Albert Lea City Manager Chad Adams on Monday presented the city’s budget projection for the rest of the year, along with his thoughts on where the city could make up for some of the reductions in state aid.

Adams said before the Legislature’s special session last month, the city had budgeted about $14.48 million in revenues and about $14.1 million in expenditures, leaving about $380,000 in a surplus, for 2011.

The extra was in the budget because city leaders and council members anticipated cuts to market value homestead credits and local government aid.

That’s ultimately what happened.

During the special session, he said, legislators approved a combined reduction of almost $1 million for Albert Lea in 2011, including a cut of $360,000 in market value homestead credits and almost $600,000 in cuts to local government aid.

Adding in the padding of the $380,000, that left the city with an about $580,000 deficit.

To cover this number, Adams said thus far in 2011 the city has about $268,000 in line items savings, and the city could use an additional $220,000 from expense line contingencies to cancel out more of the deficit.

Adding in these things to the budget, this would leave a projected shortfall of about $91,000 for 2011.

He presented four ways to make up for this remaining shortfall.

First, city staff could look for other line item savings, including not replacing employee vacancies or deferring capital replacements.

Second, the city could draw on its general fund reserves.

Adams said the state auditor recommends cities have 35 to 50 percent of their general fund in their general fund reserves. Albert Lea has slightly more than 50 percent.

Doing this option would ultimately reduce the balance in this reserve fund to about 50 percent, which is still on the high end of the recommended balance, he noted.

Third, he said that the city is expected to have a surplus from 2010 that will far exceed the $91,000 shortfall.

Or fourth, expenses from the general fund could be transported to another fund, or revenue could be put into the general fund from other reserves.

He said the fourth option is the least preferable option.

Adams did not ask for action from the council on Monday, but said he plans to give the council another budget update at the end of the third quarter. The preliminary budget must be approved by mid-September.