The city council will have to make some serious budget adjustments over the next five years to counteract the long-term effects of cuts to local government aid (LGA).

Property tax increases, dipping into the city's reserves and finding more ways to lower the cost of city services were a few of the methods outlined in the five-year fiscal plan presented at Monday night's council work session by City Administrator Jim Hurm and Finance Director Tom Dankert. The council approved the plan in principle, but will still have the final say on the specifics as they come up.

Austin will lose $1.6 million over the next three years under the state's new funding formula. Besides the cuts, though, the loss of yearly increases that had previously been a part of the LGA package means the city will have to look beyond trimming government to balance the books. Estimated annual increases range from about $820,000 to $950,000 and are due to things like health insurance increases and inflation.

"We have to obtain these numbers," Hurm said. "If we don't obtain these numbers, something's got to give."

Hurm and Dankert proposed six ways to get to those numbers.

n Evaluate service levels and study each department

n Reduce the cost of employee benefits, specifically health insurance

n Find alternative revenue sources

n Enhance and coordinate economic development efforts to create a new tax base

n Increase municipal property taxes

n Use fund balances in the short-term to maintain the city's high financial position and bond rating

More cuts to city government will have to be found. In particular, the plan called for eight position cuts over the next five years. With 34 people coming up for retirement, the city hopes that could be achieved through attrition.

Hurm referred to a graph showing that more than 30 positions have already been cut since 1990. He said adjustments for the budget can not come totally from staff reductions.

"If you took that line down, I think it would take about 60 years, but eventually you'd get to zero employees," Hurm said.

To cut health insurance costs, Hurm said they would work with union representatives to find cheaper options for the city.

Revenue sources discussed included better use of opportunities for grants, establishing a foundation to fund quality of life programs and setting fees at levels to cover costs.

"There's money out there, and we need to be scrapping it up all the time," Hurm said.

Economic development would help by increasing the tax base not only from the buildings businesses occupy, but also from the houses new employees would occupy. Hurm said development had to be a priority for the council.

He also said property tax increases will probably be necessary.

"For the state, the governor, anyone to think we can get by without raising property taxes isn't too realistic," Hurm said.

An increase in municipal taxes, which make up 26 percent of total property taxes, is a part of the plan.

For 2004, the plan calls for the city portion of property taxes to go up by nine percent. In 2005, it would be six percent and it drops a percentage point for every year after through 2008.

Dankert did some quick estimates of what that means to property owners.

A $100,000 home would cost $22 more per year, a $250,000 home would cost $56 more and a $450,000 home would cost $101 more per year, he said.

Undesignated funds from the city will also be used. Hurm said without hurting the city's bond rating, $455,000 can be used in 2004, $182,000 in 2005 and $140,000 in 2006.

Hurm said the situation is not due to mismanagement. He said the council has acted in a fiscally responsible manner over the years.

"You've done precisely what they (the state) wanted you to do, and now they've taken the box out from under you," he said.

Matt Merritt can be reached at 434-2214 or by email at matt.merritt@austindailyherald.com