In his first Edmonds State of the City address, Mayor Mike Rosen took on the elephant that has been sitting in Edmonds’ living room for years – the city’s financial crisis – presenting an unvarnished look at what the city is up against and the path to long-term fiscal stability. The event was held in the Edmonds Waterfront Center in front of more than 100 attendees.  An additional 75 logged in to view the address by livestream, and others viewed it on public access TV channel 21.

“This is not the kind of message I was hoping to deliver in my first State of the City,” Rosen began. “There will be no inspiring warm-up speakers, no fancy presentations. I’m not going to sell it, mask it, point fingers or assign blame – rather I’m going to give it to you straight.”

He went on to stress that his approach is grounded in transparency, respect and trust.

“Transparency is me talking to you and giving you straight information,” he continued.  “And I believe that community members too often don’t get the respect and trust they deserve.  I respect our community and the individuals in it, and accordingly I’ll be giving you straight-up information.

“Tonight we’ll be looking at our general fund finances – this is the money that keeps the machine running,” he explained.  “I don’t expect any of you will be satisfied with what I’m about to tell you.  Some will say it’s too detailed; others will say it’s not detailed enough. Some will say it’s too dry.  There will be much to absorb, and many of you will have lots of questions on other important issues – why the train horns don’t work, what’s up with the Comp Plan, where did those numbers come from, and more.

“But that’s not what tonight is about. These and other questions can be presented next Tuesday when (the Edmonds City) Council will roll up its sleeves to look at what I’ll be talking about tonight.  Also I will be here in this room on April 4 with the Edmonds Civic Roundtable and will take your questions on finances and other issues at that time, and we will also be holding a series of community meetings.”

Stressing again that “this is not about laying blame,” Rosen then began explaining the city’s financial situation when he took office Jan. 1, specifically noting the deterioration of  general fund balances that became acute over the past two years, the council’s declaration of a fiscal emergency and the city’s significant use of one-time funds to balance the budget and cover expenses.

The four key points are as follows:

– Where are we?

– How did we get here?

– How do we get out of here – how do we fix this?

– How do we prevent this from happening again?

“We need a path to financial sustainability and resilience so we don’t find ourselves in this situation again,” he stressed.

After learning of the fiscal issues, Rosen looked for expertise and appointed the Blue Ribbon Advisory Panel. It is chaired by Mike Bailey, former City of Lynnwood finance director and now with the Municipal Research and Services Center, where his expertise has him specializing in working with cities in fiscal distress. The panel is comprised of seven members all with expertise in municipal audits (knowing where to look and where things hide), and who have managed big budgets in the public and private sectors.

Rosen continued by explaining that this isn’t just an Edmonds problem – many other cities are facing budget gaps. In fact, 53 of the 75 most populous cities in the U.S. didn’t have enough money to pay their bills in 2022.

“For Edmonds, one of the biggest drivers of the financial shortfall is simply that things cost more,” he explained. “Between 2021 and 2024, the Consumer Price Index (CPI) increased 21.7%. But at the same time, the state has imposed a 1% property tax restriction per year, meaning that costs are going up much faster than our revenue. Add to this other recently imposed state requirements, ranging from supplying public records to purchasing and implementing police cameras, and the shortfall gets worse.

“This is a recipe for slow death,” he added.

In an effort to plug this growing budget gap, Edmonds decided to fill it with two one-time uses of funds – the ARPA (American Rescue Plan Act) money authorized by Congress to help cities recover from pandemic-related impacts, and savings from unfilled staff positions. Rosen went on to explain that a major use of these funds was to cover the annual $6.25 million check we must write to the South County Fire Regional Fire Authority for fire and emergency services.

But the ARPA money was a one-time thing, and assuming the vacant positions will be filled, that money won’t be there in 2024 either. Combined, these two one-time uses of money amount to an eye-opening 20% of the city’s general fund budget. Adding to the shortfall are a number of unbudgeted impacts, which had not been finalized or anticipated when the budget was prepared. These included union contracts, library building repairs resulting from a flood, new financial software and staff additions/salaries. These are detailed in the following slide:

 “So that’s where we are,” said Rosen. “The total hole is $20.5 million, but I’m going to concentrate on the $12.5 million caused by our use of one-time funds and the unbudgeted impacts.”

