With the pro and con sides using city forecasts, tax calculations and other data on Mercer Island’s budget shortfalls, surpluses and everything in between, the debate about Proposition 1 can be hard to follow.
Proposition 1 is a six-year levy lid lift for ongoing city operations. It will cost the owner of an average home on Mercer Island (which is $1.2 million, according to 2017 assessed valuation) about $374 a year for the next six years ($286 in the first year with a 3 percent annual increase until 2024).
While the current 2017-2018 budget has been temporarily balanced using a one-time surplus, the city is projecting significant deficits, especially in its general fund, starting in 2019, increasing to $7.42 million in 2024. Despite cost-saving measures, total expenses are projected to grow faster than total revenues, resulting in a structural deficit, according to the city. The city can raise property taxes 1 percent per year, plus new construction, which amounts to about another 1 percent on average.
The Mercer Island Reporter met with the leaders of the pro and con committees, attended a forum at the Beach Club and sat down with the city’s finance director to fact check the statements that are causing the most controversy.
1. “Prop 1 will raise taxes by 45 percent.”
Yard signs started popping up on the Island shortly after the city council decided in July to place the ballot measure on the November ballot. They told Islanders be wary of “another” 45 percent tax increase. The community experienced an 18 percent property tax bump in February for state education funding due to the McCleary decision.
The anti-levy group, Mercer Islanders for Sustainable Spending, calculated the 45 percent based on the amount that city property taxes will increase after six years ($1,208.77 to $1,747.43 for the average homeowner). But the city of Mercer Island’s share of the total property tax bill amounts to less than 12 percent, and the 18 percent McCleary increase referred to the total property tax bill. The pro-levy group, Islanders YES, notes that the overall property tax increase will be 3 percent in the first year of the levy and 5.2 percent after six years.
2. “If passed, the levy lid lift would be permanent.”
This is true — the city is asking voters to approve a permanent six-year levy. To fund police/emergency services, mental health counseling, safety net services, maintenance of parks, trails, playgrounds and ball fields and recreation services, Proposition 1 would authorize an increase in the city’s regular property tax levy by an additional $.238 per $1,000 of assessed valuation for collection in 2019. The limit factor would increase for each of the five succeeding years (2020-2024) by 103 percent. Each year’s total property tax levy is the base for computing the succeeding year’s levy, and the dollar amount of the 2024 levy would be used to calculate subsequent levy limits. Unless the city asks voters to renew the levy, the limit would drop back down to 1 percent in 2025.
“The base of the levy amount is permanent, to address the ongoing structural deficit,” city finance director Chip Corder said.
3. “The city’s last financial forecast was off by $15 million.”
Corder said he does a six-year forecast every year. In 2010, during the Great Recession, he estimated that the city would be running a large deficit in 2016, and the city ended up with a substantial surplus. Corder said he couldn’t predict how and when development activity would recover after the economic downturn.
“When I do a forecast, I always assume the status quo,” Corder said. “But it’s always changing, never static.”
3. “If the current building boom continues, Prop 1 will not be necessary.”
A record peak in development activity over the last few years allowed the city to balance its budget, even though it had been running deficits in its general fund in 2017 and 2018 that had to be balanced with one-time money, Corder said. But it is not true that building alone can solve the city’s structural deficit problem.
“It has the potential to reduce the amount of the deficits, but to eliminate them, no,” Corder said, adding that if the all-time high activity continues for the next six years, it would be “unprecedented.”
4. “The city should be able to trim its budget by 5 percent with efficiencies.”
Mercer Island maintains that it is one of the most leanly staffed cities in the region, and Corder said the city has already implemented cost savings and revenue enhancement programs. It reduced police overtime by changing its shift schedule, retrofitted Town Center street lamps with LED lights, increased Thrift Shop sales by about $1 million over 10 years, negotiated a new medical plan with employees and moved many systems online.
But Corder said there is no “fat” to cut. Mercer Islanders for Sustainable Spending outlined 45 cost cutting opportunities, from eliminating color printing to tracking staff time spent on projects to judge efficiency. Islanders YES believes that any cuts to the budget will mean cuts to services.
5. “Deputy Mayor Salim Nice found a way to balance the next biennial budget with no cuts.”
Nice presented a plan that would mostly bridge the 2019-2020 projected deficit with one-time monies at the council’s summer planning session. But after a consultant reviewed Mercer Island’s forecasting methods and reserve fund policies, Nice changed his mind and endorsed Proposition 1.
The city currently keeps its contingency or rainy day fund at a 10-percent funding level, which is about five weeks of city expenses. The consultant recommended that those be bumped up to 17 percent, or two months.
6. “There will be immediate cuts to humans services, parks, and police/fire in the city budget if Prop 1 doesn’t pass.”
City Manager Julie Underwood has already presented a list of potential cuts, which will start with the parks and Youth and Family Services departments, as they are deemed “discretionary” services. Underwood also proposed cutting the deputy fire chief position, freezing a police patrol officer position, eliminating lifeguards at city beaches, scaling back on special events, reducing the amount of elementary school counselors from four to two and more cuts.
“Those are lower priorities of government, but over six years, we would have no choice [but to cut more],” Corder said. “Every department would be impacted.”
7. “The city has about $40 million in reserves, some of which are overfunded.”
Corder said the city actually had about $45 million in cash as of 2017, but “where that cash is matters,” which is in the water, stormwater and other utility funds. That money can’t be used to bridge the deficit in the general fund. It’s allocated based on a six-year capital facilities plan, and will be spent down in 2019 and 2020, Corder said. He also noted that spending down reserves could have an adverse effect on the city’s Triple A bond rating.
“Spending reserves is not sustainable and more importantly, it’s not responsible,” Leaslie Meagley of the “yes” campaign said at the Beach Club forum, adding that Proposition 1 is a quality of life decision.
8. “The city hasn’t had a formal cost containment program since 2005.”
There hasn’t been an official program, but efficiency in city operations is “part of our culture,” Corder said. The city is a service organization that spends about 70 percent of its budget on personnel.
However, Proposition 1 does require city staff to prepare a Financial Sustainability Plan so that by the end of the six-year levy period, the contingency fund balance is up to the two-months (or 17 percent) level.
9. “The city will need to cut 25 percent of its staff (50 people) over the next six years without a levy lid lift.”
According to Corder’s forecast, this is the case, and “the only way it could be less is if development activity is higher than projected,” he said. At the Beach Club forum, both the “yes” and “no” teams agreed that they wouldn’t want to cut city services. The anti-levy group wants the city to look at efficiencies first before raising taxes, or implement performance metrics that show whether or not the city is truly lean.
“Mercer Islanders say yes a lot. We invest in the things we care about,” Heather Cartwright of the “no” campaign said at the Beach Club forum. “But Prop 1 is going to the bottom line general fund, and it’s not necessarily prioritized.”
10. “The city is currently running a deficit in its general fund. Without Prop 1, it runs out of money in 2021.”
Corder said that the first part of this statement is true, and that he “had to use one-time money to balance the budget last year and this year.” For the 2019-2020 budget, he will have to use $2 million in one time funds, plus service reductions, to make it balance. The only fallback after 2020 is the contingency fund, and to break even in 2021, that fund will have to be drained, Corder said.