Citizen Harry: Latest coffee explores pros and cons of property tax levy

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By Harry Gatjens

We had a pleasant meeting this past Monday to discuss the potential for a property tax levy in Edmonds. Eight people attended including one current city council member and one candidate for the council. A big thank you to all who showed up and shared opinions.

We started with a brief examination of the current budget and five-year projections. It became obvious that given current revenue forecasts and expense projections, the city will need more money as early as 2012 and will have a significant deficit each year following. By 2015 the city will use up its entire one-month reserve and be in a negative balance position.

One of the big contributing issues is that the projections for expenses grow at a greater percentage than the revenue. This leads to an ever-widening gap that will ultimately never get caught up. So while a levy, even if approved, might balance the budget for the next three years, an even larger levy would be needed at the end of that time unless significant new revenue sources are found or expenses are reduced to a level more equal with the revenue.

One of the citizens attending the meeting voiced concern that people have little trust of the current council as far as financial matters are concerned. This, coupled with a perception that cutbacks aren’t being done appropriately, will make a levy very hard to pass. She also said that seeing council members going through the 4th of July parade waving in brand-new Priuses, regardless of how they were funded (by grant money), gives a bad impression of how our money is being handled.

Next, one of the more positive supporters of a levy presented his perspective on the City of Edmonds’ needs. He gave some of the history of how the Tim Eyman initiative in 2001 reduced the city’s ability to increase taxes — the city can increase the property tax each year by 1 percent, and have done so. Before the initiative was passed, the city could increase property taxes by a larger percentage. Now a larger increase requires a vote of the citizens, hence the need for a levy.

The city has reduced expenses over the ensuing years; perhaps more accurately, it has made a smaller increase in expenses than it would have before. However, part of these reductions have come from not paying for items that were formerly in the general fund and instead moving them to other areas. That is how roadway maintenance and asphalt overlays have been removed from the general fund budget. Unfortunately, other sources of revenue to pay for these items has not materialized to the extent needed.

The point was then made that the city will come in under budget on expenses for the year 2011. City department managers and the mayor have already cut costs, implemented a hiring freeze and taken other steps to try to save money. Unfortunately, the budget has also been affected by other factors that counteract these savings. First, the Edmonds Center for the Arts has received far lower than anticipated revenue from county-wide sales tax. As a result, the ECA is unable to make $200,000 in bond payments that the city has to pick up in case of the shortfall. Also, property valuations continue to decline. While this doesn’t affect general property taxes (I will explain why in a future article), it does affect the amount the city gets from the Emergency Medical Services levy. The projected reduction for the latest property valuations will reduce this EMS revenue to the city by $250,000.

It was suggested that union contract negotiations were settled and actual wage increases will be less than the projections show. But Councilmember Lora Petso, who attended the meeting, said she didn’t believe that all contracts were all settled and that in fact the Police Department contract has received only a one-year extension so far.

Still, there is no money in the budget for roadway overlays and other long-term maintenance of the city’s infrastructure. Darrol Haug said he supported a levy for these items, and several people agreed with him that this is an important issue.

The discussion then switched to the city’s various reserve funds and whether or not they could be reduced to pay for shortfalls. The city has three distinct reserve funds:

– A $3 million general fund reserve representing approximately one month of operations, as recommended by the Governmental Financial Accounting Office.

– A $1. 3 million reserve fund of assets from the Edmonds Fire Department sale to Fire District No. 1 in 2010. This money has been set aside without a real definite purpose, only the feeling of several councilmembers that it should be used for capital projects and not used to pay for general fund deficits.

– A $1.9 million emergency reserve fund set aside by the council several years ago as a protection in case of a catastrophic disaster such as an earthquake or a tsunami.

There were many questions: Should we spend down those reserves, increase property taxes or just demand cuts in city expenses. Are all those reserves necessary? We never had the catastrophic reserve until a few years ago, why do we need it now? Of course, a look at Japan after last year’s tsunami gives one pause. What about the reserve from the sale of the Fire Department? Should we save that for capital expenditures when we don’t have enough money to pay for the general functioning of government? As for the one-month general cash flow reserve, it serves as a sort of savings account that can be used when the city’s cash is temporarily depleted — although the city’s interim finance director mentioned during Tuesday’s Council meeting that even with that fund, the city’s cash position become negative twice each year and they need to borrow from utility funds or somewhere else. So maybe that reserve isn’t necessary either.

The consensus was that spending down the reserves was, if anything, a short-term delay of the true issue — city spending outpacing city revenues. So while consideration might be given to reducing the reserves, that was not a solution.

Conversation drifted back to whether people feel that the council really looks at the best solutions overall as opposed to their own special interests. One citizen stated that she still feels that if people had confidence in the council’s intentions and if councilmembers would just lay out what the city really needs and document it, people would vote for a levy for both capital and operational needs. But, it doesn’t seem likely that the message will be effectively communicated.

Discussion next turned to how could anyone possibly expect citizens to vote for a levy when councilmembers repeatedly and publicly question the accuracy of the city’s financial information. How can you ask citizens to trust the city with more money when the council cannot vouch for the accuracy of the numbers? How do you know how much money you need?