He then moved on to the question of how we got here.

“First, the good news,” he began. “Our revenues over the past four years grew 27.8%. How cool is that! But at the same time, we decided to spend 44.9% more.  Adding to this, our revenue forecasts were way off – we missed out targets by $1.6 million in 2020, $3.4 million in 2022, and $2.6 million in 2023.”

All this combined to throw the actual budget significantly out of line with the final approved budget as shown in the following slide:

“So this is where we began in 2024,” he said.

But the year 2024 will have some unique challenges of its own, and Rosen went on to enumerate some additional issues facing the city, ranging from paying for fire and EMS services (now that the city will have to do it without the one-time ARPA funds) and the completion of the required 2024 Comprehensive Plan update, to crime, homelessness and food insecurity – all of which will take money.

Adding to this, maintaining city facilities – the many buildings the city owns – also will cost money.

“I believe that if you have something you should maintain it,” he explained.  “It will simply cost more in the future if you postpone maintenance.”

He then provided a list of city-owned facilities, all of which are in poor to critical condition, noting that 67% of these assets are more than 23 years old and things from wiring to plumbing to HVAC are just wearing out:

He then moved on to Edmonds’ roads, which also need attention.

“My truth is that time does not make potholes smaller or cheaper to fix,” he said. “In 2018 we looked at every foot of our 130 miles of roads. At that time the recommendation was to invest $2.5 million into fixing them. We ended up spending only $1.5 million, and today our roads are in worse shape than in 2018.”

Moving to the larger picture, he stressed that this is not a one-year problem, and we need to realize that we simply can’t do more for less money – the city is going to need to do fewer things and do them better. This means we need to prioritize by asking the following questions:

What must we do?

What should we not do?

What can we do differently?

What can be done by others?

What can be done later?

What is the gap, and how do we fill it?

“We need to change our culture to find this balance,” he explained. “This will provide a strategic path to get through 2024 through a combination of reducing expenses and developing strategies to replenish our reserves. Once we get through this year, we’ll need a new strategy to go forward that will include budgeting by priorities (what do we want?), zero-based budgeting (just because we’ve done it in the past, we don’t need to keep doing it if it doesn’t make sense), and continuing to identify savings. This means sitting down as a community and deciding what’s important to us.

“And I’ll start with this example: Water.  I want it to show up when I want it and go away when I’m done with it.  These are the conversations we need to have, and it means asking the following questions:”

But he stressed that along with this the city needs to take immediate actions to reduce expenses by at least $3.2 million. These actions will include what he called “a hiring chill,” eliminating programs, stopping some purchases, exploring rental alternatives, reducing some professional services, re-examining our organizational structure, reducing overtime and exploring collaborations, outsourcing and risk reduction.

It will also entail a look at revamping the budget process and fiscal procedures as detailed in the following two slides:

Finally, it will involve taking actions to increase the city’s revenues to include the following:

“I know this has been a lot to take in,” Rosen concluded. “But all this will give us a better sense of where we are, where we’re going, where we can find savings and our priorities.”

He then introduced Blue Ribbon Panel Chair Mike Bailey to say a few words.

“I’ve been very impressed with Mayor Rosen’s candidness and his approach to finding solutions, with no talk about who’s to blame,” Bailey began. “I’ve worked with many other cities in fiscal distress, and be assured, I’ve seen much worse than this. Edmonds has hard-working, dedicated employees, engaged citizens, and I’m sure that together we can right the ship and put policies in place that will ensure a long-term healthy fiscal environment.”

Bailey was followed by City Council President Vivian Olson.

“Thank you, Mayor Rosen, for giving us the real truth and nothing but the truth,” she said. “The council looks forward to working with the new mayor as we move forward as a community with everyone’s input and engagement.  You can expect three town halls this year, the first on April 18. I encourage everyone to call or email us with your thoughts and concerns.”

“It hurts to go through this, I know,” Rosen said after returning to the stage for final remarks. “There’s so much to love about Edmonds – we all chose to live here, after all. There are many cities who would love to have what we have. And I promise you – we will get through this together, and we’ll be better on the other side of it.”

You can view the State of the City PowerPoint here. A full video and transcript of Mayor Rosen’s 2024 State of the City address is available on the Mayor’s web page here.

— By Larry Vogel