City Finance 101


Many of you may recall when I was sworn in on November 29th of last year, I spoke of two issues. One of the issues was the need to have a "blunt" conversation with the community about the budget projections for the next several years. For years, the city has found clever ways to balance the budget, such as using street overlay dollars from the General Fund for balancing the budget or merging the Fire Department with Fire District 1. We have now run out of clever solutions.

When I came into office the economic forecast was for an $800,000 shortfall for 2013. Our General Fund this year is $33 million so $800K is a big hit, but probably doable without a huge impact on the everyday function of our local expectations. Before the end of 2011, a recalculation showed the number of needed cuts would be closer to $900K. Okay, still doable.

Then we began getting news on a variety of fronts that added to this projected deficit. None of them of our own doing! News that the Legislature changed the formula for liquor tax distribution and that we should expect $211,000 less for 2013, increased our total shortfall to roughly $1.1 Million.

If you haven't followed recent State Supreme Court rulings (and why would you?), "In the Matter of the Adoption of New Standards for Indigent Defense and Certification of Compliance", the Court's ruling basically will cause increased costs for cities related to the cost of Public Defenders. The estimated cost to Edmonds is at least $135,000; which brings us to a deficit of $1.235 Million.

And I'm not finished yet. Last week we received notice that we would have a boost in the Employer contribution rate for some of the state retirement programs. Edmonds' cost for that boost annualized will be in the range of $180,000, bringing us to a current projected shortfall of around $1.415 Million for 2013.

In addition, we believe we will receive a surcharge of about $56,000 from the Department of Labor & Industries to replenish the State's disability fund, bringing us to a total of 1.471M. Let's call it $1.5M.

Mixed in with this sad story... to help fix our long-term budget structural problems (a $3 Million shortfall by 2015-16) I am considering implementing an additional $400,000 reduction this year, bringing the grand total to a potential needed reduction of approximately $1.9M. This is a long way from the starting point of $800,000.

As I have said before in previous columns, this is not a play for sympathy, it's simply to report to you the challenges we face as a city. I know some will say; just cut staff positions and the problem will be solved. The only fact lost in this discussion is that Mayor Haakenson saw the problem coming in 2003 and laid off approximately 20 staff members then. On a per capita basis, our city already has fewer staff members than most cities in the region.

Can we make additional cuts? Sure, and we will. I just want to give you a "heads up" on what is coming. And, as I said before, what is coming will involve people and programs. But it has to be done.
 

Over the past several months the staff and I have been writing a series of articles to help you become aware of the pressing budget dilemma the city is facing. Articles by Shawn Hunstock (Finance), Phil Williams (Public Works), Carrie Hite (Parks and Rec), Stephen Clifton (Community Services/Economic Development) and I have hopefully been informative and helpful in understanding the details of financing a municipal government.

When I was sworn in last November 29th, I spoke of only two issues, one of which was, we in Edmonds were going to have to have a "blunt conversation" regarding the General Fund budget issues facing the city. Budget issues not only for 2013, but longer term out to 2015-2016. I believe at the time, Mr. Hunstock was predicting a shortfall in 2013 of $800,000. That projected shortfall for next year has grown to a little over $1.1 million, in large part because the state legislature reduced the amount of liquor tax we can expect next year by $211,000. In the longer term, Shawn is projecting about a $3 million shortfall by 2015-2016. Not pleasant news. (Shawn presented his August budget projections. Click here to see that presentation and [Here] for the accompaning powerpoint.)

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GenFundRev-Exp-FundBal-2009-2012 PropertyTaxbyJurisdication-PieCharAs  has been widely publicized, many cities in Washington are facing severe budget crises and have taken unprecedented measures to adjust to a “new normal.” This new normal has been described as potentially becoming a long-term structural imbalance between revenue and expenses for local government. Since the recession began in 2008, revenue has been declining or flatlined and not been able to keep pace with the growth in expenses for local government. This difference, or imbalance, causes an ever widening gap between revenue and expenses that cannot be addressed with one-time use of reserves or with the addition of new revenue sources alone. Following are two of the major revenue sources for local government which make up the majority of revenue in a city’s General Fund, and their trends the last few years.
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restrictedrevenuetableThe Edmonds City Council adopted 2012 budget includes an estimated $66,678,984 in revenue. While $66.7 million of revenue appears to be a large amount of available resources for the City, a significant portion of that revenue comes with restrictions on how the money can be spent, (click table). Many of these restrictions are either legal or contractual, meaning the City Council has no discretion over how the money is to be used. Below is a table that shows all the budgeted funds for 2012 and the amounts that are restricted.

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2008-2012-av-taxrateIn November 2001 voters passed Initiative 747. The initiative decreased the allowable change in property taxes levied from six percent to one percent. Initiative 747 was later found to be unconstitutional by the state Supreme Court but the legislature quickly passed legislation that enacted the same limitations that were found in Initiative 747.


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As the City begins to prepare for developing a budget for 2013, one which could have a deficit of $800,000 to $1 million based on current projections, it might be helpful for Edmonds residents to have a summary of some of the more significant past efforts taken to address the economic downturn and the impact they’ve had on City finances. Below are some of the items that have been implemented since 2000 in order to successfully achieve balanced budgets through year 2012 despite declining revenues over the past few years.

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Street Maint Expenditures-1991-2011Have you noticed the declining condition of our streets and wondered why that is happening?  The City wants you to understand the causes of this problem and what may be necessary to solve it.

The City of Edmonds maintains 157 miles of streets of varying widths and traffic loads. These are critical paths over which we travel to and from work, engage in commerce, and receive public safety services. Streets-Maint-vs-InflationStreets are vital to our quality of life and provide the crucial “first and last mile” of every trip we make. Streets must be maintained so that these required services can be provided without interruption. Read more...