Everett budget plans being developed in long shadow of deficit
EVERETT — The City of Everett has an estimated $16.5 million deficit next year, about $15 million in underexpenditures it can draw from, $20 million coming to it from the federal American Rescue Plan and $48 million in retired employee obligations to plan for.
The city is mapping out how to spend the federal dollars, but public infrastructure is one of the contenders.
Meanwhile, the unspent money from 2020 could swiftly solve the 2022 deficit. It would avoid the possibility of needing to cut city services to fill the gap. Some council members embrace this plan.
Councilwoman Judy Tuohy embraced the same opinion. “I’m comfortable this year to use the carry-forward (to cover) 2022,” Tuohy said, noting the city is making headway on reforms such as a Regional Fire Authority to reduce long-term costs.
Councilman Scott Murphy proposed setting aside $4 million of the carry-forward toward a pension fund for retired city police and fire department employees to help address $48 million in unfunded liabilities for retiree health care, leaving roughly $11 million to help cover the current projected budget deficit for 2022.
In the LEOFF 1 pension fund, the city calculates it would need to earmark about $5 million a year through 2030 to meet an internal funding target. The fund has about $45 million prefunded today, but also has about $48 million in unfunded liabilities — money it would have to pull from somewhere to meet these obligations.
Council President Brenda Stonecipher said last week she agrees with reaching the 2030 goal for the pension fund, but gave concerns with committing part of the unspent carry-forward toward it if that makes other programs vulnerable. She said this might “rob current generations” if service cuts are needed to solve the deficit at the end of the year. The city could save elsewhere to raise money for the pension fund, she said.
In lean years, the city has skipped budgeting money for the LEOFF 1 pension. The same happened in developing 2021’s budget. (Six months in, there is a mid-year plan to transfer $1 million into the pension fund.)
In recent years, the city has spent between $3 and $4 million annually from the fund to fulfill retiree benefits.
The federal American Rescue Plan money, by the way, cannot be used for pension funds or to refill “rainy day” savings funds, said city finance director Susy Haugen.
The city remains on a cashflow-negative trajectory. The projected deficit grows after 2022. In 2023, it’s projected at $18.5 million as of June 16 numbers; in 2024, it crosses past $20 million. Cities are required to produce a balanced budget annually, and cannot run deficits.
To compensate, the city repeatedly solved past gaps by tightening its belt. Even prior to Mayor Cassie Franklin’s election, her predecessor Mayor Ray Stephanson characterized that there wasn’t much left to cut.
In 2020, the city made emergency cuts to compensate for economic downturn from the COVID-19 pandemic. It laid off employees, shut down the Carl Gipson Senior Center and the Forest Park Swim Center, and jettisoned most public events.
Today’s deficit picture demonstrates “the cold, hard reality that we as a city are living well beyond our means,” Murphy said.
Sales taxes and property taxes are the two biggest revenue sources for almost every Washington city.
Councilman Jeff Moore pointed out that the voter-approved cap on property tax rates is hurting the bottom line. For the past 20 years, the tax rate has been limited to a 1 percent annual increase.
“Our Legislature hasn’t had the fortitude” to overturn this, Moore said. Instead, the Legislature gave cities narrower funding avenues such as transportation benefit districts and ways to create city parks taxes — something Everett hasn’t asked voters.
“The state Legislature needs to step up and make a stable and consistent property tax or this (city) structural deficit won’t go away,” Moore said in frustration. “It won’t go away, it won’t go away.”
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