For eight hours Friday, the Edmonds City Council, Mayor Mike Rosen and city staff grappled with the implications of a budget shortfall that leaves elected officials with some stark choices as they begin creating a biennial budget for 2025-2026. Among the choices discussed was a possible $20 million safety levy to fund priorities identified as part of a recent community survey.

The daylong retreat in Edmonds City Hall’s Brackett Room, led by financial consultant Mike Bailey, included an overview of the journey the city has been on since the council declared a fiscal emergency in October 2023, a discussion by Rosen on possible ways to fill the budget gap, and how the city’s new “budgeting by priority” approach will influence how the budget is developed.

As Rosen reported during an address to residents shortly after he took office earlier this year, Edmonds is $12.5 million in the hole after expenses outpaced revenues and the city’s forecasted revenues missed target estimates in three out of the last four years, from 2020 to 2023. City fund balances were used to make up the difference, resulting in the fiscal emergency declaration.

Morning session: Budget recap, possible levy in 2025

At the start of Friday’s retreat, Bailey recapped the recommendations from the Blue Ribbon Panel of financial experts appointed by the mayor to come up with their best thinking on how to address the city’s budget crisis. He also pointed to the council’s work on new city financial policies aimed at ensuring such a situation doesn’t repeat itself.

The goal of Friday’s retreat, Bailey said, was to give councilmembers and the mayor an opportunity to talk about budget priorities so that when the mayor releases his draft budget in early October, there won’t be any surprises.

Bailey also discussed the council’s decision to do priority-based budgeting, which recasts the budget “from the perspective of the consumer,” he said.

Councilmember Jenna Nand asked how the budget process would differ from past years, when the council passed a resolution stating its budget priorities and then staff would develop what have been called “decision packages” for the council to consider. Bailey replied that while he encouraged councilmembers to develop a resolution on their priorities, as they have in past years, he noted that the budgeting-by-priorities process will be a different approach.

“You’ll see an evaluation as to how that program addresses the council priorities… as well as typical budget attributes,” Bailey explained. The latter “are things like what percentage of the population is served by a given program, how much of the program is [government] mandated, does the program recover its costs” and “how does the program address the issues of equity,” he said. Councilmembers will receive a numeric evaluation, conducted by both an internal team of non-director-level staff and by Rosen’s 11-member Budget by Priority Community Advisory Panel, of how well each program responds to each attribute. Learn more about those Community Advisory Panel members here.

That score “will inform where this falls on the hierarchy of importance to the community or importance in terms of good government,” he added.

In terms of budget development this year, the council is “doing a lot in a very short period of time,” Bailey said. The council’s budget retreat is normally in April, but was held this year in August to allow for both the guidance of the Blue Ribbon Panel — which finished its work in June — and a statistically valid community survey, which was completed in July.

That shortened time frame “creates more risk,” Bailey said, adding that “it’s important to have grace because quite frankly the work isn’t going to be as polished in October if we had been able to do all this stuff two months ago.”

He also reminded the council of the respective swim lanes of the council vs. the city administration with respect to budget development. “It’s fair to ask questions about the administrative operations of the city,” Bailey said. “How many positions are open, where are those open positions? You authorize the positions and then the mayor fills them.”

The mayor’s responsibility, Bailey said, is to fill the positions “in a way that they believe best meets the needs of the city.”

“The council’s job oftentimes is to ask a lot of questions,” he added.

Councilmember Will Chen noted the council’s balancing act when it reviews budget requests proposed by the mayor and department directors, calling it a “sweet spot” between approving everything and nothing. “It’s an art,” Chen said.

The council then heard from Mayor Rosen, who reviewed his work in addressing the city’s budget crisis and also presented some options for the council to consider in the months ahead.

Rosen and his staff are looking at ways to ensure the city reaches its adopted $2.2 million fund balance by the end of 2024, a goal that requires identifying at least $3.2 million in budget savings. The mayor recapped that the administration developed a plan to do that, which included a $2.6 million “hiring chill,” $100,000 in park program closures, $40,000 in cancellations for leased space, $165,000 in professional services contract reductions and the use of $550,000 in remaining American Rescue Plan Act funds for the South County Fire contract.

“Then things changed….and changed,” Rosen said.

The city’s beginning fund balance was $550,000 lower than projected, and the revenue estimates were estimated to come in $200,000 higher than they did. Recurring revenue is down. People leaving the city receive “separation payouts” — this year so far at $267,292 — that do not show up in the budget. And there were $1.1 million in salary increases following the approval of a contract with the Edmonds Police Officers Association.

