Citizen Harry: Edmonds finances — What’s the answer?

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By Harry Gatjens

As the City of Edmonds looks forward in its financial forecasts, it sees nothing but red ink projected. What can be done to stem this trend and make sure that our city continues to be livable without taxing citizens into poverty?

For the 2012 budget year, Edmonds show a balanced budget, maintaining reserves and providing services. However, projections show expenses growing at a rate of just over 3 percent per year and revenue growing at only around 1 percent. This means that each year the expense will grow by more dollars than revenues, causing the city to use up its reserves and actually going negative by 2017.

Why is this happening and what can be done about it? The main contributing factors are where the City’s revenue comes from and how is the money spent. The bulk of the City’s revenue comes from two tax sources: property tax and sales tax. With the economic downturn and the lack of major retail centers in the city, sales taxes are growing at a very small level. Unless there is a huge economic recovery, or some major increases in Edmonds retail business landscape, this revenue resource for the City will continue to increase at approximately 1 percent a year.

Property taxes are limited by state initiative at 1 percent a year in aggregate. It makes no difference what changes occur in housing prices — these taxes will go up by 1 percent a year, but no more. If housing prices soar by 10 percent, the taxes will go up by 1 percent. If housing prices plummet, as they have the last few years, the taxes will still go up by 1 percent. The only way property taxes can go higher or lower than that is either by a reduction in the rate approved by the City Council (highly unlikely) or a voter-approved increase, such as the levy rejected last November.

The City projects expenses to grow by a larger margin — 3 percent. This is mostly in the areas of salaries and wages and employee benefit costs. As a majority of City employees are under union contract, the only way to reduce the gains here are by negotiation with the unions or employee layoffs. Obviously, the City wants to pay fair and equitable wages and provide quality insurance benefits to its employees and to date, the unions have not been willing to make huge concessions in these areas. Some other organizations are negotiating concessions from unions, but it is a very difficult task.

So what are the possibilities to increase revenues for the City? By the way, remember that in most cases when you talk about such increases, you are talking about taxes. City revenues and constituent taxes are essentially the same thing, with some exceptions we will discuss.

One way to increase City revenues is for the citizens to raise the property tax rate. This is done by a vote and can be implemented on a permanent basis or on a temporary basis of up to six years. Last year, citizens were given the opportunity to approve three budget measures, giving the city — if all three passed — an additional $2.5 million in revenues (taxes) each year. Those proposals were soundly defeated. You can debate all day about the reason why, but for whatever reason they were defeated.

One of the fallacies of those levies was that even if they did eliminate the budget shortfall for those three years, in year four the deficit would grow by an additional  million dollars a year. So at the end of the three years, new levies would need to be approved, but now for double the original levy amount. This is an unsustainable model for resolution of the City’s economic woes.

Another way to increase the City’s revenues is through increased sales tax revenue. This can come from either an economic spurt or development of a greater retail sector in Edmonds. We have little to no control over the economy on a global or national level, so the only choice here is to increase our own retail sector. How can we do this? For one thing, the City can promote new retail development. Downtown, Highway 99, Five Corners and Westgate are all established retail areas where new outlets and expanded business can improve the City’s tax revenues.

Where else can we achieve retail growth either through new businesses or bringing in more customers for existing businesses? What kind of new businesses can we attract? As much as it seems to be politically incorrect to promote mini-casinos, the City of Shoreline receives multiple millions of dollars in tax revenues each year from them. Maybe it is time to reconsider such businesses.

Can we attract more businesses through increased tourism? Can we develop the City’s excess fiber optic resource to attract new high-tech businesses? Do we need to reconsider the City’s height limitations in order to attract more development? I am not suggesting that any of these are the right answer, but am saying that when developing a long-term economic plan all these items should be part of the discussion.

What about expenses — how can we reduce them? As pointed out earlier, the bulk of expenses are related to personnel costs. Unless negotiations can produce concessions to lower these expenses — not necessarily to reduce wages or benefits, but rather just to reduce their rates of increase — the only way to reduce them is to by cutting staff, which in turn means reducing services available to the citizens.

We can’t eliminate many of the services we receive. Police, fire and infrastructure are all part of the necessities that government provides. Could we reduce these areas, though? What if we had a couple of fewer police officers? Lately the Edmonds police have been getting some rave reviews about their work on residential burglaries. Do we really want then to cut back?

