It was about this time last year, at the Sammamish City Council’s annual retreat in January of 2009, that the city began to get a close look at what is now one of its most pressing issues – the crossover point.
The crossover point refers to that moment when the city’s revenue, collected mostly from property tax, will fail to cover the expenses of running a city and providing things like police and fire service, maintained streets, sidewalks, parks and playgrounds.
It is not a moment the city can ignore at present and put off into the distant, unforeseeable future. At their latest retreat at the Suncadia Lodge in Cle Elum in late January, Finance Director Lyman Howard estimated that should the city continue operating as it is, the crossover point would arrive in 2013. This has moved in from 2020, to 2015 just one year ago, pushed forward by a poor economy, a halt in building activity on the Plateau, and a drop in home prices.
There are those who have studied the numbers who suggest 2011 is a more realistic date for the city’s impending dip into the red.
In its 10 year history the city has moved toward a model of lean government, collecting less in revenues than its neighboring cities, and, as a consequence, trimming the level of service it provides.
Sammamish is one of the only cities in the state with a population of more than 20,000 to not collect a utility tax on the supply of energy, natural gas, and water. Neither does the city have a business and operating tax (B&O).
In recent times city councilors have demonstrated an aversion to increasing the tax burden on Sammamish residents.
But this is a level that will not enable the city to function as it currently does for much longer. And so, in the next few years the city council will have to make the tough decision – raise taxes or cut services. It is the age-old political conundrum, and likely to be an unpopular decision whichever way it goes.
The reality is that there isn’t much to cut – Sammamish already spends substantially less per capita than any other city on the Eastside – $479 per person. The next lowest is Bellevue at $801.
“The good news is that by comparison to other cities we have a much smaller staff and contract a number of our services,” said new City of Sammamish Councilmember John James. At the council’s retreat last month, James was one of three new councilmembers to get their first in-depth look at the city’s financial picture.
James said it was not a matter of making a change at a single point which would secure the city’s future indefinitely, but of being more aware of what would be happening in the city in the near, and long term, future.
“The federal government may be claiming that the recession is over, but we are seeing its effects still, on the Eastside. This is not the time to talk about be raising taxes,” James said. “But, we are now looking at a crossover point of 2013. This is now a problem we will be dealing with, in my tenure, for sure. If we don’t find a way to reduce expenses, then we are going to have to raise taxes.”
James said Sammamish’s two largest expenses, contracts with Eastside Fire and Rescue and the King County Sheriff’s Office, were difficult to control, and added that the city’s decision to not enforce an increase in property tax at the end of 2009 had brought the crossover point forward by a couple of years.
While he was clear that he would be looking to explore all other options first, he said the introduction of a utility tax was something the council would look at closely.
“I see that as a last resort kind of an option,” James said. “That’s the one thing on the horizon, the one thing that every other city around us utilizes.”
He said the development of the proposed Town Center would bring in much needed sales tax revenue, but recognized that was a few years away yet.
“My first goal is to try and live within our means,” James said. “However, a utility tax could be implemented if and only when absolutely necessary at the low end of the scale of .5 percent or 1 percent. This could buy us more time, until the Town Center is up and running.”
The discussion on city finances in 2010 will feature the input of another key player – the newly reorganized Citizens for Sammamish.
Over Christmas, the citizens group ramped its efforts to engage itself in city planning, forming a number of committees which would examine areas which they see as being hot issues this year and beyond. One of these is the crossover point.
According to head of the Citizens for Sammmamish Budget and Finance Committee Harry Shedd, the city could be falling into the red a lot sooner than it thinks. The problem, he says, is a lack of financial planning.
“They are good at budgeting, but no good at planning,” Shedd said. “Budgeting is just tracking what has happened, but planning is about taking steps to navigate the future.”
Shedd said the city must address a few fundamental flaws if it is to remain financial viable.
“The city doesn’t have an economic plan,” he said. “For 10 years they have been living off the funds that were gifted them by the county, a big blank check book. They have been gradually spending that down ever since.”
After closely examining the city’s own figures, Shedd said the crossover point could come as soon as next year, and that a redevelopment of the city’s core mission was needed.
