Last week there was a headline in the Record Courier that talked about the fact that the City ended the 2006 fiscal year under budget. The implication was this is great news because it must mean that the City’s budget woes are behind us. I wish that was the case and that’s why I thought it was worth playing the part as Paul Harvey and telling the “rest of the story.”
We spent a lot of time (9 months to be exact) studying our City’s financial condition in 2006, and we’ve been telling everyone that we’re running a deficit because our revenues have remained flat while expenses have increased.
So how does that reconcile with the news report of the City coming in under budget?
First, it’s important to understand that the City has to finish the year under budget — it’s technically illegal for us to go over budget, so we’ll always be under budget.
The real issue then, isn’t whether we go over budget; the issue is how much of our reserve funds did we need to use to balance with what we spent in a given year. Our problem is not a budget problem, it’s a flat revenue / increasing expense problem that has required us to dip into reserves in 2001, 2003, 2004, and 2005 by as much as $2 million dollars in a single year.
We reported in our 2007 budget presentation that it appears likely that we’ll end fiscal year 2006 without needing to use reserve funds. That’s good news but don’t be fooled, this appears to only be a temporary reprieve due to unusual circumstances that included having over $1 million (annualized) in vacant positions in 2006, better than expected yields on interest and estate taxes, mild winter, and continued cost saving measures implemented by staff.
Can we count on all those happening again in 2007? I doubt it. We are delighted with the outcome for 2006 but we have to start filling critical vacancies, and interest rates, estate taxes and weather are very unpredictable so I would caution against assuming more of the same for 2007.
But more importantly, our largest and most stable revenue source — income taxes — ended 2006 less than 2005, which is a troubling trend. Going down from one year to the next is never good, but its particularly bad news considering our 2007 budget assumes a 1% growth in income taxes (1% = $100,000) which means that combined with the recent news of RB&W closing down their operations in Kent, we’re starting the year in a $200,000 hole for 2007.
Throw in the fact that we also know that Don Joseph Toyota will be relocating at some point, and you can begin to understand the reason for our concerns. But it’s not all doom and gloom, we are seeing new business activity — it’s just on a much smaller scale which means it’s going to take time to replace what we’ve lost.
I offer these points only because in the course of the community presentations that I have given on our finances, I have found that people get confused by headlines like this so I thought I’d offer some of the answers I have provided when I get asked.
This way when your know-it-all neighbor starts ranting on about the city budget you’ll be able to offer the “rest of the story.”