Clyde Hill News: the budget deficit
The budget issues, the recent Budget Advisory Committee meeting, and our options as residents
This issue of the newsletter discusses our city’s ongoing budget deficit and what options we have as residents.
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The City of Clyde Hill’s 2023 approved budget has a deficit, with expenditures exceeding revenues by ~$490,000.
The city’s budget also operated with deficits in 2020, 2021, and 2022, relying on reserves generated from revenue spikes in 2012 and 2018 involving Bellevue School District construction in Clyde Hill.1 From the Administration’s budget document, “Monitoring the City's Financial Condition,” (link):
The City’s General Fund finished fiscal year 2020 with a deficit of $100,561.
The City’s General Fund finished fiscal year 2021 with a deficit of $50,565.
The City’s General Fund is expected to finish fiscal year 2022 with a deficit of $271,096 (as of 8/31/2022).
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. The 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.
A subset of the Budget Advisory Committee (BAC) met earlier this month at the insistence of Councilmembers Friedman and Jones to begin to address the city’s ongoing, structural budget problem.
Breaking down the budget problem
The gist of the problem is that the city’s biggest cost (people) is rising faster than the city can increase its largest revenue source (property taxes) to cover that cost.
The city’s biggest operational cost involves people.
Here’s a look at 2022 spending from a previous newsletter issue:
“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” (link, “Budget... where does all the money go?”)
These costs go up every year, primarily through “Cost of Living Adjustments” (COLA). These increases are consistently more than 1% per year.
A key factor driving increased expenditures and the deficit is paying competitive salaries to City employees. A previous newsletter discussed police officer retention issues that neighboring cities have had (link).
The city’s main operational revenues involve property taxes.
Here’s a snapshot of city revenue sources from a previous newsletter (link):
The property taxes Clyde Hill residents will pay this year provide about 29% of the City’s operating revenue, or ~$1.3m of the City’s ~$4.5m general fund revenues:
Washington state places a limit (a “lid”) on how much a city can raise its property tax levy every year (link). This “levy lid” is 1%.
So, every year, labor costs go up more than the taxes that pay for them.
Other cities have diversity in their revenue sources, like businesses that operate within the city that generate sales tax revenue for the city. Clyde Hill has only two businesses — Queen Bee and the 76 gas station — generating sales tax revenue to Clyde Hill.
Clyde Hill has actually been fortunate because its sales tax revenues keep increasing because of e-commerce. When online merchants (like Amazon) deliver goods to Clyde Hill addresses, the sales tax revenues go to Clyde Hill. Sales tax revenues for in-person sales go to the city where the store operates.
The city has capital surpluses… but can’t spend them on operational costs.
By state law, some income sources (like Real Estate Excise Tax, or REET) are restricted to capital expenditures (like roads) and can’t be used for operational expenses (like salaries).
Clyde Hill has vast capital reserves that it can’t apply to solve this budget problem. As Cm Steve Friedman said at the BAC meeting (link):
When we look at the fund balances — especially the restricted fund balances — we have a lot of money in the bank that we can’t necessarily get to use into the general fund. So the problem is really a general funding problem — it’s not a cash in the bank problem.
We are not in a crisis, yet…
It’s worth noting that we are not in a crisis because the city has reserves from revenue spikes in 2012 and 2018 involving Bellevue School District construction in Clyde Hill (see footnote, below).
Adding to this luck is skill in applying for grants. Both Federal and State grants were called out during the BAC meeting (link). The city’s finance director noted that Clyde Hill has “gotten more grants this year from the state than we’ve ever gotten in any one year combined as far back as I can find.”
