Layoffs, furloughs and a hiring freeze — among other things — were recommended by City Manager Neal Beets to prevent a long-term and widespread budget gap.
Despite adopting a balanced 2009-2010 budget in December, a budget gap is now expected as soon as next year and will only worsen if nothing is done, Beets said. The crashing stock market, slumping tax revenues and failing internal structural policies have all converged to create Federal Way’s alarming budget concerns, he said.
Direct impacts
Some program cuts are needed. Federal Way will re-adjust its revenue projections and shift utility tax revenues from the city’s capital budget, used for long-term investments, to its operating budget, used for daily expenditures. Seven employees will be laid off and eight vacant positions, including one police lieutenant, will remain empty.
“We must reduce our personnel costs,” Beets told a room of approximately 45 city employees and other attendees at a Finance, Economic Development and Regional Affairs (FEDRAC) committee meeting April 28.
City manager’s contingency fund dollars may be transfered to the operating budget.
“That money can be more productively used providing services than sitting there idle,” he said.
The rainy day fund will likely be tapped. Dumas Bay Centre could close no later than November. Some park plans may be put on hold, and city employees will not soon see cost-of-living increases. Fifteen employees will take 10 mandated furlough days; the unpaid leave will be based upon employee workload, not seniority, Beets said.
“I believe cuts are part of the solution, but not all of the solution,” he said.
The measures are merely recommendations at this point, and need final approval by the city council before they progress.
A look back
In December, the city was able to avoid layoffs. A 4 percent cost of living increase for employees was approved. City management retained its programs and services and did not raise taxes. The city was even successful in placing $1 million into a rainy day fund, for emergency use. Now is the time to utilize that emergency fund, Beets said.
“I’m suggesting that it’s raining,” he said.
Recession impacts
Federal Way’s revenues are down roughly $3 million (7 percent), according to a handout provided by Beets.
Declines in tax revenues, interest earnings and permit fees collected to date, compared to those budgeted for, are mostly to blame.
Through March, retail sales tax is down $379,320 (11.7 percent), according to an April 28 FEDRAC agenda packet. Criminal Justice sales tax is down $122,810 (20.8 percent) and fees collected from building and development permits decreased $163,340 (78.3 percent), according to the agenda packet. Interest earnings declined $104,383 (74.2 percent). The city budgeted for the collection of $716,679 in real estate excise tax through March. Only $198,986 has been collected.
The numbers are not only lower than what was budgeted for 2009, they are significantly less than what had been collected to-date last year. As of March, the city collected $47,244 less in real estate excise tax than it did to date in 2008. Sales tax is down $444,000 (13.4 percent) from last year’s collection, according to the FEDRAC agenda packet.
Structural problems
Adding to the problem, the city’s operating costs continue to rise faster than inflation, Beets said.
Federal Way loses more than $2.75 million annually due to citizen initiatives that have been put in place over the past decade, according to Beets’ handout. The loss of motor vehicle excise tax, limited property tax growth and an initiative that calls for $750,000 a year for street maintenance are the major contributors to the loss, according to the handout.
“In our case, we haven’t fully come to grips with some structural issues that began up to 10 years ago,” Beets said.
Additionally, health care costs and costs associated with the police department, as the agency grows in conjunction with Federal Way’s population, add to the city’s struggle to make costs and expenditures meet in the middle.
“We have to transfer some utility tax from capital to operations to preserve the basic level of service we’re producing,” Beets said.
The city is facing a budget gap, but not one as large as surrounding jurisdictions, he said. It is important to neither over-react or under-react, but rather be pro-active in addressing future budget dilemmas, he said. Federal Way is not renegotiating guild contracts or going back on any pay raise contracts that have already been signed for the 2009-2010 budget year, Beets said.
“Putting this together wasn’t easy,” city council member Eric Faison told Beets. “This was a good recommendation.”
City council member Dini Duclos suggested Beets talk personally with his staff about the changes. Mayor Jack Dovey recommended taking another look at internal structural issues to see if more changes are needed.
The city council will take another look at the budget during a May 5 special session, and again May 19 at its regularly scheduled meeting.
