City of Tacoma faces $26 million shortfall

The City of Tacoma’s relative good fortune with its budget ended with a crash Tuesday.

New projections based on the third quarter show the city faces a $26 million shortfall in its two-year, $399 million general fund budget, which runs through 2012.

"I bring serious news about the city’s general fund status," Interim City Manager Rey Arellano told City Council members at a packed noontime budget update. "We are experiencing unfavorable trends both in the revenue and expenditure sides."

The council is faced with making dramatic cuts, likely including staff reductions, reducing payments to external organizations and lowering service levels.

City Finance Director Bob Biles told the council that income from sales taxes, property taxes and business taxes are on a sharper-than-expected downward trend, while expenditures continue to rise.

In the most recent three months, city revenue missed projections by $2.2 million while expenditures rang in at $2.6 million over budget – leaving the general fund nearly $4.8 million in the red.

The city’s revenue projections held up better during the first two quarters of the year. In the first, the city missed its budget by $466,000. During the second quarter, it came out $252,000 ahead.

"Really, the question is: Is this a trend or an aberration," Arellano said.

Council members now must come up with a new budget strategy to address the shortfall. Last quarter’s big gap leaves the council in a quandary as far as projecting for the future. The city’s general fund budget pays for basic services such as police, fire, libraries and residential street repairs.

Arellano and Biles presented the council with numbers for three possible economic scenarios to consider when they make budget changes for the remainder of this year and next.

The first scenario, the most pessimistic, assumed no growth; the second assumed slow growth; and the third assumed moderate growth.

Arellano and Biles recommended the council make revenue assumptions based on the middle, slow-growth option, which would lower expected revenue by about $10 million for 2012, dropping to $193.8 million from $203.8 million.

"The question is: Are we being conservative enough," Arellano said.

Mayor Marilyn Strickland said she did not think so.

"I don’t want to be pessimistic," she said, "but I tend to want to be more conservative."

Councilman Jake Fey, the only council member to vote against the 2011-12 budget, agreed.

"Given the state of affairs at the federal level, I think it could be worse," Fey said. "Those factors aren’t in Tacoma’s control, but they are our reality."

Council members Lauren Walker and Ryan Mello advised caution in rushing to make radical cuts based on the projections.

"We have been very lucky in the City of Tacoma," Walker said. "This is hard news for all of us. But we’re talking about jobs here, not just city jobs, but outside jobs, too."

Mello agreed with Walker.

"We can’t cut critical services based on what is really a set of assumptions," he said.

Mello suggested the council look hard at the option of "revenue enhancement," rather than rushing to cut city services or jobs.

Councilman David Boe said he does not believe that options for increasing revenue are a practical solution.

"Revenue enhancement sounds so nice," Boe said, "but maybe it’s not so nice."

Strickland made it clear she believes changes in employee compensation should be part of the solution.

"If this were a private company, I would walk into the room and say, 'Guess what, everybody. We’re all taking a 10 percent pay cut'," Strickland said.

"With collective bargaining units, that’s not something you do," the mayor said, "but all options should be on the table."

"Our paramount duty is to serve the public," Strickland said. "I would rather have somebody stay employed and make less money rather than cut services."

Fey also indicated his view of a solution would include lower employee costs.

"This is an opportunity for our labor partners to step up and show how they can help us in this situation," Fey said. "It’s much better if this can come from the employees themselves."

The assumption that city workers will accept less pay has not worked for the city so far. The current budget assumed that all city workers would accept across-the-board pay freezes, but few materialized.

In the projections issued Tuesday, personnel expenditures for the biennium were $6 million higher than predicted. Of that, $1.3 million was for employee step increases. Additional overtime, mostly for fire and police employees, added another $1.6 million.

Strickland ended the meeting with an indirect challenge to city employees.

"These are extraordinary times and a time for all of us to step up and say 'Are we really public servants?' and 'What are we willing to do to make this a better city,’ ” Strickland said.

The council meets next Tuesday to begin developing a strategy to bridge the budget gap.

Rob Carson: 253-597-8693
rob.carson@thenewstribune.com