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Healdsburg is bracing for another blow to its already depleted general fund, possibly within weeks, because of the loss of its redevelopment programs.

The City Council was informed Monday evening that the general fund may have to cover $600,000 in administrative costs that were in the redevelopment budget.

That comes on top of an estimated $984,000 deficit the $7 million general fund already faces at the close of the 2011-2012 budget year on June 30.

"I'm holding my breath and the shoe has not fallen," Finance Director Heather Ippoliti told the council during a budget workshop. "There is a possibility the $600,000 might hit the general fund this fiscal year."

More than 95 percent of the general fund goes to the Police and Fire departments' budgets. Although the city has $4.7 million in reserves, those are projected to dry up by mid-2016 because of more anticipated chronic deficits.

Redevelopment programs were ended last year by Gov. Jerry Brown and the Legislature in an effort to redirect the property tax revenues they relied upon to schools and other underlying agencies.

Ippoliti said the state Department of Finance, which is determining how much redevelopment money cities and counties can hang on to for existing projects, is limiting the way local governments allocate administrative costs to those programs.

Healdsburg planned to have redevelopment funds pay for $856,000 in costs associated with city administration, consultants, the City Council and the finance department because they oversee redevelopment programs but now expects it will be limited to $250,000.

"This is money we thought we were allowed to run the Redevelopment Agency," City Manager Marjie Pettus said.

"A lot of cities are being limited this fiscal year" to $250,000, Ippoliti said. "That's a big difference."

She said she expects to hear by June 11 whether the state will enforce a similar limit for Healdsburg.

"We incurred expenses as the redevelopment agency," said Councilman Jim Wood, adding the city is being told "after the fact" it can't.

In effect the state is saying, "<TH>&amp;&lsquo;We're going to go back six months into your pocket.' I'm dumbfounded by it," he said.

"The rules have changed," Ippoliti said.

Assistant City Manager David Mickaelian said it is unclear if the state Department of Finance is overstepping its boundaries.

"The Department of Finance is not the final arbiter. Who is is yet to be seen," he said. "My guess is you will see litigation in the near future if it's not resolved."

The possibility of potentially more bad news for the general fund comes after it already was projected to be $620,000 in the red at the start of the current budget year. That increased to $984,000, mainly because of a decline in projected sales tax revenue with the departure of solar power company DC Power, one of the city's top revenue generators

There were a few bright spots Monday, including growth in hotel room taxes. Year-to-date revenues are 17 percent above the same period last year.

<NO1>The budget is emerging as political issue during a year when three council members are up for re-election.

The City Council has been criticized recently by a group of citizens, including former Mayors Eric Ziedrich and Leah Gold for not doing enough to address the city's financial "crisis," particularly cutting pension costs.

As a result, council members recently ratified a letter stating they have been "working diligently over the past three years to decrease operating expenses and promote sound financial practices," including reducing the city work force by 18 percent and gaining concessions from employee groups.

In all, audited numbers show salaries and benefits decreased by $2.1 million over a two-year period, the council said.

City administrators are negotiating with police and fire unions, But even if the city manages to get those employees to pay more of their medical and pensions costs — equivalent to new agreements with the other employee groups — Ippoliti said, the savings for fiscal year 2012-2013 will be about $127,000.

You can reach Staff Writer Clark Mason at 521-5214 or clark.mason@pressdemocrat.com

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