Federal Way Mayor Jim Ferrell presented his proposed 2017-2018 biennial budget to the City Council last week.

The Sept. 20 Council meeting was the first of many before the Council is expected to adopt the final budget on Nov. 15.

Ferrell’s 294-page budget details revenue and expenditures for the $140.84 million proposed for 2017 and $110.57 million for 2018.

At the council meeting, Ferrell pointed out the city will not see any layoffs and will stick to their Council reserve policy of 17 percent of on-hand cash reserves, or $9 million in the bank.

However, his transmittal letter wasn’t quite as enthusiastic compared to 2014, the last time the Council adopted a biennial budget for 2015-2016.

Revenue

“It appears that the Federal Way and Washington state economies are stabilizing; however, uncertainty is present in the years ahead,” Ferrell wrote in the letter. “The local economy experienced slow economic growth this past year with a modest increase in sales tax revenue over 2014.”

While building permits have increased compared to 2014, Ferrell said there are “few major construction projects” expected next year.

“As a result, we are forecasting small revenue growth,” he said. “It is not expected that many of our general fund revenue sources will return to 2008 levels in the current biennium without business recruitment and major taxable construction within city limits.”

Ferrell warned the city to be cautious as it moves ahead.

According to budget documents, the city received $98.5 million in revenue in 2015 and $128.9 million in 2016. Although the city expects $131.57 million in revenue in 2017 and $108.77 million in 2018, the mayor said the city’s property tax growth is limited to 1 percent annual growth, excluding new construction.

With limited projects on the table, the “modest” growth in property tax revenue will “not keep pace with rising costs.”

Property taxes make up 20 percent of the city’s general/street fund.

Still, an increase in revenue is an increase. The city will collect $67,792 more in utility taxes in 2017 compared to 2016. Ferrell attributes this to the “high electric cost in 2017” compared to previous years where there was less energy consumption.

He also noted in his letter that, because the city doesn’t collect utility tax on water and sewer services, the city could be losing out on more than $1.2 million each year. The Lakehaven Utility District has collected water and sewer rates on residents in the area since 1956.

Sales tax, the “largest single revenue source for the city” at 27 percent of the general/street fund, is projected to increase by 1.9 percent in 2017 and 6.5 percent in 2018.

The criminal justice sales tax, 5 percent of the general/street fund, will also increase by 6 percent throughout the biennium.

The city’s financial director, Ade’ Ariwoola, said there will be new revenue sources in the biennium from the Performing Arts and Event Center. The center, which is still under construction but is expected to open in 2017, will provide revenue from rental and ticket show fees.

Expenditures

The opening of the Performing Arts and Event Center also explains the $30 million budget difference from 2017-2018, Ariwoola said. Although total revenue and expenses decline, the operations budget will increase by a “couple of new employees” in 2018, in addition to labor contracts.

In fact, the mayor listed the improved labor market and cost as a challenge facing the city because more jobs often mean “more demands for higher wages.”

“At the beginning of 2014, the city started reviewing compensation and coming to agreement on some of its union contracts, which have resulted in significant increases in payroll costs,” Ferrell said. “This upward trend has continued, evidenced by some of the labor contracts currently in place.”

The city will also provide a cost-of-living adjustment raise to non-represented employees and staffing.

Health insurance and retirement rates have also increased, Ferrell said in the letter. Premium costs are estimated to increase by 5 percent in 2017 while the retirement rate for PERS 2 has almost doubled in three years – it was 7.21 percent in 2013 and is currently 11.18 percent.

At the same time labor costs are rising, the city has been operating with less staff than 2008 levels.

During the recession, the city reduced their full-time employees from approximately 353 to 278 in 2012. Now, the 2017-2018 budget calls for 336 in 2017 and 337 in 2018. Those employees will work for the Performing Arts and Event Center as well as in the Surface Water Management department.

“There are additional requests for two over-hires for police department, additional staff for Parks, Public Works and IT,” Ariwoola said. “The city will explore additional funding sources with the council to fund additional positions but be very thoughtful in filling positions to pre-recession period. We are currently reviewing our fee structure which will be presented to the council in November.”

Ferrell said the city’s goal for the end of this year, before the new biennium, will be to fill the 131 authorized police officer positions.

On the flip side, however, the city’s “aggressive prosecution as an effective crime deterrent” has cost the city.

“We’re putting more criminals behind bars, and this has a budget impact,” Ferrell said in his letter. “Our average daily population in the South Correctional Entity [SCORE jail] has increased from 60 beds at inception to a high of 120 in April of 2015 and 73 in July of 2016.”

Just over $255,000 in additional funds will go toward SCORE’s operations while the city has slated $217,000 to Valleycomm dispatch services because of Federal Way’s increase of heads in jail beds.

“Over the past three years, we’ve increased spending on public safety in our police department by $3.6 million and that’s an investment in, really, the No. 1 priority of this community and in any community, which is to keep our community safe,” Ferrell said at the Council meeting.

Ariwoola added the budget calls for the replacement of two police vehicles.

The mayor proposes the city maintain $813,000 and $818,000 for human services, which includes the $50,000 each year for the day center, this biennium.

The approximate $225,000 each year of lodging tax funding is proposed to invest in the community, get heads in (hotel) beds, and fund special events.

Ferrell said the city is planning to host some events of the 2018 Special Olympics as well as the diving trials for the aquatic center’s national events.

If approved by the council, the city will also fund key capital projects during the next biennium. The $40.9 million capital budget calls for an overlay investment of $1.5 million in 2017 and again in 2018. And construction on phase 5 of the Pacific Highway South project will occur in 2017-2018 as well. Ferrell said an investment of $80 million over 10 years went into phases 1-4.

The city will also improve its parks by investing $2.7 million of a Paths and Trails King County Levy and Real Estate Excise Tax funds.

Then, of course, $11.3 million will fund the Performing Arts and Event Center through, according to Ariwoola, various sources from the “funding stack” for the center.

Despite the city’s expenditures exceeding revenues by $9.5 million in 2017 and $1.8 million in 2018, Ariwoola maintains the city has maintained its required fund balance and has not spent or budgeted below the emergency reserve.

“We have saved up in prior years to be able to fund certain projects like the Performing Arts and Event Center, road projects, etc.” Ariwoola said. “The funds are coming from our fund balance. These are not different from what we did in the original 2016 budget.”

“The mayor has insisted that he wants to spend within his means and that is what we have done in this budget.”

The city will host a public hearing on the biennial budget during a regular City Council meeting at 7 p.m. on Tuesday, Oct. 18, at City Hall (33325 8th Ave. S.).