Lora Petso then stated that she and City Councilmember Diane Buckshnis had spent several days recently meeting directly with the finance staff. As a result, they finally felt comfortable with the numbers and would bring this confidence to the rest of the council. For a number of reasons — far beyond a potential levy — this is good news. Thanks to Mayor Mike Cooper for making these meetings possible.

We concluded with a discussion of what should be done. City Council candidate Joan Bloom says that the feel she gets from the people who talk to her is that there is major distrust of how the funds will be spent. In the mayor’s recently conducted survey, many voters said they wouldn’t vote for a levy until the city’s Strategic Plan is completed. This might give the city a direction to make sure that the money is spent on what is important to the citizens as a whole. Others agreed, and thought that perhaps this is the wrong time for a levy and that perhaps some reserves should be spent down in 2012 until the Strategic Plan is finished.

Those attending also noted another finding in both the Mayor’s survey and in the studies conducted by the Citizens Levy Committee: that a levy proposal needs nearly unanimous support from the City administration and councilmembers to be successful. If the council can’t come to a consensus on what is needed, the divergent opinions will guarantee failure of any proposal.

Darrol Haug proposed that to help build trust and confidence in how the money will ultimately be spent, the city could do a street overlay levy. In that way, citizens would see some progress and it would build trust that the city will spend money as promised. Then, when the Strategic Plan is complete, a larger levy might have a chance to pass.

Finally, it’s clear that many people like the city and what happens here. They like the flower program. the police protection and other services at current levels if not higher. However, they also don’t want to pay more taxes. But of course, you can’t have it both ways. To maintain current levels of service into the future, the city needs more money. Long term we either need to be happy with a lower level of service or pay more taxes.

Many thanks to the citizens who came to coffee. Special thanks to Lora Petso and Joan Bloom who were willing come out and meet with citizens in a public situation as city council candidates to both listen and express their views.

As always, our sincere thanks to Brooke Baker and her staff at Chanterelle. Ally was our main server and took exceptional care of us, followed up by Lena, who served those of us who stayed and had dinner.

The next coffee will be in the evening to accommodate those people who aren’t free during the day. No date or topic has been decided yet; if you have an idea, send a note with your suggestion to harry@gatjens.com.

Edmonds resident “Citizen Harry” Gatjens provides regular reports to My Edmonds News on the workings of the Edmonds city government, including the Citizens Levy Committee and the Citizens Technology Advisory Committee. Gatjens, an accountant, also offers insight into the workings of the city budget.

5 COMMENTS

  1. Great report,Harry; I regret not being able to be there for the meeting.

    For the past couple of years a few council members have constantly questioned the accuracy of the city’s financial reporting. Their skepticism about the reported revenue and expenses has resulted in an inability by city council to make a decision about the need for, or the structure of, a levy.

    You are reporting that Council Members Petso an Buckshnis are now comfortable with the numbers. I believe that it is important for citizens to know what has brought about this new confidence. Have any reported revenue or expenses numbers been corrected? Or were they found to be correct? Have the projected revenues and expenses been found to be unrealistic, and therefore revised? Or were those projections found to be reasonable, after considering when they were made?

    Citizens deserve an impartial assessment of this issue, so Harry I hope that you’ll be able to report back to us.

  2. Good Report Harry.
    For one thing about the levy, the sale of the fire infused money into our cities coffers to help us through a couple of years…so this cry wolf issue is really tiring to me. So, I am going to be brief. I believe Lora has answered Mr. Walmbolt ‘s question in that the City of Edmonds for year has used a non-sanctioned nor even CPA approved “modified working capital approach” and if we were to start utilizing the modified accrual accounting standards which is what most cities utilize, we are in much better shape financially than stated and that the sky is not falling. The reason that this is the most conservative approach is not correct as it is not even an acceptable working capital approach and numbers that are not current are utilized.

    Further, what this sanctioned new approach will do is help citizens see where the city has spent money and if it has been spent wisely. The new approach would break out every area of the General Fund and see how each department is performing, where the money is being spent and what percentage of the General Fund compromises department.

    As an example, ask the city about Haines Wharf and how much money was spent there and how we could have used this money for other parks that are more frequently used. Of course, the previous finance director refused to answer any of those questions or comply to the law so for one year, we spun our wheels in stonewalling. Had we had the law complied with starting in June 2010, we could have put a levy on the ballot sooner rather than now as the General Fund was inflated by three quarters of a million for both June and September 2010 and then he left us with a data dump that showed extreme excessive spending on accounts not identified.

    So, those that don’t truly understand municipality accounting (which I have in depth researched from more than 40 cities websites and discussed our issues with three other finance directors who teach at AWC) I believe Mr. Tarte has done an exceptional job moving this financial ordinance forward. Most importantly, we are in better shape financially than most cities when considering both our current resources and our reserves.

  3. The questions that I presented above have not been answered. I understand that there will be a report coming from Harry.

    I believe in looking at things in as simple a manner as possible. We have a problem when expenses exceed revenue and cause the accumulated balance to slip below an amount equal to one month’s expenses.

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