When Ruth Straayer-Kelly is installed next week as the newest Grand Rapids city commissioner, she will immediately jump into the fiscal fire right alongside her six fellow commissioners. Their advantage is they have been through this process before, but probably not with the same sense of urgency they will feel this time around.

City commissioners will hold the first of 11 budget review meetings April 13, and how they handle the general fund’s budgeting process this spring will likely determine the city’s financial future for years to come. That’s because Moody’s Investors Service downgraded the city’s credit rating in December by an investment-grade notch from Aa2 to Aa3 and then recently added a negative outlook to the rating. An Aa3 rating means the city’s creditworthiness is just a step above what Moody’s calls “upper-medium grade.”

City CFO Scott Buhrer said the reason behind the most recent Moody’s change was due to the general fund’s dwindling reserve balance, which has been projected to be at a mere 3.2 percent following the 2011 fiscal year and will disappear completely after the 2012 fiscal year. Buhrer said the fund’s balance should be closer to 15 percent to meet the top credit guidelines.

“The general fund has to basically stand on its own two legs,” he said.

The preliminary 2011 general fund budget that emerged from City Manager Greg Sundstrom’s office last week has revenue totaling $106.9 million and expenditures of $107.7 million for a deficit of $857,588, which is well below the $27.4 million shortfall he spoke of last fall.

The 2011 budget cuts nearly $9.4 million from this year’s outlay, while expected revenues for next year are about $1.9 million less than what was projected for this year. The deficit will be covered by a transfer of $857,588 from the fund balance to the fund itself.

But as Sundstrom noted, the preliminary figures are based on a handful of assumptions. The biggest of those is that voters will approve a five-year income-tax increase May 4, which he said would give the fund another $7.5 million in revenue and allow the city to hire 10 police officers and 15 firefighters. But even with an increase for both residents and non-residents, Sundstrom said revenue from income taxes will drop by 1 percent for next year’s budget from this year.

Another is selling the Government Center parking ramp below Calder Plaza to Parking Services, the city’s parking department. That $11.8 million transaction would add about $1.4 million to the general fund for the next nine years. The net to the city each year, though, would be about $700,000 as Parking Services would receive the ramp’s revenue, about $760,000 a year.

The general fund’s largest expenditures are for police at nearly $42 million and fire at $25 million. Taken together, the two account for 62 percent of the spending from the general fund next year.

Sundstrom said there won’t be any major street repairs during the upcoming fiscal year; only potholes will be filled. In fact, he asked commissioners to stop all street work now so the fund can bankroll some cash from the gasoline and weight taxes. He said if the city doesn’t stop making repairs now, it won’t have enough money to clear the streets of snow and ice during the 2015 winter. “We hit the wall in the local streets fund in 2012,” said Buhrer.

The preliminary numbers commissioners received last week show that things get worse in 2012. That year’s projected deficit is $8.8 million and that forecast also includes a voter-approved income-tax hike worth $7.5 million. Revenue in 2012 is projected to remain steady from 2011 while expenditures are projected to rise by almost $8 million. “There remains a fundamental built-in problem,” said Mayor George Heartwell.

That problem revolves around personnel costs — namely, a rising price tag for employee health insurance, estimated at 8 percent per year, and a drastically higher contribution from the city for its general and police-and-fire pensions. Buhrer said city contributions could top 20 percent and even reach 25 percent in the coming years.

According to the preliminary budget, 14 employees will be let go when the 2011 fiscal year starts July 1. None are with the police or fire departments. City commissioners will begin their three-month review of the general fund budget next week by looking at the projected cost for the police department.

In the immediate future, fiscal year 2009 may be looked at as the good ole days because that year the general fund had a $74,000 surplus.

“The city’s service delivery will be different in five years,” said Sundstrom. “It will be different because it has to be different.”