It’s not clear why we are where we are
Luck and skill notwithstanding, leaders let the problem linger a long time. From the last page of the Administration’s August 2022 memo to the Budget Advisory Committee:
[T]he City has been operating at a deficit for the past few years…. Previous Councils and Administrations have not successfully addressed this issue, and further action is required. (link)
Similar text has been in the Mayor’s memo over the past few years, so awareness is not the issue. As part of the budget planning process, the City Administrator wrote to the council and BAC that
“Under current constraints, we are not able to deliver a balanced budget, but will instead be delivering an operating deficit budget that relies on utilizing reserves and ARPA grant funds to balance.” (link)
As a resident, it’s not clear why there hasn’t been more engagement and progress on this topic.
Starting in April 2022, the city councilmembers pushed for action on this issue (link).
In response to the absence of specifics or even a “plan for a plan” after several months, Cms Friedman and Jones volunteered to work on this problem with the Administration. The most recent BAC meeting reflects that work.
BAC meeting: signal and noise
The Budget Advisory Committee and the council are still waiting on summary notes from the meeting on January 13.
Unofficially, here’s a recap of the discussion and some of what’s ahead.
Commitment to current level of city services. There was general consensus that cutting back on services was not under consideration. One resident asserted that we have too many police officers. There will likely be follow-up on that topic.
Stormwater utility and/or tax. Yarrow Point, for example, has a stormwater tax to pay for the drainage to keep residents and the community safe. Clyde Hill has talked about this for years. Of all the ways discussed of increasing and diversifying Clyde Hill’s revenue sources, this one is the most likely and actionable. There will certainly be follow-up here.
Raising property taxes by more than 1%. This issue would go to the voters. Medina residents voted on raising their property taxes by more than 1% (lifting the 1% lid on the property tax levy, aka a Levy Lid Lift) a few years ago. This is an option that the Mayor has mentioned but has not taken a position on.
Grants. Filing for more grants will continue to help. It’s not clear how this contributes to a sustainable budget.
Lobbying the state to lift the 1% lid or loosen restrictions on some funds was offered as an option. This does not seem likely to happen in a timely way that would provide Clyde Hill with a sustainable budget plan.
Tighter controls on legal spending. The city’s legal spend last year was exceptional. I wrote a little about it here (link). Most of it resulted from (1) expensive interim legal services while the city hired a new lawyer and (2) a spike in public records requests coming from one resident, Spencer Nurse (link). Cm Muromoto’s response to this topic — to “notch this conversation up just a skosh here” — was an indication that legal spending represents a small issue and was not worth discussing in the context of achieving a sustainable budget plan.
Miscellaneous ideas. Many items with unclear impact on the long-term sustainability of the city budget came up during the meeting. Examples include: withdrawing from the King County Library system, seeing if the city do more with its restricted funds as well as its investments than it already is, changing financial policy related to reserves, and negotiating contracts more favorably.
What options we have as residents
The main options residents have here involve (1) reaching out to elected and appointed officials to understand what’s going on and (2) expressing an opinion.
Mayor and the City Administrator “own” the budget. They are responsible for authoring a budget as part of delivering services and administering the city. A sustainable budget seems like a reasonable request from the Mayor. Residents can always reach out to the Mayor to meet or ask questions.
The city council is responsible for enacting proposed budgets. They consider the proposal, listen to residents, and propose changes as part of the Budget Advisory Committee process. That’s it. Cms Friedman and Jones are “on point” as the Finance Committee; all five councilmembers are engaged with the budget. Residents can reach out to any or all of them at any time.
The Budget Advisory Committee, well, advises. Neither council nor BAC are authorized to author an alternative budget.
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Dean Hachamovitch
Bellevue School District’s construction projects in Clyde Hill in 2012 (Chinook Middle School) and 2018 (Clyde Hill Elementary) generated revenue spikes for the city. This graph is from the City of Clyde Hill’s 2021 Budget Book (page 7, link):
Specifically, the City of Clyde Hill collected sales tax on every nail, window, and piece of lumber Bellevue School District had delivered to a Clyde Hill address during these projects. From the City’s website (link):
By far the most important sales tax revenue source for the City comes from contractors building new homes and major remodeling projects.