The following article was provided by Shawn Hunstock, finance director for the City of Edmonds.
The City of Edmonds has been successful in ending the last three years (2009-2011) with a surplus in the General Fund despite declining revenue in each of those years.
The City accomplished this by implementing both short-term and permanent cost cutting measures. Also, the addition of a few select new revenue options eased the burden on the General Fund. For instance, the $20 annual vehicle license fee implemented in 2009 when the City formed a Transportation Benefit District (TBD) has provided a dedicated funding source of over $600,000 per year.
This new revenue source replaces what was a General Fund contribution to transportation maintenance and operational expenses, thereby freeing up General Fund resources for unanticipated expenses or to offset other declining revenue. The City’s ability to adapt to cost increases for mandated services, or to declining or flat revenue, will be significantly limited by the fact that nearly all the tools the City could use, like the TBD, have been enacted.
The table (see attached PDF) is adapted from a publication of the Association of Washington Cities titled Red Flags Checklist. The intent of the checklist is to provide information to the community about the internal and external 15 factors affecting a City’s finances.
The factors are not intended to provide solutions to the issues facing cities, but to start the discussion about areas that might or do need attention.
The following describes the meaning behind individual rankings, and the potential implications of the overall scoring based on all fifteen factors:
Ranking by factor
0 Does not apply to our City.
1 Does not currently apply, but could be a consideration given current trends and/or the potential for continued economic downturn.
2 This is something the City is currently considering, or something that might impact the City very soon.
3 This has already occurred in the City, or something the City has already implemented.
Overall ranking score
1. Review specific problems.
2. Seek targeted resources to address them.
16-30: Growing Distress (City of Edmonds has a total ranking of 22 and falls within this category)
- 1. Need long-range financial planning that includes an analysis of potential impacts to service levels if improvement does not occur.
- 2. Identify new resources and potential partners.
- 3. Communicate with citizens about potential impacts on services.
31-45: Significant Distress
- 1. Research alternatives to City service provision.
- 2. Provide strong community leadership.
- 3. Communicate likely impacts on City services and seek effective citizen involvement to resolve.
The financial distress indicators of most concern for the City of Edmonds relate to cost increases for mandated services the City provides, the City’s reliance on property taxes as our largest source of revenue, and cost increases outpacing revenue growth.
Salary and benefit cost increases for mandatory services like Police and Public Works means the City might have to reduce services in other areas or look for opportunities to provide funding for these additional costs.
As mentioned in previous articles on City finances, the 1% limitation on property tax increases provides approximately $95,000 in additional revenue to the City for year 2012.
Despite the fact that property taxes are the City’s largest revenue source, the 1% increase for $95,000 of additional revenue amounts to less than 0.3% of the total General Fund budget.
Current projections show costs increasing approximately 3.2% per year for the General Fund, and revenue increasing by 1.4%. This causes a growing annual deficit each year meaning the City may need to use reserves to make up the difference in expenses and revenue.
This could result, according to the latest projections, in City reserves being depleted by 2016.
The Mayor and City Council will be addressing these and other issues facing the City during development of the 2013 budget. That process will begin this summer and residents will have the opportunity to provide feedback about the City’s budget during public hearings prior to a new budget being adopted.