One thing being looked at is taking the Edmonds fire services — now being provided through a contract with Snohomish County Fire District No. 1 — and merging them into a Regional Fire Authority. The idea pushed forward is that by regionalizing fire services, costs can be cut as duplication of equipment and personnel would be reduced. Remember though that fire departments already share equipment, so the savings here would be minimal.

What really happens is that new taxing authority is established to pay for fire services so citizens end up paying more taxes. The city’s tax rate can be reduced to offset the fact that they no longer have to pay for fire services. In most cases of other regional fire authorities that has been done, but in no case has the City’s reduction of taxes offset the new fire authority tax. In other words, taxpayers pay more.

We can cut cultural services, park services, the flower program, court hours or any of a number of services. You can’t just tell the City to cut out waste and expect no reduction in the services that make the City what it is. The amount of money that the City spends on general office expenses (staplers, pens, paper) are just insignificant in the whole scheme of things.

Understand that there is no magic answer to this. If we decide we want to keep Edmonds as it is, with all the services we are provided, we need to figure out how to pay for it. Are we willing to pay higher taxes or allow different types of businesses? Allow taller buildings? Do you want to reduce the services the City provides? Cut down on the number of parks, have fewer police or let our road and buildings deteriorate?

So now that you know that we are in a whirlpool to financial ruin, what can be done?

The first thing is to get involved and let City government know what is important to you. Write your councilmembers, the mayor, the police chief and others to let them know where you stand.

Another option is to participate in the City’s Strategic Planning process. The Strategic Plan is designed to get input from the citizens as to what are their priorities so they can align the City’s priorities to match those of the citizens. Once established, the plan should guide the city government on where you want your tax dollars spent and where you want to city to obtain its revenues.

Get involved and talk about the issue with friends and neighbors. Any input you can give the City is valuable.

Edmonds resident “Citizen Harry” Gatjens provides regular reports to My Edmonds News on the workings of the Edmonds city government.

7 COMMENTS

  1. Harry:

    An excellent overview of the situation. Your comment about property taxes is only partially right. One of the components of property taxes is the Emergency Medical Service (EMS) levy. The EMS levy is 50 cents per $1,000 of property value. When values are falling the drop in the EMS tax is greater that the 1% increase you described, so the city collects a reduced amount of total property taxes. Additionally, property taxes on new construction can be added to the 1%; however, new construction has been very little the past several years. The net result of all of this is that property taxes have been declining.

  2. Ron B.:

    I agree with everything that you’ve written. I would only add that one other contributing factor is the benefit package paid to government workers that is way out of wack with the private sector.

    The strategic plan consultants made a presentation at city council on February 28th. Included in that presentation was: “Wa cities 2011 efforts to control personnel costs”. It is worth noting that 75% of the cities are eliminating salary increases. Edmonds is in the other 25%.

  3. Harry, Thank you for encouraging people to get involved, now!

    I would like to remind everyone, including students, that you have an opportunity is to attend a Strategic Plan workshop tomorrow night. That is Monday, March March 19 from 6:30 to 8:30 p.m. in the Library Plaza room. City Council members, City Directors and the consultant team will be there to listen.

    It is not too late to sign up for the workshop. You can do it one of three ways:
    Fill out a form on the city’s website, send an email to StrategicPlan@edmondswa.gov, or call Cindy Cruz at 425-775-7724

    After welcoming remarks, we will be divided into small groups for a facilitated discussion. We are asked to focus on four topics:

    1. Waterfront and downtown development

    2. Highway 99 development

    3. Arts and culture

    4. Budget priorities and partnerships

    Please take advantage of this opportunity to share your thoughts and ideas.

  4. Wages are a very large part of the city budget. I would like an answer about the possibility of changing the 4 year union agreement. If wages were tied to our revenue we would make progress in our continual budget problems. I also worry about the future for our children and grandchildren if we lack the courage and determination to change the way we decide wages and benefits. Nobody has said it will be easy.

  5. Hi Harry:
    very good, very articulate, you appear to have a complete understanding of what should be done.
    How about you Harry throwing your hat in the ring for the vacant seat coming up on the council.
    Dave Page

  6. You did a terrific job in explaining the economic dilemma Edmonds is facing, Harry.

    I still believe the solution to increasing the retail sales tax revenue is to recognize how inefficient our automobile system is and rebuild Edmonds, as well as other communities, using light rail and streetcars, which also provides an opportunity to lay utilities and high-tech grid work for smart growth over the next century. I have studied this for years and have made suggestions, but apparently no one is listening.

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