9611 SE 36th Street
Mercer Island, WA 98040
City’s Operating and Capital Funding Challenges - 2017/18
“Houston, we have a problem.” This oft-quoted line from the Apollo 13 story succinctly captures the City’s projected financial status in the 2017-2018 biennium, which is: beginning in 2017, significant deficits are projected in the General Fund and Youth & Family Services (YFS) Fund, which account for most of the City’s services (excluding utilities).
What is driving these projected deficits? Simply put, annual revenue growth is not keeping pace with annual expenditure growth. The high level of development activity on the Island in 2014-2016, which is responsible for the record-setting spikes in construction-related sales tax and development fees, is projected to decline in 2017-2019. These spikes have masked the underlying structural imbalance. Nevertheless, the projected deficits are not a surprise. They were originally projected back in 2014 when the 2015-2016 Budget was developed. In addition to the projected deficits in the General Fund and YFS Fund, there are three other significant operating funding needs as well as capital project funding challenges.
The 2017-2018 Budget was balanced using 2016 surplus revenues in the General Fund, which were generated by the high level of development activity on the Island, and one-time resources in the Criminal Justice Fund, which was folded into the General Fund in 2017. However, this budget balancing solution is temporary, with the projected deficits being pushed out to 2019.
The Council’s adopted Goal #4 for 2017-2018 is: Maintain Quality of Life Services by Addressing the City’s Financial Challenges.
Council and staff efforts to address these financial challenges are summarized below.
Council Mini-Planning Session (6/11/16)
At the Counci'sl Mini-Planning Session on June 11, 2016, the Mayor created two Council levy lid lift committees to explore the possibility of going to the voters with an operating levy lid lift and/or a capital levy lid lift request in 2017 or 2018. The need for an operating levy lid lift is directly tied to the projected deficits in the General Fund and Youth & Family Services (YFS) Fund. The need for a capital levy lid lift is directly tied to unfunded and partially funded capital projects, many of which are included in the 2017-2022 Capital Improvement Program (CIP).
Operating Levy Committee Deliberations (Aug-Sep 2016)
The Operating Levy Committee, which consisted of Deputy Mayor Debbie Bertlin and Council members Dave Wisenteiner and Jeff Sanderson, met in August-September 2016 to review/discuss the following: 1) 2017-2023 forecasts for the General Fund and YFS Fund (and the projected deficits); 2) other operating needs of the City (0.5 FTE Communications Specialist, a 0.5 FTE Youth Development Coordinator, and additional funding for fire apparatus replacement); 3) budget balancing options; and 4) public engagement process.
Capital Levy Committee Deliberations (Aug-Sep 2016)
The Capital Levy Committee, which consisted of Council members Dan Grausz, Benson Wong, and Wendy Weiker, met in August-September 2016 to review a preliminary list of unfunded and partially funded capital projects put together by Parks Superintendent Paul West. These projects were primarily related to parks, trails, pedestrian & bicycle facilities, and public buildings. The purpose of this preliminary project list was twofold. One, it was intended to help the Council determine whether a capital levy lid lift was warranted given the need for an operating levy lid lift. Two, it was intended to provide a “starting point” for a community stakeholder group, which would be organized and tasked with reviewing and vetting the City’s capital funding needs and making a recommendation to the Council on what to include in a capital levy lid lift ballot measure.
Council Micro-Planning Session (9/30/16)
At its September 30, 2016 Micro-Planning Session, the full Council was briefed on the deliberations of each Committee, the timelines for two election date options, the types of levy lid lifts, and six key questions along with staff’s recommendation for each question. Click to view the 9/30/16 staff memorandum and the 9/30/16 meeting minutes from the Council Micro-Planning Session. The preliminary list of potential capital levy lid lift projects noted above is attached as Exhibit 1 to the staff memorandum. This preliminary list was later expanded following the Council’s direction to staff at the Micro-Planning Session to include other unfunded capital projects, especially those focused on improving the efficiency and effectiveness of services. Click to view the expanded preliminary list. Note that a number of newly added projects lack cost estimates, and none of the newly added projects have been prioritized by staff.
Adopted 2017-2018 Budget (12/5/16)
An updated, comprehensive review of the projected General Fund and YFS Fund deficits and their primary drivers, the other operating funding needs, the capital project funding challenges, the operating and capital funding options, and the recommended path forward are contained in the Budget Message of the adopted 2017-2018 Budget. Click to see the Budget Message.
Council Planning Session (2/4/17)
At its February 4, 2017 Planning Session, the Council was briefed on City Manager Julie Underwood’s levy lid lift experience at the City of Shoreline, a revised public engagement plan and timeline, the revised timelines for two new election date options, and three key questions along with staff’s recommendation for each question. Click to see the 2/4/17 staff memorandum and the 2/4/17 meeting minutes from the Council Planning Session.
In terms of public engagement, staff recommends creating a diverse community stakeholder committee of 20-25 Island residents, who would be appointed by the City Manager and tasked with the following in September-October 2017:
- Reviewing the City’s operating and capital funding challenges and their primary drivers;
- Exploring the various operating and capital funding options; and
- Making a recommendation to the City Manager and the City Council regarding an operating levy lid lift and a capital levy lid lift.