Discussion opens on 2012 preliminary budget

November 3, 2011

By Christina Lords

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Revenue, flat sales tax problem area for city, financial director says

With flat sales tax and projected revenue problems, the 2012 preliminary budget for the city of Newcastle calls for transferring money from the Real Estate Excise Tax fund to maintain and operate the city’s capital projects.

But some City Council members aren’t convinced that’s the best way to bridge the $180,000 gap between the city’s revenue and expenditures for 2012.

Based on the city’s revenue forecast, total revenue — about $5.7 million — will be down 4 percent from 2011.

The use of REET funds for operations and maintenance of capital projects — such as street maintenance for Coal Creek Parkway — is a new provision designated by the 2011 Washington Legislature under House Bill 1953 for cities to meet budgetary demands during the economic downturn.

The council held its first public hearing on the budget Oct. 18.

Councilman Bill Erxleben said merely transferring money from one fund to another doesn’t fall in with the city’s financial policy, which states “the amount budgeted for operating expenditures (including transfers) shall not exceed the amount of forecasted revenue for the budget year.”

“We just need to clarify the policy,” he said, “so we don’t cover the shortfall by claiming we’ve presented a balanced budget by … taking a bunch of money from another fund, dumping it into the analysis and saying, ‘Hey, we balanced the budget.’ In truth, that’s an accounting trick.”

Councilman Sonny Putter disagreed, citing the City Council’s ability to make changes to the budget if necessary.

“It absolutely meets the council’s policy statements about operating revenues,” he said. “The council has the capacity to change every line in this budget, and if this council chooses not to use that, we can make that decision. To say that this is inappropriate is plain wrong when the Legislature said it is appropriate.”

As per the financial policy, no new taxes or rate increases to existing taxes are included in the preliminary budget.

Christine Olson, the city’s finance director, said using REET funds for capital projects is a legal, short-term solution to balance the city’s general fund. She acknowledged using the REET funds would reduce money available for capital improvement projects in the future.

“This was a way to balance our budget without reducing service levels,” she said. “We have been cutting for three years now. We don’t have anything else to cut.”

The council directed Olson and City Manager Rob Wyman to bring back two other alternatives to balancing the budget.

The second alternative will be a budget that proposes cuts to services and/or staff.

The third would restore $140,000 to the general reserve fund after it was mistakenly transferred to the parks fund in 2006.

Olson had proposed that money be placed into a new budget surplus fund, which would allow the city to more easily respond to minor shortfalls in revenue at the end of the year.

Without increased sales tax and little construction-related sales tax expected in the near future, residents will shoulder more of the city’s financial burden.

In 2007, 56 percent of the revenue for the general fund was supported by property taxes. In 2012, that percentage is expected to be up to 71 percent.

The city will aggressively explore education programs for city staff and residents to recoup unreported sales tax revenue in 2012, Wyman said.

The budget includes three transportation-related projects for the city: a proposed $160,000 pedestrian access improvement project for 125th Avenue, a $350,000 improvement project on 118th Avenue Southeast and a $583,000 pavement overlay project for the city.

Proposed parks projects — totaling $225,000 for 2012 — include a covered stage and maintenance garage for Lake Boren Park.


If you go

The council’s final public hearing on the budget will be at 7 p.m. Nov. 15 at City Hall in the Newcastle Professional Center, 12835 Newcastle Way, Suite 200.

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