sold bonds that have been repaid by charges for services in both utilities. The Water Fund rates are should be raised by 3%. I am recommending that we leave the water rates untouched. The Wastewater Fund continues to have more serious challenges. I am recommending that we raise the wastewater rate at least 20% to meet increased bond and interest payments.

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DEBT MANAGEMENT The City last issued debt in FY 2007. We anticipate issuing an additional $1,000,000 in debt for the wastewater fund near the end of FY 2010. The bond proceeds will be used to replace equipment purchased in the 1970’s, upgrade lift stations, and replace sections of old major sewer lines. As of June 30, 2010, the outstanding debt for the City of Alma will be $8,460,000. In FY 2011, we anticipate repaying $415,000 of principal. By the end of FY 2011, our outstanding balance is estimated to be $8,045,000.

BUDGET SUMMARY The FY 2011 proposed budget is summarized in the table below:

General Fund

Enterprise Funds

Other Total

Revenues Taxes $ 2,221,630 $ 154,465 $ 682,414 $ 3,058,509 Intergovernmental 1,161,156 239,686 1,933,800 3,334,642 Charges for services 234,927 3,466,874 288,489 3,990,290 Other 30,200 65,945 56,860 153,005 Total Revenue $ 3,647,913 $ 3,926,970 $2,961,563 $ 10,536,446

Expenditures/Expenses Economic Development $ 302,609 $ - $ 131,940 $ 434,549 Community Safety 1,526,585 - 636,215 2,162,800 Property Maintenance 342,755 63,081 - 405,836 Environmental Services - 3,119,433 - 3,119,433 Transportation 232,717 557,002 2,884,432 3,674,151 Cultural/Recreation 561,189 - 391,564 952,753 Legislative 92,619 - - 92,619 Administrative 395,927 - - 395,927 Debt Service - 235,979 118,556 354,535 Total Expenditures/Expenses $ 3,454,401 $ 3,975,495 $ 4,162,707 $ 11,592,603

Net Transfers (221,682) - 221,682 - Net change in fund balance

$ (28,170) $ (48,525) $ (979,462) $ (356,152)

Beginning fund balance 2,936,949 12,024,023 6,898,709 21,859,681

Ending fund balance $ 2,908,779 $11,975,498 $ 5,919,247 $ 20 ,803,524

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As part of the budget, some fund reserves are being used. The table below summarizes the funds and how the reserves are being used.

Fund Beginning Balance

Draw Ending Balance

Explanation

General Fund $ 2,936,949 $ 28,170 $ 2,908,779 Income Tax Study

Major Street 1,505,778 551,993 953,993 W. Superior Reconstruction &

Bridge Avenue bridge Local Street 444,254 71,953 372,301 Operational needs

Fire Department 384,080 241,985 142,095 Fire truck replacement

Housing Rehab 95,286 11,840 83,446 Operations

DDA 29,464 11,700 17,764 Property Rehabilitation grants

LDFA 72,300 71,900 400 Sidewalk and Lighting

DART 2,449,527 85,101 2,364,426 Capital provided by Federal government. Depreciation not funded

Plaza 1,045,110 30,081 1,015,029 Vacancy

Wastewater 2,933,851 6,578 2,927,273 Year to haul sludge

Solid Waste 455,404 11,922 443,482 Large fund balance

Airport Authority 1,439,178 39,866 1,399,312 Depreciation not funded

ECONOMIC DEVELOPMENT Since FY2007, the major economic development project that we have been working on is to make the Great Lakes Energy Research Park a reality. The potential growth from the energy park is tremendous. The project, if successful, is likely to lead to $2-6 billion dollars of construction in the Alma area. Much of the work to make this project happen will depend on action in Washington and Lansing. Staff, elected officials and many community leaders will be working hard to ensure that favorable action is taken in both capitol buildings. The clean-up of the soil on the former Alma Iron and Metal site is complete. We have removed the two hot spots and had sufficient funds to remove additional contaminated soil in the former CSX owned property. The site has been tested after the cleanup and the test samples verify the site has been cleaned up. We are working to remove the deed restriction on the former CSX property. The site is ready to be marketed, but we need to be realistic that in the current economy it will be

