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Treading water on finances: Mayor asks departments to underspend

Mayor Ed Murray Credit: John Stang

To help offset projected $25 million shortfalls in Seattle's general fund during each of the next two years, Mayor Ed Murray is telling all city departments to leave 1 percent of their 2014 budgets unspent.

It is a sign of ongoing challenges in the city's budget, despite an improving economy.

The unspent funds should amount to about $10 million this year, according to Murray's city budget director, Ben Noble. The city will apply that money toward the general fund shortfall for the coming years. Typically, city departments do not use up all of the money that they are allocated in the city budget each year, and have 1 or 2 percent left over, which means the underspending should not dramatically affect services.

The Mayor's Office informed finance managers for city departments about the underspending request last Wednesday.

The budgeted amount of the city's general fund was about $1 billion in 2014. Of that total, $25 million would equal roughly 2.5 percent. While Noble described an anticipated budget gap of that size as manageable, he also warned City Council members in an email last week that the need for underspending highlights "the very real financial stresses that the City continues to face."

"In the language of some budget people, we have a structural problem," Noble told Crosscut on Monday. "We are spending more than we are taking in."

Although the local economy is recovering from the recent recession, the city's revenue growth has remained at a moderate pace — between 3.5 percent and 4 percent annually. The city's costs, Noble said, are rising at about the same rate.

"We can maintain a steady state without necessarily doing institutional cutting," he said. "There isn't a whole lot of margin left, but we can tread water."

The revenues that feed into the general fund are a combination of property, business, utility and sales taxes, as well as other charges, fees and fines. The largest share of 2014 general fund revenue — about 27 percent or $267 million — came from property taxes. In Washington, cities and other taxing districts are not allowed to increase property taxes by more than 1 percent each year.

About 56 percent, or $576 million, of the general fund is currently allocated for public safety expenses, which are mostly tied to the police and fire departments. The fund is also the primary source of cash to for services and amenities like courts, parks and libraries.

There is no one item that can be blamed for the shortfall. Cost increases are occurring in a variety of areas within the budget, according to Noble.

Some examples of areas where increases are taking place are the city's retirement and health care systems, as well as expenses associated with the police department's federally mandated reform process. There are also items like the new administrative costs that will be required to enforce the city's recently passed $15 minimum wage ordinance.

Technically, the city is facing a general fund shortfall this year, spending about $25 million more than it is collecting in revenues. But that difference is covered by about $40 million that was left over in the fund at the start of 2014, Noble said.

Councilmember Nick Licata, who chairs the City Council's budget committee, said that that he understood why the mayor has asked for all city departments to leave 1 percent of their budgets unspent. This approach should be faster and easier to administer than coming up with specific, targeted cuts.

Licata said, however, that the council would take a look at how the proposed 1 percent underspending will affect areas it may regard as critical. And if the requests for spending reductions go any deeper, he said the Council will "need to start discriminating between what departments can afford it and what departments cannot."

Impact fees are one option the councilmember suggested when asked about how Seattle could find longer-term solutions for the shortfall. Cities typically charge these fees to land developers to help pay for items like roads or parks. Licata sees the construction cranes towering in the downtown skyline as a sign that parts of Seattle's economy are booming and he thinks this is an opportunity for the city to improve its finances.

"I think that we're leaving a lot of money on the table," he said. "There's huge development going on right now in Seattle and I don't think we're tapping it."

"I think the prosperity is being unevenly distributed," he added. "The average homeowner is not benefitting as much as they should be."

Licata also mentioned a per-employee tax on businesses and an increase in the commercial parking tax as possibilities for generating new revenue. He and Councilmember Kshama Sawant had proposed replacing a sales tax increase in an upcoming bus funding ballot measure with those revenue sources. But the Council voted that proposal down and stuck with the sales tax increase.

According to Noble, there are no plans on the horizon to raise taxes or fees to address the general fund shortfall.

"At this stage, the mayor is not looking at significant new revenue sources as a way to address the budget issues," he said.

The most likely result of the shortfall in the near term will be less new, or broadened, city services.

"You're not going to see the kind of expansion in services," Noble said, "that you might otherwise have seen in a recovery."

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