Three adjustments Federal Way will make to its budget include factoring in a property tax increase of one percent, an increase in the gambling tax, and factoring in liquor revenues.

With the passage of I-1183 (privatized liquor initiative), the city could see more state tax revenues from liquor ranging in the millions of dollars — an important addition in today’s cash-strapped economy.

Federal Way finance director Tho Kraus gave a presentation to the Federal Way City Council on Nov. 15, updating the council on mid-biennium adjustments being made to the city’s 2011-12 budget. The city is required by state law to make these adjustments before the end of the year, Kraus said.

Kraus covered a number of items that needed to be adjusted midstream for the city’s budget. Revenues were covered first, with a seemingly equal number increasing and decreasing:

• The city will see a decrease in fines and forfeitures of $60,000 each year (2011 and 2012), mainly due to the lower traffic and non-parking fines, Kraus said.

• There’s a decrease of $190,000 in development permits and fees. This reflects the lower than anticipated construction activity.

• Animal licenses are projected to decrease by $162,000 and $119,000.

• One area that saw increased revenues was parks and recreation fees, Kraus said, with an anticipated revenue increase of $22,000 this year, and $86,000 next year. “There has been an increase in community recreation and…the senior services program is doing better than anticipated,” Kraus explained.

The city is adjusting for expenditure decreases of $386,000 in 2011, and $622,000 in 2012. The major operating expenditure adjustments include:

• A decrease in dispatch services of approximately $200,000 in 2011 and $300,000 in 2012.

• The city is eliminating the federal lobbyist, a decreased expenditure of $70,000 for both years.

• The city will freeze three vacant police officer positions, resulting in savings of $240,000 in 2011 and about $310,000 in 2012, Kraus said.

There were a few areas where expenditures increased, Kraus said:

• The replacement of the Dumas Bay Center’s roof ($24,000).

• The restoration of a senior traffic engineer position for the city ($88,000).

• An increase in unemployment compensation claims. The unemployment compensation claims forced the city to increase expenditures by approximately $100,000 this year, and $100,000 next year.

The net additional operating sources to the general fund, at the end of 2012, is an increase of $2.1 million, Kraus said. This is because the city has higher than budgeted revenues that comes out to $1.1 million. Expenditure decreases will also add to the ending fund balance, and that totals $1 million, Kraus said.

Kraus said all the combination of higher than anticipated revenues, savings and “frugal innovation” — a mantra started by Mayor Skip Priest upon taking office last year — means the city will be looking at an ending fund balance of $6.5 million at the end of 2012.

Property tax increase

Outside of those adjustments, Kraus discussed the effect of what another one percent increase in property tax will mean for the city’s homeowners, saying the one percent is what the city is limited to, but that does not necessarily translate to just a one percent increase for homeowners.

“How it impacts the homeowners is really determined by how their home changed in assessed valuation,” Kraus said.

The one percent increase would generate an additional $97,000, and would increase from $1.20 to $1.30 for homeowners, the city’s finance director shared.

“Assuming a $250,000 home value in 2011, if that value decreases by 6.6 percent, and we apply $1.30, your property taxes to the city will increase from $299 to $304, which is a five dollar increase,” Kraus said.

The city will hold another public hearing and discussion on the mid-biennium budget adjustments at 6 p.m. Nov. 29 at City Hall.