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difficult to find serious developers. Our goal remains to have the site converted into a mixed use development with retail, service and residential all within the district. I believe that we will need to be patient because I do believe that the property can be developed as originally intended, but we may need to wait for the economy and housing market to improve. The Downtown Development Authority has developed a new strategic plan for the downtown and will work to implement their vision this year. The building at 113 W. Superior Street was donated to the DDA and it has been rehabilitated and rented. The City currently owns two homes that were rehabilitated as part of the Michigan State Housing Development Authority grant project. The houses must be sold to low and moderate income families as defined by MSHDA. Qualified buyers may also be eligible for a grant to assist with the down payment for the homes. I will be recommending that we explore offering better incentives to the real estate agency that brings the buyer to the table. While the City does not currently have any grant to assist building owners in the downtown to convert the second floor to apartments, the City and the Downtown Development Authority are committed to encouraging more apartments in the downtown. By increasing the number of available rental units, more activity and people will help spur additional economic activity in the downtown. COMMUNITY SAFETY In FY 2010, the City of Alma received a grant to fund two police officers, the purchase of a new car and a tracking/drug police dog. We believe that we will be able to renew this grant again for FY 2011. We also have one police officer working in a multijurisdictional drug taskforce. The City of Alma is receiving one half of his salary from the taskforce. The Police Department will continue with the Community Policing program that was first implemented in FY 2005. In March 2010, the City Commission approved our emergency preparedness plans. In FY 2011, we plan to build on the momentum by further training all our employees as well as hold tabletop exercises to practice our procedures. We will be working on creating Citizen Emergency Response Teams to assist the City crews in the event of a major emergency or disaster. The Fire Department received the new quint which is a combination pumper and ladder truck in 2006. In FY 2011, we plan to begin the purchasing process for a new fire truck. There is a good chance that the truck will be ordered in FY 2011 but delivered in FY 2013. The Fire Board also is recommending that we set aside $50,000 for a replacement fire truck. No staff changes are being recommended for the Fire Department. I will be making some changes to the firefighter compensation system. I believe we need to provide better incentives for better response to calls. My goal will not be to cut their pay but to include incentives in the structure to better reward those fire fighters that respond to the most calls.

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PROPERTY MAINTENANCE Due to budgetary constraints, many capital projects for city property are being deferred. This solution will only work in the short term. Our parking lots are continuing to deteriorate. However, at this point, additional maintenance will not save money. The parking lots need to be completely reconstructed. The condition will worsen but the eventual cost of repair will not significantly increase. We anticipate that the rail-trail section from Riverdale to Edmore will be constructed this summer. We expect that the new trail will attract riders from all over the mid-Michigan area. We still need to add a few finishing touches to make the trail tourist friendly. The Emerald Ash Borer was found in southern Gratiot County in 2004. While we anticipated the infestation would hit Alma in 2005, it took until this past year for the pest to strike Alma. The Emerald Ash Borer is an invasive insect from Asia that has killed millions of ash trees in North America. The City unfortunately has a large number of ash trees, of which many will die from the infestation. Once it is determined a tree is diseased, it will be removed and burned. This past year, we had to remove several ash trees and I anticipate that the number infected trees will increase. Over the next five to year years, we are likely to lose most of our ash trees. As we have done the past two years, no new ash trees will be planted. We have also increased the variety of street trees that we plant. The greater diversity will spread our risks in the event of another invasive species or tree disease. ENVIRONMENTAL SERVICES There have been major capital improvements in the environmental services over the past several years. The largest projects were the construction of a new aeration basin for the Wastewater Plant and the construction of a new well in Conservation Park along with a new raw water transmission main. Well 2A, which is located at the intersection of Pine and Center, currently pumps raw water directly in the water distribution system. To use the water from Well 2A, we should connect it to the Water Treatment Plant so the water can be treated prior to going into the system. This project will likely start this spring. The initial estimate for switching from chlorine to sodium hypochlorite was more expensive than we had estimated. The project has been reprogrammed in the CIP for the estimated cost of $138,500. We are also planning to replace the water main on Court Avenue from Washington to Walnut. In addition, I am recommending that the older smaller water main on Washington be abandoned. All existing customers will be switch to the larger, new water main. The Wastewater Fund’s fiscal health has been one of the more challenging budgetary issues facing the City Commission in recent years. The challenge is to keep up with the replacement of aging infrastructure. In recent years, we have increased the rates to address some of these issues. While our aeration basin is new, the balance of the plant is over thirty years old. This spring we are planning to replace a section of sewer line from Superior to the railroad track along the east bank of the Pine River. This is pinch point in our system and it is subject to significant infiltration from the ground water. In FY 2010, our planned conversion to bleach as a

