COEUR d'ALENE - Adapting to the Patient Protection and Affordable Care Act, commonly referred to as Obamacare, is going to be one of the biggest hurdles the city of Coeur d'Alene will face in the coming year.

The city council met with 16 department heads in a half-day retreat in the Community Room of the library Thursday afternoon. It's a process they use every year to develop a strategic plan as they head into the upcoming budget cycle.

After hours of presentations on the needs each department faces, Finance Director Troy Tymesen cut to the chase.

"As you will see in my presentation the Affordable Care Act is probably the No. 1 issue we will be facing this year," he said.

But that is not the only one.

After years of recession and downsizing staff, the city is starting to see increased demand for services as the economy improves.

The police and fire departments are in need of replacing and storing aging equipment.

The wastewater department is faced with increasing regulations to improve water quality.

Almost all of the departments have technology upgrade issues.

City workers went without a cost of living increase last year.

And the list goes on.

Tymesen said the one constant in all of the departments is going to be increased healthcare costs, and the city may possibly be faced with making healthcare available to certain part-time and seasonal employees as well.

Currently the city spends roughly $3.8 million on healthcare benefits, and it is contractually on the hook to cover 7.5 percent of any annual increase in premiums. That amounts to approximately $225,000.

While all of the impacts of the Affordable Care Act are not yet known, he estimated that the city could see an addition increase of 2.5 percent due to the new regulations.

"Just like everything else we will look for a way to mitigate that," he said.

Councilman Dan Gookin asked Tymesen if he was suggesting a tax increase to cover the cost.

"The finance director doesn't want to ask for a tax increase to cover the cost of a benefit," he said.

Tymesen said the city is in better shape than it was a year ago and the economy is showing signs of improvement, but it may not be enough of an improvement to fund all of the city's needs.

The city's income streams are mostly on par with last year's revenue with a few exceptions, he said.

Franchise fees for cable television are down most likely due to the economy, he said. But building permits are up considerably.

"Building permits are up 40 percent above plan seven months into the year," he said.

After listening to Tymesen's cash flow presentation, Gookin asked if he had any ideas on where the money was going to come from.

"Looking into your crystal ball are you looking into a 3 percent increase, or foregone taxes," he asked.

Tymesen said he would never suggest foregone taxes, but added that the city is in dire need of replenishing its capital fund, which currently sits at little more than $151,000.

The city's foregone tax balance is a little more than $2.6 million.

"And the Affordable Care Act is a huge, huge, huge impact on the general fund," he said.

He told the council that new growth revenues are not very strong outside the urban renewal districts, so they are going to have to look for more revenue.

Councilman Woody McEvers asked what a 3 percent increase in property tax would raise.

Tymesen said it would raise roughly $500,000.

"So it doesn't even cover a cost of living increase?" McEvers asked.

"No it doesn't," Tymesen said. He told the council earlier that the negotiated 3 percent cost of living increase would cost the city $663,000 if fully funded.

"It seems like we have needs for personnel, but then I look at the money," McEvers said. "And then we need capital on top of that."

He said the council has asked the city staff to step up and do more with less for the past couple of years, and they have delivered on that.

"It's not that we are not thriving, it's just that we are thriving in a different way now," he said.

"How can I get you a raise? You're probably due for something, but how do we split it up," he asked city staff. "I would like to see what you come up with."

Gookin said the city clearly has a "math problem" to contend with.

"It doesn't add up," he said, explaining that the city cannot afford to give a 3 percent cost of living adjustment and a 5 percent merit raise because the money just isn't there.

Gookin said he knows it's unpopular but if the Lake City Development Corp. were dissolved it would probably net the city an additional $3 million per year.

"But even if we did that, it would probably take three years to unravel the debt," he said.

Councilman Steve Adams explained that it is a lot easier to be critical of the city when you are looking at these issues from the outside, but after getting elected and meeting some of the people who are working the issues, it becomes much harder to be critical.

"With that said, I didn't run for council to make friends," he said. "If the math doesn't work, there is going to have to be some compromise."

He said he was going to study the issue and presentations and develop a list of his priorities as the council approaches the budget cycle.

"You have my phone number," he told the city staff. "If you want to contact me and talk about your priorities, I will listen."