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the rules of operation; and step increases should be pulled out of the Budget and identified as negotiable items. Mr. Spragg stated that all step increases are based on merit; that step increases have never been a negotiated item; that they are part of the pay system developed by this City and by almost every city; and that it is wrong to change the system at this point. CA 6SB; CA 50.1 RECESS the same Councilmen present. At 11:00 A.M. a recess was declared by Vice Mayor Ward. The meeting recon- vened at 11:20 A.M., with POTENTIAL ADDITIONAL REVENUES The City Manager reviewed CONTINGENCY FUND REDUCED BY the budget reductions: $900,000 &BUDGBT BALANCED $2,410,000 from depart- ments, $1,200,000 from salaries, net capital cut of $761,000 State surplus, after pay- ment of new retirement rates, $1,600,000, for a total of $S,971,000 toward a reduction goal of $?,600,000. He directed Council's attention to his report in their packets regarding potential additional revenues. He further stated that the City would receive $2,632,500 of State surplus funds; that approximately $900,000 of that, by Council's action, will go to pay retirement costs for the year; that the State money is based on the City maintaining the level df police and fire services provided last year, on not granting a cost of living increase to employees in excess of that granted to State employees with the State saying there will not be an increase, and maintaining a contingency fund that does not exceed S per cent of the entire budget, excluding equip- ment replacement. Councilman Bricken moved to reduce the Council Contingency Fund by $900,000 (one half of the proposed amount, $1,800,000). Coun- cilman Ortiz seconded the motion, and it carried unanimously 5:0. The Vice Mayor noted that there is still a budget reduction need of $800,000 with a potential income of $1,810,000. Councilman Bricken moved to leave the expenditure side of the budget as it now stands and that any revenue adjustments in the balancing process that exceed $800,000 be routed into unfunded capital projects, subject to those unfunded capital projects not being implemented for six months, at which time Staff was instructed to report back to Council for approval of recommended implementation. The motion was seconded by Vice Mayor Ward and carried unanimously S:O. The Vice Mayor announced that the budget balancing process was completed for the formal public hearing on Monday, July 17. The City Manager stated that the only remaining task on this Agenda is to set some policy guidelines of how the City is going to balance and meet the fiscal problems of the second, third and fourth years that lie ahead. CA 6SB CITY COUNCIL MINUTES 272 JULY 1, 1978