**BUDGET PROCESS UPDATE: Mayor Dana Ralph will present her proposed 2019 budget to Kent City Council at a special meeting on Tuesday, September 25 at 5 p.m. in Council Chambers at City Hall (220 Fourth Ave. S., Kent, WA 98032). The public is invited to attend.**
This spring Mayor Dana Ralph and Finance Director Aaron BeMiller hosted three community meetings to discuss the City budget with residents. About 120 residents, elected officials and staff attended the meetings. BeMiller provided a high-level presentation about the City’s financial situation, including some challenges that will dramatically impact the City’s budget, starting in 2019. Through that process, many residents asked questions and provided feedback. Here are some of the questions that residents asked.
What services is the City of Kent responsible for?
- Law Enforcement (police, court and jail)
- Utilities (water, sewer, waste and recycling contract, stormwater drainage)
- Streets and Sidewalks
- Development (planning, code enforcement, building, economic growth)
- Parks, Recreation & Community Services, including subsidized housing and human services
The City is not responsible for schools, electricity, natural gas, fire, emergency operations, libraries, transit/rail, cable or telephone services.
Of property taxes that are collected each year, how much does the City of Kent receive?
Property tax is the largest revenue source the City receives. Of the total property tax paid by City residents, the City currently receives 13 percent of your total property tax bill. In 2018, we will receive an estimated $29.5 million in property tax revenue.
In the City of Kent for 2018, using a home with an assessed value of $300,000, the estimated total property tax payment for the year is $3,723. The City of Kent’s share of the property tax paid is roughly $488.
What is the fiscal cliff the mayor and City Council have been talking about?
Beginning in 2019, the City will lose two major sources of funding. In October 2019, streamlined sales tax mitigation from the state will end. This mitigation began when the state changed from origin-based streamlined sales tax (SST) to destination-based SST in 2008. This change reduced our sales tax revenue by more than $12 million a year (in 2012 dollars).
Ten other Washington cities were also impacted by the change, but Kent took the biggest hit. We will receive partial mitigation next year. Unless the legislature agrees to continue mitigation, the annual mitigation payments end in 2019. The total impact to the City of the SST mitigation monies ending is $1.25 million in 2019 and then an annual loss of $5.0 million beginning in 2020.
In 2020, we will also lose a $2.3 million sales tax credit the City has been receiving for the annexation of Panther Lake. In 2021, we will lose the full amount of that credit, or $4.7 million a year. These two revenue losses will cost the City about $9.7 million in annual revenue.
How will the City address the fiscal cliff?
The City will take a three-pronged approach to address the fiscal cliff. We will look to increase revenues, reduce expenditures and reallocate revenues and expenditures, where allowed, between funds.
What new revenue sources are you considering?
We are considering several different sources of new revenue, but we have not completed our analysis of these possible options.
What is the structural deficit, and how does it impact the City’s budget? Do other cities have a structural deficit?
Most government entities are faced with a structural deficit which occurs when expenses rise at a faster rate than revenue. Our expenses (e.g., salaries and benefits, supplies, equipment, etc.) increase at a rate of 2 to 3 percent annually, while increases from property taxes – our biggest source of revenue – are capped at 1 percent annually.
How does the City control spending at year end?
The City does monthly reporting (posted online) that compares actual spending to the budget and to previous month’s spending. Also, different levels of management and elected officials have different levels of spending authority. The City also has in place control structures which are designed to highlight large unbudgeted purchases/expenses throughout the year.
By law, the City Council must approve a budget at the end of each year for the next fiscal year. The budget adopted by the City Council sets the spending limits for the upcoming fiscal year. Departments are not allowed, by law, to spend in excess of the total amount budgeted without City Council authorization. Additionally, the Council adopts an FTE (full-time employee) limit for departments which means that Department A cannot add a full-time employee that was not budgeted for unless it is approved by City Council first.
How can we submit a balanced budget with accesso ShoWare operating at a deficit each year?
Like most City services, the arena does not generate revenue for the City, but rather is a public asset that serves the Kent community and draws visitors from across the region to Kent for community events like Kent International Festival, local high school and college graduations, sporting events, concerts and shows. The arena also helps to support local businesses when attendees come to Kent to attend an event.
Who owns accesso ShoWare?
accesso ShoWare is owned by the City and is a City asset. The event center is managed by SMG, a global property management group who the City contracts with for the services they provide. An independent Public Facilities District (PFD), comprised of a five-member board, was created as a funding mechanism to help build the accesso ShoWare Center.
How are accesso ShoWare operations paid for?
The vast majority of accesso ShoWare Center’s operating expenses are covered by operating revenue. The City makes up the difference between expenses and revenue, a gap we expect to be about $250,000 this year.
Will fee-based programs like adaptive recreation be cut?