He also pointed to areas the city has no control over, such as the nearly 22% increase in the Consumer Price Index between 2021 and 2024 along with a variety of state mandates that increased the city’s costs. In addition, there is a state-mandated 1% restriction that cities can collect in property taxes annually. Further, the city receives just 14 cents of every dollar in property taxes, with the rest going to other entities like the school district and Sound Transit.

What the city can control, Rosen said, is how it spends and invests its money. “Foundational changes” that Rosen said are being considered or implemented include — in addition to the already mentioned budgeting by priorities process, financial policy changes and community input through surveys and other methods — include:

– More conservative revenue projections.

– Increased transparency and collaboration on assumptions.

– Changing union contract end dates, to allow for better budget planning.

– Budgeting expenses that have not previously been budgeted (separation payouts).

– Revised purchasing policies.

– A review of the city’s fee schedules. “We’re very nice in what we charge people,” Rosen noted.

– A more accurate allocation of staff time — for example, is it funded via general fund or utility funds.

– Identifying new revenue sources.

– Identifying future budget impacts of decisions — as an example, he pointed to the decision to install landscaping on Highway 99, which requires significant maintenance.

– Incorporating risk assesment into decision making.

– Staff levels and structure that reflect priorities.

Rosen also mentioned the city’s need to better use technology. To illustrate the point, he held up a stack of paper time sheets — “only from public works” — for a two-week period, which then have to then be input into the computer. “This is nuts,” he said. “We’re paying people to fill out paper timeslips and then have them be data entried.”

He then referred to the gap analysis identified during the recent community survey: Ensuring fast fire and emergency medical response times, reducing petty crime and burglary, and cracking down on illegal drug use and sales were the city services ranked most important. But a majority of those surveyed also said the city was underperforming in reducing petty crime and drug use, and needed to do a better job of fixing potholes and sidewalks, strictly enforcing building and development codes, and planning for population growth.

Next, the mayor moved on to six areas of importance in the city, which he categorized this way:

Safety: Including three areas — police, sidewalks and ADA-accessible ramps, and emergency operations. The reality is, the city has one more officer currently on the streets than in 2009, and Washington state has the lowest number of commissioned police officers per residents in the U.S. “If we were to hit the national average, in fact, we would be adding 33 people on the streets.” The city has no marine and dive capabilities even though it is located on the waterfront, no dedicated emergency management staff and an indequate emergency operations center. In terms of sidewalks — often requested by the community — one side of one block costs about $600,000. An ADA ramp costs about $6,ooo each and the city has about 1,700 to complete to comply with federal mandates.

Underfunded needs: These include two areas — streets and facilities maintenance. A 2023 report shows the city’s has a deferred capital maintenance backlog of $44 million. The recommended annual investment in streets is $2.5 million but the actual annual investment (averaged over five years) is $1.5 million.

Replenishing the city’s reserve funds: Rosen is proposing a 10-year payback to the city’s reserve funds, which were depleted to cover the city’s budget deficit.

The mayor then discussed the financial implications of what he had presented, stressing that it wasn’t his proposed budget, but ideas for “whittling away” at some of the budget priorities as identified so far by the community.

“I suggest that maybe if we go the public, we have a safety levy,” Rosen said. “Let’s create a secure funding stream for these things.” Rosen also said that going out for a levy every five to six years — similar to what school districts do — could be the new reality, to ensure a sustainable funding model.

Rosen said a safety levy could include the following: $18 million for police, $2 million for sidewalks, $500,000 for emergency operations for a subtotal of $20.5 million. Plus an additional $6.43 million to include the following: $4 million for “underfunded needs,” such as facilities and streets,” $600,000 for reserve replenishment as part of the 10-year payback cycle and a $1,830,000 “sustainability investment” to keep pace with inflation.

The grand total is $26.9 million.

The city’s current property tax is around $15.8 million, which brought the mayor to the topic of Edmonds voters being asked to decide in 2025 whether to approve Edmonds joining the South Snohomish County Fire and Rescue Regional Fire Authority (RFA).

If the RFA is approved, voters will be charged directly for fire service. The city would lose $6.3 million that voters now pay to the city via property taxes to cover fire service through a contract with South County Fire. It would also lose $4.4 million in emergency medical services (EMS) levy fees. That would leave the city will just $5.1 million in property taxes if the RFA is approved. That’s a gap of $21.8 million between the $26.9 million in public safety needs Rosen identified and the remaining property tax.

