Clyde Hill News: Half-million dollar “hole” in first draft of 2024 city budget
Seeking progress and a plan on the structural problem
Clyde Hill’s administration presented its first draft of the 2024 city budget at a public meeting earlier this week. The city’s finance director set expectations that “in 2024, our revenues come in lower than our expenditures.” She continued:
Everybody kept asking, well what’s the hole we need to fill — you know, how short are we? And so this is our first attempt to say “this is about the hole that we need to fill.” It’s about a half a million dollars. (link)
The gap between revenues and expenditures in Clyde Hill’s budget is expected to increase, according to the administration’s projections:
A big picture view, and then a far longer version, of what residents can expect, below.
Also: an early warning that the newsletter will be on hold while I travel with poor connectivity for the next few weeks.
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Disclaimer: while I am a councilmember on the Clyde Hill City Council, I write this newsletter in my capacity as an individual resident. Any opinions expressed are my own and not necessarily the position of the city. City information and references here are from public sources. I welcome email responses — and if the topic is about city business I will respond from my city email account.
Big picture, short version
Several readers have asked me to “boil things down — take a step back and give a big picture view.”
Given how “deep into the weeds” I’ve gone in past newsletters, this is welcome feedback, especially because budgets are rarely easy. They force goals and strategy to meet reality and operational execution.
Fifth year of an operating deficit
The 2024 budget will likely be no different from the city’s budgets in 2020, 2021, 2022, and 2023, with the city government again spending more than it takes in (“expenditures exceeding revenues”). The problem is structural and not going away on its own.
“Further action is required”
The city administration has repeated different versions of “further action is required” annually. There is no clear progress on a plan, or a plan for a plan.
For example, when Cm Steve Friedman asked in May when the community can “hear their specific plans to operationalize what we’ve all agreed needs to happen,” the administration’s response was: “It is a really busy time right now for our finance right now.” (link)
Clarity from council
In May, the city council made clear by a 4-0 vote that it “will only consider budget proposals for 2024 that eliminate the city’s future operating deficit.” (link) (Cm Ashley Eckel abstained.)
For context, that council resolution followed a year of work between council, administration, and residents, and noted that Councilmembers Steve Friedman and Bruce Jones “provided specific advice and guidance about how to achieve a sustainable balanced budget” and that the council looks “forward to working together with the community and the administration on this challenge on behalf of residents.” (link)
Residents, in the meantime, have expressed growing frustration about the lack of progress.
What’s likely, and certain, next
What’s likely at this point is a 2024 budget with an operating deficit and a firmer statement of “further action required” from the administration.
November’s general election will determine who will take on this problem next year:
Cm Steve Friedman is running unopposed to be Clyde Hill’s next mayor.
Cm Ashley Eckel (appointed in May to replace Scott Moore) and Steve Sinwell are running for council seat 2.
Ryan Olson and Mark Kroese are running for council seat 4 to replace Cm Bruce Jones, who is not seeking re-election.
The much longer version
For people who want even more detail, here are some previous newsletter issues that discussed this topic: July 2023 (link), May 2023 (link), January 2023 (link), and August 2022 (link).
Clyde Hill’s budget problem is structural
Most of the city’s spending is on full-time employees, and that cost is increasing faster than the city’s revenues are increasing. That’s the structural problem.
Cutting a little here and there isn’t going to solve the problem. Clyde Hill’s primary revenue source is property tax, which is limited by state law to 1% annual increases and can’t keep up with the growth in costs (link).
Every year, labor costs go up more than the taxes that pay for them. From “Why spending less is hard” (link), about a year ago:
“Salary, overtime, and personnel benefits across police, public works, and general services make up 64% or almost 2/3rds of Clyde Hill’s General Fund expenditures.”
This past week, the administration publicly stated that “the City has little discretion to reduce general fund costs” short of “cutting staff or finding a new Fire service provider.”
Funding the gap with luck (and reserves)
In many ways, Clyde Hill has been lucky. With the rise of online commerce, the city collects more sales tax than it used to because of all the goods delivered to Clyde Hill residents.
Another stroke of good luck: the sales tax revenue from the multi-million dollar school construction projects within city limits back in 2012 and 2018.
This graph from the from the City of Clyde Hill’s 2021 Budget Book (page 7, link) shows the exceptional revenue spikes that provided the reserves the city uses to cover the operating deficit:
The city can expect more good luck as Bellevue’s Fire Department plans re-building Fire Station 5 here in Clyde Hill (link):
Over a million dollars in ARPA (American Rescue Plan Act) grants and many state and county grants help as well.
In contrast, City of Medina residents voted to raise their own property taxes, significantly, on a ballot measure (link) in 2019 (link).
Culture, confrontation, and progress
“Further action is required” is one of several phrases in memos over the years from the administration to the community and council about the city’s budget problems (link).
Here’s another from the November 2020 Budget Message from Mayor Klaas (link):
Staff has recommended that Councilmembers work with staff and the community to develop a strategy to deal with this situation long-term. The use of reserves to balance the budget is not a sustainable long-term strategy.
The problem is that the work “to develop a strategy” simply didn’t start until 2023.
Awkward conversations
One way to make sense of this situation is that the administration is so busy operating the government and executing that it hasn’t been able to address this financial threat.
And yet, it must take on this structural problem, even while it continues to re-build trust after the last two years of disclosures.1
Rising standards make this harder. For example, stormwater drainage in the city, both public and private, will need to keep up with state and federal requirements. Changes to state law about housing density offer another complication.
Action while the city still has options
Mayor Klaas wrote that the current budget approach is “not a sustainable long-term strategy” nearly three years ago.
Culturally, the councilmembers (up to Scott Moore’s departure) have been “private sector” people.2 While they vary in patience, none of them are mean. They all expect progress and results… eventually.
Residents expect results. The budget discussions between the administration, council, and residents necessary to get to results do not appear to have begin in earnest yet. It’s not clear to me how to explain to residents why they haven’t started.
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Dean Hachamovitch
Seat 1: a retired telecom executive. Seat 2 (previously): an active tech company board member and former exec. Seat 3: a senior Boeing Defense, Space & Security person. Seat 4: active local family business leader (office products and then Lake Union Drydock Co.). Seat 5: former Microsoft executive.