Except for public safety, everything is on the table in terms of what could be cut. However, we will consider a number of factors when deciding what programs will be cut, including how much revenue they bring in and if those services are available elsewhere in or near the Kent community. We do not have plans to cut adaptive recreation.
Has the City considered red light cameras as a revenue generator?
Yes, we are considering this as a potential revenue stream and a “sin tax.” Studies have not shown conclusively that red light cameras improve public safety.
With the pending fiscal cliff, what costs will the City cut?
With public safety as the City’s #1 priority, we will not be cutting police, court, corrections or prosecuting attorney services. However, we will have to make hard decisions about other costs, including programs, services and staffing. The mayor has issued preliminary budget instructions to departments with reduction targets for departments that are supported primarily by the General Fund.
What are the City’s sources of revenue?
In the General Fund, roughly 70 percent of revenue is made from three sources: Property Tax, Sales Tax and Utility Tax. Other significant sources of revenue include grants and service contracts, other taxes, licenses, permits and charges for services, etc. You can find the City’s budget document on the Finance page at KentWA.gov.
What is the difference between one-time money and ongoing funding?
One-time money is a resource received by the City which is not recurring. One-time money can come from many sources. Sometimes it is restricted to a specific purpose, particularly in the case of grants. Ongoing funding are resources the City can assume will reoccur year over year at either a known or estimated level. Ongoing resources include taxes, licenses and permits, charges for services and other revenue types. One-time money is typically used for one-time capital expenditures, and ongoing resources fund continuing operating expenses like salaries and benefits, supplies and services.
Why does the City have so much in reserves? Could the City tap that money to resolve the fiscal cliff?
At the end of 2017, the City had reserves in the General Fund of $20.6 million, representing 20.8 percent of our total General Fund balance. This fund balance is consistent with City Council policy that sets a goal of General Fund reserves to be a minimum of 18 percent. If all revenue stopped tomorrow, that fund balance represents only about two months of operating costs for the City.
Think of it like your family’s emergency fund which, ideally, represents two to six months of costs in case of emergency, job loss, health crisis, etc. As a best practice, Government Finance Officers Association (GFOA) recommends that municipalities have a minimum of two months of regular general fund operating revenues or expenditures on hand.
Adequate fund balances are a component of the criteria used by rating agencies to evaluate the creditworthiness of an organization. Our policy has helped improve the City’s creditworthiness.
We could use part of our reserves to make up budget shortfalls, but that is one-time money, so it would only solve our problem temporarily.
[Note: In 2013, our City’s reserves were only 4 percent of the General Fund budget. Our current fund balance is a direct result of a concerted effort on the part of the Mayor and City Council to put the City on solid financial ground.]
To make up budget shortfalls, can the City transfer money from capital or enterprise funds to the General Fund?
No, per state law, monies that are restricted in use for a specific purpose may not be used to support the General Fund. Therefore, monies which are collected from utility fees (water, sewer, drainage, solid waste) can only be used to support the enterprise for which they were collected. Water revenue, for example, can only be used to support the operations and capital needs of the water fund. However, the General Fund, which is largely unrestricted, can help support any of the City’s other funds as those monies can be used for any good governmental purpose.
If public safety is #1, how do you plan to fund police services without the passage of Prop A?
Since Prop A did not pass, we will review our service model to see how we can adjust our services to fit within our budget. We will also hire officers incrementally, a few in each budget cycle.
Why does the City need a car-per-officer program? How will you pay for it?
On May 15, Kent City Council approved the usage of funds from the City’s school zone traffic safety cameras to pay for a car-per-officer program for Kent Police. The fund would buy 14 vehicles at $62,000 per vehicle in each of the next three years for a total cost of $2.6 million.
The car-per-officer program serves several purposes. Because each car is only assigned to one officer versus three, the wear and tear on each car is reduced, increasing its useful life. This will help the program pay for itself and save the City money long-term. Also, having a car-per-officer program helps with officer recruitment and retention because it is becoming standard practice for police departments to have car-per-officer programs. The capital money comes from traffic violators, not from tax revenues.
What is the budget process for the upcoming budget?
The Mayor has provided departments with her budget instructions, including reduction targets. Throughout the summer, departments will be working on their budget submittals and meeting with the Mayor to discuss their budget requests and proposed reductions, if applicable. The Mayor will make her final budget decisions in early September and will present her budget to the City Council in late September.
From that point, the budget process shifts to the City Council. The City Council will have weekly workshops designed to provide them with a thorough review of the budget and the decisions which were made. Workshops are open to the public. The City Council will deliberate on the budget until early December when the final budget will be voted on by City Council at the December City Council meeting. Once approved, the budget takes effect on January 1, 2019.
There will be two public hearings on the budget in the fall where residents can participate in the process. Additionally, residents are always welcome to attend any of our City Council meetings and sign up to speak on budget issues (or any City issue) during the Public Comment portion of the agenda.
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