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disinfectant had to be delayed while we reviewed the design to bring the cost within budget. After the high water flooding in April 2009, the City began a major study as the first step towards the removal of clean water from our sanitary sewers. Our plan is to submit the study to the State of Michigan for funding under the State Revolving Fund (SRF) and Strategic Water Quality Initiative Fund (SWQIF). In both cases, our best chance will be to receive low interest loans to assist with the projects. The SRF money would used to finance infrastructure within the right-of-way that will further of goal of eliminating clean water. The SWQIF money is essential because it is the only source available to allow the City to help fund projects outside the right-of-way. SWQIF funds are likely to be used for disconnecting footing drains and sump pumps from the sanitary sewer. The project of removing clean water from the sanitary sewer will require concerted effort for many years. A major contributing factor to the problem is the aging sewer lines. Most of the sewer lines in Alma are between 50 and 110 years old. Few sewer lines have been replaced over the years. Without a plan to start replacing sewer lines, the problems associated with aging lines will continue to grow. As a first step, we need to start replacing or repairing the sewer line on streets being reconstructed. While in the past we have performed spot repairs of sewer lines, a better solution will be to replace or line the entire sewer line under the street being reconstructed. Therefore, I am recommending that the sewer rates be increased by 20%. It is likely that we will need to increase the sewer rates again in future years in order to be able to adequately fund a sewer replacement fund.

In FY 2008, the City of Alma joined with the City of Saint Louis to create the Gratiot Area Solid Waste Authority. When our household waste contract expired in March 2008, the City contracted with the new waste authority to handle our solid waste. The new contract is similar to the previous contact other than we have gone from a four 32-gallon can limit to no limits. We forecast that when the former contract ends, fuel costs will push up our rates. We will need to raise our raise our rates from $19.70 to $20.70 per month per household. The yard waste program will continue as it has in prior years. The biggest challenge is implementing a regulation that requires all composting site be permitted. Under the new system, we will need to track additional data and information about our compost site. We will need to perform a lab analysis of our compost and track the amount of compost leaving the site. Yard waste is allowed to be on site for no more than 3 years. In 2012, 100 watt and 150 watt incandescent light bulbs will no longer be sold. By 2014, all incandescent light bulbs over 40 watts will be banned. Recognizing that this legal change will increase the number of florescent light bulbs used by our community, we are planning beginning accepting florescent light bulbs under our household hazardous waste program. For a small fee, we will also collect florescent light bulbs from commercial and industrial customers.

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TRANSPORTATION SERVICES

In summer 2009, we opened the new Transportation Center for Dial-A-Ride. Alma has received two sets of federal earmarked funds to construct the new center. We have received a third earmark that can be used for either buses or the new facility. The project was been downsized and designed to house only our DART operations. While the Center has been open and is operating fine, we are still in the process of completing the entire project. We still need to have the generator installed and the power washer for the buses purchased and installed.

While we are continuing to advocate that the legislature enact an increase in the gas and weight tax, we prepared the budget with the assumption that no significant change occurs in FY 2011. The Michigan House of Representatives has passed an increase in the fuel but action by the Michigan Senate has not yet been taken. Without an increase, the maintenance performed on the streets will lessen a little each year. We have revised the way we handle snow storms in the city. The result has been to reduce overtime and equipment charges but at the same time increase the speed in which the streets are cleared. When a snow storm is forecasted, our crews switched to staggered shifts. The changes also affected how we apply salt. We now use less salt. The budget reduces the amount expended for road salt.

Our 2.5 mil voter-approved millage for the neighborhood street program is estimated to generate $401,829 in FY 2011. Without this millage, the City would not be able to rehabilitate any significant number of streets. In the summer of 2010, we are planning to reconstruct Golfside. In the winter of FY 2011, we will be designing the reconstruction of Virginia from Wright to the west end and Ferris from Bridge to Francisco. We also have received grants to fund two other construction projects. Under the critical bridge program, the Bridge Avenue bridge will be reconstructed. The plan includes removing the piers from the middle of the river to reduce ice jams and other flooding hazards. We will also be receiving federal dollars to reconstruct Superior from Luce Road to Charles Avenue. At the same time, Gratiot County Road Commission will be reconfiguring the intersection of Luce Road and Superior to improve the safety features of the intersection.

The Gratiot Community Airport remains a challenge in terms of budgeting. The main issue for the airport has been the organizational structure. Last year, we created an airport authority with an expanded ownership and board representation. The new members include the City of Saint Louis, the City of Ithaca, Arcada Township and Pine River Township. The new authority is likely to seek voter approval for a millage to support the airport. The proposed budget includes using federal and state funds to rehabilitate the north/south runway at the airport.

The annual sidewalk replacement program will continue at the same level as the previous three years. I am recommending expending $40,000 for sidewalk replacements. The cost will be shared equally by the property owners and the City’s General Fund. The budget also includes funds from the LDFA to construct a sidewalk and install street lights along Adams Avenue. Staff has applied for two Transportation Enhancement grants to construct new sidewalks. The first grant will fund the construction of a sidewalk from Warwick Drive to the Fred Meijer Heartland Trail on the east side of Charles Avenue. The second grant will provide the funds to build a sidewalk on the west side of Wright Avenue from Elwell to Warwick Drive. Both grants will provide 80% of the funding. The remaining 20% will be shared jointly with the City and the properties owners.

