Reserve dollars will be used to bridge city budget gap

August 4, 2009

By Warren Kagarise

City officials will dip into a rainy day fund to close a $3.6 million budget gap, and officials could turn to employee layoffs, furloughs and program cuts to prevent another shortfall next year.Major sources of dollars for the city have sunk. Money raised through building permit fees and sales tax are down on account of the recession.

City Finance Director Jim Blake said the shortfall is the worst the city has faced during his two-decade career at City Hall.

“We’ve never laid off anybody in my 22 years,” he said.

But Blake and other officials could lay off employees as a cost-saving measure. Blake said the number of layoffs would hinge on the amount of city staffers who accept a voluntary severance package. Employees who accept the package would receive four months’ pay. Longtime employees would receive an additional month of pay for every 10 years they worked for the city, for a maximum of six months’ pay.

Blake said the program is being shopped to city employees; he said employees are required to inform the city if they have accepted the package by late August. He said only a handful of employees indicated interest so far.

“That’s not going to help us for 2009 in lowering costs, but it’s good for 2010,” Blake said.

A 1 percent property tax increase is also a possibility, though Blake said he doubted the City Council would approve such a measure. The tax hike would generate about $65,000.

“In this kind of economic condition, political bodies don’t want to increase taxes,” he said.

Another boon for the city will be construction of a Swedish Medical Center hospital campus. Blake said the city would pocket about $600,000 in building permit fees when construction nears for the campus in the Issaquah Highlands. Swedish executives plan to break ground on the facility in late September.

Officials pointed to several factors that contributed to the tough budget situation.

Blake said the city lost about $250,000 in sales tax revenue due to the shutdown of big-box retailers, including sporting goods store Joe’s and grocer Albertsons. Blake said the city may have lost up to $700,000 in sales tax revenue when the state switched to a destination-based tax system for online purchases. Under the system, collection is based on the rate at the location where the buyer receives the merchandise.

Costco, headquartered in Issaquah, sells merchandise through its Web site. Because state officials do not give breakdown sales tax revenue based on individual businesses, Blake said the $700,000 figure is an estimate.

Losses in building permit fees were associated with the construction slowdown related to the economy and the build-out of urban villages Talus and the highlands.

Mayor Ava Frisinger detailed other cost-saving measures in a July 20 letter to the City Council.

“Throughout 2009, we have carefully managed our expenditures to reflect this decline in revenues,” Frisinger wrote. “As you know, we’ve already deferred the purchase of supplies and equipment, limited the cost of city contracts and suspended staff training that is not required. We’ve also waited to fill any vacant positions within the city.”

But Blake said the measures already taken would not go far enough.

“We need more than just vacancies and nonsalaried reductions,” he said.

Officials are also in discussions with department chiefs and labor groups to defer employees’ cost-of-living increases and eliminate passing savings from the city’s Public Employees’ Retirement System to employees. Blake said the measures would help the city save about $400,000 combined.

In the meantime, however, officials will use reserve dollars to cover the shortfall. Stark cost-cutting measures will come into play as city officials formulate a budget for 2010.

City Council members adopted a $109.5 million municipal budget in December.

Blake presented a revised 2009 budget forecast to members of the Council Services & Operations Committee July 20. He used data from the first two quarters of the fiscal year to produce the forecast.

The finance director painted a bleak picture for committee members. He said the city might be unable to afford annual road repaving projects next year.

“Other than that, we’ll be lucky to come up with enough of the reserves to cover the replacement of police cars,” Blake told committee members July 20.

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