The question that remains is whether the city should return to the voters the $6.3 million, and that has implications for the next few years of budgeting.

For 2025, it’s been acknowledged that the city will need to borrow — likely internally — to balance its budget. But the city won’t know until 2025 whether voters approve joining the RFA. A yes vote triggers a council decision on whether to keep none, some or all of the $6.2 million the city now collects for fire and EMS service. Even if the RFA passes, “it’s still not enough,” Rosen said. “We’re going to have to go back and do the [safety] levy.” If the RFA fails, “we’re still going to have to go back to the levy” to fund a contract with the RFA for fire services.

If the RFA and the safety levy fail, it means “huge cuts,” Rosen said.

If the safety levy is approved, the first step would be to pay back the 2025 loan — internal or otherwise — that the city took to stay afloat, Rosen said. “Pay ourselves first,” he said. That means the city wouldn’t have safety levy money to use in 2026.  “So then in 2027 we would start having access to that money,” the mayor said.

To assist in budget planning, Rosen said he was interested in hearing from councilmembers regarding the question of whether the city should keep “none, some or all” of the $6.2 million if the RFA vote is approved.

Regardless of whether the city keeps the $6.2 million or reduces the property tax to offset RFA charges that voters will pay directly, “the impact to the citizens is the same,” Councilmember Will Chen said. The city will still have to go back to voters to recoup the money lost, Chen said, adding he favors keeping the $6.2 million. Councilmembers Tibbott, Vivian Olson, Susan Paine and Chris Eck also said they agreed with the concept of keeping the RFA dollars.

Pointing in particular to inflation, Tibbott noted that the city is “making up for previous years of  circumstances, that we essentially had no control over, or little control of.”

Using the analogy the city’s budget as a rubber band stretched to its breaking point, Tibbott said: “We are looking at a reset. In my mind, retaining the tax levy at the $6 million allows us to ease back some of that artificial pressure we’ve been experiencing.”

Councilmember Michelle Dotsch asked if there were other funding sources that the city could look at to make ends meet. Bailey replied that under state law, “cities are relatively limited in terms of what they can do from a revenue standpoint.”

Dotsch said that transparency with members of the public — and showing them the value of any proposal — is key, as is demonstrating that the city is tightening its own belt.

Rosen finished his presentation by committing to “working proactively” with council, community and staff to address the city’s budget situation. “This is the only way it’s going to work,” he said.

Afternoon session: Budget priorities/potential reductions

After lunch, the council began by focusing both on their “top strategic priorities” over the next three years that will inform the city’s upcoming budget work, and also on “what the city could be doing less of.”

For priorities, the council came up with a detailed list of ideas that were refined during further discussion to include the following:

– Safety

– Environment

– Investment

– Livability

– Economic Resiliency

Regarding things city could do less of, Bailey defined that idea is a service or other funded item “is already being provided by another partner in the community, so it’s a duplication; it’s not a core competency — the city could continue to do this but it’s not really what we’re good at,” or “maybe it’s a ‘nice to have.'”

Councilmembers were given two sticky notes for this task. Among the items they listed during this session:

– Consolidate boards and commissioners to handful.

– There’s too much top managment in the police department.

– Fewer parks in areas where there are already too many.

– Consider consolidating routine tasks and have them done by artificial intelligence.

– Less reliance on consultants.

– Reviewing use of city-owned fleet vhicles for non-vital services.

– Too many city buildings/surplus real estate.

– Stop using outdated technoclogy.

– Outsource parks and recreation programming, similar to what is being done with Yost Pool.

– Streamline the city’s management team.

– Leave arts support to nonprofit and private entities.

– Stop having agenda items without including budget implications and future costs of maintenance.

– Reduce use and purchase of mobile devices.

– Hanging flower baskets in downtown and maintaining them

Bailey said that while the council will be facing “a lot of challenging conversations” about the budget in coming months, “you’re going to have to make some decisions. And whatever form those decisions take, they are going to require support from your community to be successful.” Having a consistent, unified message is key when communicating about the choices the city faces, he added.

“You may lose a vote or two but at the end of the day the collective city will have made choices and to the extent you can collectively support those choices going forward, the potential for success is greater,” he said.

— By Teresa Wippel