“In the mission statement of the city, there is not a single mention of business or commercial,” he said. “Financial planning involves identifying and creating new opportunities and revenues, as well as getting hold of expenses. They have got to do something that generates some revenue. This has been pointed out to them many times, but they have shown no interest.”
Shedd said the city needed to develop an economic plan that created new revenue streams, and draft a new mission statement that included business development.
New Councilmember John Curley agreed with John James that there was little excess expenditure that could be cut without greatly affecting service provision.
“I certainly didn’t know, before I got in, that the city was so conservative with its dollars,” he said. “You compare Sammamish to other cities, and its a lean, mean machine – there’s not a lot to cut out. The people need to know, that if they are worried they are getting ripped off by the city spending all their money, it’s not happening.”
Curley was upfront in saying residents would have to consider what they would be willing to pay to maintain the lifestyle they enjoy in Sammamish, and suggested a significant change in the city’s financial picture would be needed soon.
“You know, 2 percent here and 1 percent there, it isn’t going to stop the tsunami of the crossover point from coming,” he said. “Nobody wants to pay taxes, we all know that. So then you have to ask, well, what services will you be willing to do without? Will you mind if the three man fire crews are taken down to two man, which means they won’t be able to respond as effectively? It is silly to treat the taxpayers like children. You need to tell them, if you want services, you have to pay for them.”
(When asked by The Reporter during the council candidate question and answer sessions in September, 2009, whether he would support raising taxes, Curley was misquoted as saying “No new taxes.” Curley said what he intended to have printed was “Know new taxes.” – Ed.)
Curley referred to the common description of local government revenue as a three-legged stool, propped up by real estate tax, sales tax, and utility tax, and said that without the third, the city would struggle to function as it has until this point. He said that a utility tax could be instituted in as little as 90 days, and at the maximum rate of 6 percent would raise $6.5 million for the city each year.
“But, who’s willing to pull that trigger, and go down that road?” Curley said, recognizing that it would be politically unpopular.
According to figures from City of Sammamish Finance Director Lyman Howard, each 1 percent of utility tax would result in approximately $1 million in revenue.
“Since we have approximately 11,200 households in Sammamish this would equate to approximately $89, or $7.40 per month per household for each percent of tax,” he told The Reporter. “A utility tax will fluctuate greatly by household, depending on what utilities are used and how much is consumed.”
New Councilmember Tom Odell believes there are savings to be found in the current city budget that would relieve some financial pressure.
“One item is the outside services area which is largely for consultants,” he said. “That makes up roughly $1 million in the budget, and is scattered throughout it. I would love to get further into looking at these expenses.”
Odell said that contracting for services like environmental assessments could be self-perpetuating.
“I’m not sure if this is something we could, or should, do away with entirely, but it is something we should look at,” he said.
Odell also suggested the city might be able to push back capital projects to delay some expenditures, though said he hadn’t done the homework on which projects could be pushed back.
“This is one of the reasons we pushed for the reinstatement of the finance committee,” he said.
At the retreat, the council decided to reform two subcommittees, both of which were dismantled in 2005.
Odell, Mark Cross and Nancy Whitten will serve on the Finance Committee, and Mayor Don Gerend, Odell and Curley (alternate), will serve on the Public Safety Committee, which will examine fire and police services.
Gerend said the city would continue to look closely at how it pays for fire service – at about $5.5 million the EFR bill comprises 26 percent of the city’s total budget, and growing.
“Regarding other expenses, as a contract city we have to look at all of the contracts and relate them to available revenues and desired services,” Gerend told The Reporter. “With the downturn in the economy, we have seen a huge drop in new home construction. This means slower growth and thus less needs for new parks and roads in the near term.”
The Mayor said he had been down Olympia three times in the past three weeks to urge the legislature to allow cities to more flexibility in how they spend the money they have.
“For example, the current Real Estate Excise Tax has to be used for construction of new roads and parks – capital projects,” Gerend said. “I was lobbying the legislature to allow cities more flexibility in the use of these revenues. Let us use the REET funds for maintenance of parks if growth has slowed and the need for more parks has abated, at least temporarily.”
