At a May 5 special meeting, the Mercer Island City Council was updated by the city manager on Mercer Island’s financial state.
The meeting, which was held over Zoom in compliance with COVID-19 (coronavirus) social-distancing measures, was the first to follow an April 29 announcement from manager Jessi Bon in which she confirmed that Mercer Island has had to cut costs due to revenue shortfalls.
Some of this cost-cutting included 20 layoffs in the Youth and Family Services (YFS) Department, the Parks and Recreation Department and facilities. Eleven others were furloughed.
“There was no easy decision here,” Bon said. “There was no desirable decision — these were all really difficult decisions to make.”
At the meeting, Bon, as well as interim finance director Matt Mornick, shed light on the statuses of the YFS and general funds and unemployment and emergency-response costs. Several numbers had changed slightly since the April 29 announcement.
“[2020 has] already proven to be a year with more movement than 2019,” Bon said.
According to Bon, current projections indicate a $1.3 million revenue shortfall in the YFS fund. Following some cost-saving measures, which resulted in layoffs and 90-day standbys (personnel costs account for 76 percent of the YFS fund), the shortfall is now anticipated to be $693,000.
The standby layoffs save $115,000 for the 90 days. If they are extended through the end of the year, savings will amount to $305,000.
“I was really in a position where we immediately needed to draw down our expenses, because our revenue streams were cut off,” Bon said. “They literally went to zero overnight.”
Sixty-five percent of the YFS budget is dependent on revenue from the Mercer Island Thrift Shop. Because the store closed in March, the city has seen a significant drop in the YFS revenue stream.
Bon said current financial forecasts assume that the store remains closed through June. Upon the anticipated July reopening, it is expected that the store will achieve 50 percent of budgeted monthly revenue goals through December.
In her presentation, Bon said that May is intended to be spent doing a re-opening analysis, which probes changes in operating hours, cleaning protocols and more. Between the end of May and early June, operating-budget revisions will be complete.
A YFS working group, which includes city council representation, YFS Foundation Board members and city staff, has been established to devise both short- and long-term strategies to keep the department afloat.
The council was receptive to the update; there was some additional discussion around potentially pursuing capital improvement projects at the site while the store is closed.
“Staff is excited about getting this thing open… as soon as possible, without rushing it,” Mercer Island police chief Ed Holmes, who is currently acting as the interim director of YFS, said. “We want to do this right, but we also understand the urgency, because, every day that the store is not open, we’re losing revenue.”
Mornick said that the COVID-19-related recession will impact all revenue streams in 2020.. He noted, though, that these effects vary depending on the type of revenue.
It is likely, Mornick said, that the recession will extend into 2021, with a full financial recovery not occurring until 2022 or later — both of which make it essential to continue updating and monitoring projections.
As of the May 5 meeting, there is a projected $4.7 million revenue shortfall in the general fund. Following cost-saving measures, which, like YFS, resulted in workforce reductions, the number has been decreased to $2.1 million.
Personnel costs make up about 73 percent of the general fund — similar to the dilemma faced for YFS cost-savings.
Workforce reductions occurred in phases beginning in mid-May, and were focused on parks and recreation and facilities. Facility services are currently being managed on a limited basis by Mercer Island’s Emergency Operation Center (EOC).
Savings in travel and training ($50,000+) and facilities operations ($100,000) are also anticipated across the general fund.
More considerations are under review to address the projected remaining $2.1 shortfall, including additional workforce reductions, citywide furlough strategies (e.g., employees don’t work on Fridays), delays in inessential 2020 capital improvement plan (CIP) general fund projects and more.
Councilmembers were responsive to the latter plans, though there were suggestions around furlough staggering (i.e., some employees furloughed one day and some another to avoid a full day of no service) and receiving input from police and fire about whether they would be able to reduce costs in certain areas.
What’s ahead for recreation services and park maintenance?
Bon said that the current forecast assumes that the Mercer Island Community Center will now remain closed through the end of the year.
“We have the opportunity to walk that back, but there’s some boxes we need to check,” Bon said.
In her presentation, Bon noted the complications recreation services are facing as a result of Inslee’s Safe Start Plan.
The center itself and outdoor leagues are part of Phase 3, which is six weeks from May 5 at the earliest. Facility rentals (which attract groups typically larger than 50 and sees its “bread and butter” through weddings) are part of Phase 4, which is at least nine weeks away.
Even though it can be assumed that by Phase 4 these areas can be operational, Bon said, there will likely be new restrictions and protocols in place.
“We have work to do to really thoughtfully think about how we move forward,” Bon said.
As for park maintenance, Mercer Island is technically able to resume as of May 5. Although the goal is to catch up on the backlog of park maintenance that was not able to be completed over the last few weeks, this is extremely difficult, Bon said, because of the layoffs. (Seasonal park maintenance staffers are not anticipated to return in 2020 at all.)
Public works and the EOC are currently managing park maintenance. Volunteering and work parties may be a possibility but were unconfirmed at the council meeting.
Landscape maintenance is anticipated to resume in June, with plans for high summer volumes even with Phase 2 restrictions (groups of more than five people cannot meet).
Unemployment and emergency response costs
Akin to most cities, Mercer Island is self-insured for unemployment; cost-savings projections include the city’s estimated portion of unemployment.
Due to the recent passage of the Coronavirus Aid, Relief, and Economic Security (CARES) act, self-insured employers get reimbursed half of their unemployment costs by the federal program.
According to the presentation, Mercer Island doesn’t have a reserve set aside for unemployment expenses, which staff continues to track.
Mornick noted a “tail of expenditures” occurs when a position is terminated, meaning that there are residual costs that come with a layoff. These include accrued benefit cash-outs, health insurance coverage for the rest of the month and 50 percent of unemployment benefits for 39 weeks (under the CARES act).
According to the meeting presentation, Mercer Island has so far spent $662,000 on COVID-19-related emergency expenses. It is projected that $500,000 of unbudgeted emergency costs will be spent through Aug. 31.
Bon said that some funding from the CARES act assists with this, but that funding must be used for coronavirus-related needs.
At the end of the meeting, the council voted unanimously to continue level 2 emergency response, and have city staff return at the May 19 council meeting with a budget amendment for passage. The amendment will include using money from the compensated absences reserve for accrued benefit cash-outs, $500,000 of contingency funds for emergency operations through August 31 and more.
To watch the full meeting, go to the recording on YouTube (https://bit.ly/2Z1pXVZ).