City predicts budget surplus despite shortfalls in other Eastside communities

Talk about budget cuts may be buzzing around local cities, businesses and Island homes, but it is not something that the city will be facing this fall.

As the economy slows many local cities, as well as the county, are facing funding issues. The City of Mercer Island instead will be left with a $1 million surplus this year. In the coming months, the City Council will review and be asked to approve the next biennial budget for the Island. According to Finance Director Chip Corder, Mercer Island’s surplus at the end of 2008 will carry over into the next budget while sales tax and property taxes are expected to generate sufficient revenue.

City department heads are currently crunching the numbers for the next two-year budget cycle that takes place this fall, and the details of how revenues and expenditures will pan out have yet to be released. Corder indicated the preliminary outlook is so far, so good.

“A couple of factors why Mercer Island might be in a little better position is that so much of our revenue comes from property tax,” Corder said. “Property taxes generate 45 percent to the general fund. A lot of other cities are more retail and sales-tax based. Plus, there has been new construction throughout the Island the past few years.”

The majority of the city’s general fund is supported by the real estate market, which is slumping locally as well as nationally. Sales taxes are affected by higher costs of energy and food that has offset spending. In recent budgets, redevelopment activity in the Town Center has boosted sales tax revenues for the city, but it remains unclear if that growth will continue in the slowing economy.

The financial picture for other Eastside cities is not as bright as the Island’s. Both Kirkland and Renton are facing potential deficits. According to the City of Kirkland’s Web site, the city is up against a $13 million funding gap and will have to make several changes to come up even. City leaders in Kirkland are proposing a “three-pronged” approach to eliminate the projected deficit. The Web site states that cuts in city staff or services is one option that its council will consider. Financial reserves in Kirkland’s rainy day fund will also be applied to shrink the gap, while the Kirkland City Council may decide to ask voters to approve additional taxes on private utilities such as cable, natural gas and electricity.

In Renton, Mayor Denis Law said he had asked his department directors to restrict new hires and reduce costs.

“I have asked the city’s administrators to restrict most staff hiring, including positions previously approved in the budget,” said Law. “In addition, department administrators are being fiscally conservative and carefully scrutinizing all non-essential expenditures while focusing on maintaining core services. Wise decisions and responsible fiscal policies will get us through these times in the best possible financial position and will help us plan for the 2009 budget.”

On Mercer Island, Corder was scheduled to present the city’s financial status report through June to the City Council on Tuesday night, after Reporter deadline. The report states that in the future, the Island may see decreases in revenues similar to those that other communities have experienced in recent years due to the current state of the regional economy.

“It’s possible that the development boom in the Town Center might come to a halt by mid-year 2009, which would be about a year sooner than projected,” the report reveals.

Despite some of the potential decreases in construction and real estate sales, the city has received a few large, yet unpredictable, checks during the past few years from mega real estate sales such as Island Square this year and Island Corporate Center last year. Those both generated about an extra $500,000 each to the general fund, but Corder stressed that those funds cannot be relied upon.

Joy Johnston, the city communications coordinator, said Mercer Island has not considered cutting jobs, and the city has not been forced to restrict its hiring. But the city is looking at the possibility that today’s surplus may go away in the future, she said, and if new construction and property sales begin to decline more quickly, the city could be faced with looking at cuts. It is also possible that the city will make a recommendation to the Council this fall to refrain from spending this year’s surplus during the 2009-2010 budget talks until more is known about the economic future.

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