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RECREATION AND CULTURAL SERVICES The Alma Public Library re-opened in March 2007. The new library is spectacular. The public has responded. The library has many new patrons and cardholders. The library now boasts of an active Friends of the Alma Public Library group. The Friends have been raising funds to enhance the library. One recent project was the restoration of General Ralph Ely’s portrait. The Friends are currently raising funds to restore General Ely’s saber and scabbard. The library budget maintains services with no significant changes in services. We have now completed the Riverwalk as it was envisioned in the 1990 Master Plan. The City completed its new Parks and Recreation Plan Master. The plan is essential for the City to be eligible for future park grants. Future plans include developing an improved trail head for the Fred Meijer Rails to Trails. One major unknown in the budget is the impact Euclid Ball Field will have on the budget. The Michigan Department of Environmental Quality has raised concerns about environmental issues with the old landfill under the park. The levels of contaminates appear to be manageable but state requirements may make this an expensive concern. PERSONNEL ISSUES

Health Care remains a major concern for the City of Alma. The two main sources of revenue for the General Fund have been flat or declining. The double digit health care increases make preparing the budget very difficult. The budget assumes a ten percent hike in health care premiums with the employee share of the premiums also increasing by 8%. The City of Alma does not pay retiree health care premiums. Retirees are allowed to participate in our health care plan provided they pay the full cost of the premium. As I stated last year, the increasing cost of retiree health care is beginning to affect employee retirement decisions. In FY 2011, the City must contribute $201,984 towards employee pension programs. From the City’s perspective, the drop in the market will impact the City’s pension contribution in FY2011. The market value of our pension assets dropped approximately 40% from December 31, 2007 to December 31, 2008. In 2009, the market value of the assets increased by 10%. The actuary uses a rolling average for the market value. That means that the full impact of the market drop will soften but it will affect our contributions over the next ten years assuming the market rebounds in 2009. To balance the budget, I am not recommending that even one full time position be reduced or eliminated. I am recommending that two seasonal positions be eliminated as we believe by making some modifications to the yard waste program we can increase efficiency and reduce some costs. The proposed budget includes a 2.0% cost-of-living-allowance for employees.

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INTERNAL SERVICES

The City of Alma uses two internal service funds to ensure that selected services are accurately allocated to all funds and programs. One of the advantages of Internal Service funds is that equipment such as vehicles, computers or buildings can be depreciated. The inclusion of the cost of depreciation into a budget levels out the cost of replacing essential equipment. The eight programs discussed above included charges for their share of the internal service. Budgets included in the internal service section affect all other program areas but are not additional costs.

CAPITAL IMPROVEMENT PROGRAM

The Capital Improvement Program (CIP) is intended to provide an overview of the capital needs of the City over the next six fiscal years, as opposed to reviewing capital projects on a year-by-year basis. Given the inherent relationship between the two financial plans, the documents are included under one cover to allow readers to quickly refer to detailed capital project information that is referenced in the operational budget. The CIP consists of major projects that are generally not recurring on a year-in-year-out basis and generally fit in one or more of the following categories: 1) purchase of major equipment or vehicles valued in excess of $5,000 with a life expectancy of five years or more; 2) land acquisitions; 3) major building improvements which are not routine expenses and substantially enhance the value of the building; 4) major equipment or furnishings required to equip new buildings or to operate ongoing projects; 5) major studies requiring the employment of outside professional consultants in excess of $20,000; 6) significant ongoing projects and programs and/or 7) all projects requiring debt obligations or other forms of borrowing.

The CIP is designed to provide the coordination of the community's fiscal planning along with the financial constraints the City may be facing. By looking into the future for six fiscal years, the City hopes to be able to stabilize tax rates and user fees for a number of years by undertaking needed projects in a planned and systematic fashion. The City has traditionally utilized a pay-as-you-go policy by funding capital projects out of current revenues or fund balances whenever possible. Such a policy allows the City to eliminate the cost of interest in bond issuances. However, for projects that are too large for normal operating expenses or must be completed prior to generating sufficient revenues, the City should consider incurring debt on an as needed basis. Alternatives in such cases may include bond issuances, lease purchases and interfund borrowing.

The CIP is an evolving document and as such, many of the projects and plans were discussed in previous years and/or represent a continuation of current programs such as the seal coating program, Neighborhood Street Rehabilitation Program and vehicle replacement program. These programs have been successfully established over the years and enjoy the support of the citizens of Alma. The development of the annual CIP will afford a review and comment on these projects by a wider audience including the City Commission, City staff, Alma citizens and Boards and Commissions, thereby providing further direction and structure to the planning and prioritization effort.

Furthermore, the bond market generally rewards communities that have well-established long term planning and budget processing with higher ratings for bond issuances.

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