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New financial reality at city
The leaders of the city’s Executive Department have a clear message: if the council and the community want to start checking off projects from their shopping list of dreams, then it will need to develop a clear strategic plan and a corresponding revenue forecast to do so.
Thanks to the hard decisions made by council during the last several budget cycles, Interim City Manager Brenda Bauer believes the city can function within today’s revenue realities. But that doesn’t solve the cash shortage for all of the other things the council or community has repeatedly said it is not providing its citizens.
“When you have a shopping list and you have revenue, then you have to designate what collectively you can’t live without – and then try and solve for the gap,” said Morgan Smith, deputy city manager.
“What we are hearing, from council and the community is that the city is not getting everything done.”
Whether it’s roads deteriorating or community organizations that have lost their funding, there are plenty of projects competing for the scarce or even non-existent city dollars that were abundant before the economy crashed.
With the city’s largest revenue streams remaining relatively flat since the economic crisis, a new “normal” has been created for what the city can afford. Bauer and Smith are pushing for a strategic plan that encompasses revenue realities with a list of priorities and a strategy to close the gap between the two.
Smith and Bauer, along with Chris Wierzbicki, project manager for the Winslow Way project, presented their “state of the city” report at the chamber’s luncheon on Wednesday at Wing Point Country Club. Smith later gave a presentation on the city’s financial capacity to council members.
“Part of this goal is to make sure everyone is on the same page about the truth of the big picture,” said Smith. “The reality of our recent revenue experience is that our four biggest revenue sources have remained relatively stable over the last several years.”
Balancing the see-saw of projects, needs and available revenue is the reality that the city will continue to face. Leading the strategic initiative is Smith, who brings the experience of forecasting $600 million worth of revenue for the City of Atlanta to Bainbridge where she is now serving as the city’s chief of strategic planning.
Adding revenue, she cautions, is limited since a small city has to maneuver around a tight regulatory environment that puts limits on revenue boosters such as raising taxes. With 85 percent, or $13 million of the city’s $15 million budget coming from four categories of taxes – sales, property, utility and business – Smith said it’s the greatest predictor of fiscal outcome and has remained relatively stable in the last three years.
Bauer told attendees at Wednesday’s Chamber of Commerce luncheon that the hard decisions are far from over because of “aging infrastructure and greater community needs,” combined with lower tax revenue that serve as obstacles for the future. The days of dreaming big are gone, she said, and entering public office now means making hard decisions to provide basic resources.
“[Strategic planning] is simple and actionable,” said Bauer. “If we do it well as a community you will make decisions about how our community will choose to live together.”
In a series of graphs, Smith charted the city’s financial course over a decade.
“We have basically had the same business base for the last 10 years, while sales and utility taxes have swapped positions,” said Smith. “When the economy experienced the downturn, they flipped positions. Sales tax is more volatile and more responsive to the economic conditions, while the utilities tended to have a stable base that did not decrease with the economy.”
Property taxes, which trended up in the early part of the 2000s have flattened, not dropped off the map, which may be surprising since many would expect property taxes to have decreased as did the housing market. The 2011 and 2012 budgets allocated around $6.5 million in property taxes.
The difference, Smith said, is in how property taxes are collected versus the housing market value. State law allows municipalities to continue to collect property taxes as long as they don’t exceed collections by 1 percent a year. During the housing bubble, though home values were increasing rapidly year after year, the city could not collect more than 1 percent above the prior year collections.
What has crippled the city, she said, is a dead construction market and dismal growth. From 2001 until 2008, the city had construction growth at a rate between 2 and 3 percent. In 2009, growth was down to 1.42 percent and this year its dropped to a meager 0.45 percent.
“Where cities get their bump in profits is new development. With zero growth we feel that drop because we don’t have any new assessments coming onto the books,” said Smith.
Sales revenue, which accounts for about 18 percent of the general fund revenue, has remained roughly stable from 2009 to 2011 at just under $3 million – down from nearly $3.5 million at its peak in 2006.
“When it’s consistent like this for two or three years running and it’s behaving in a way we expect, then that’s what will help with planning and forecasting,” said Smith.
The need to plan for an uptick in revenue has to start early, Smith said, because the city doesn’t have many options to immediately add more cash. Initiatives may take one to two years to implement.
Part of that is because the community has said revenue sources such as tax receipts from big-box stores and rapid real estate development are not a part of the community’s appetite. A restrictive land use code limits the business environment on the island.
City staff will continue to engage with council to determine infrastructure needs with the goal of having a functioning strategic plan integrated into city management by next year. This analysis will direct staff time in getting the strategic plan up and running.
In August Smith will lead a council discussion on operating initiatives.
Taxes remain the biggest general revenue fund resource, and have remained relatively stable. The bump seen in the misc. line in the graph above represents the $2 million Washington State Ferry settlement money.
Growth from new construction has dropped from two to three percent from 2001-2008 down to almost zero at a growth rate of .48 percent in 2010.