City Hall
Council: Hold Off on Replenishing Rainy Day Fund
By a 5-4 vote this morning, the city council's budget committee opted to hold off on legislation that would have automatically replenished the city's rainy day fund (AKA the "revenue stabilization account") starting in 2012. The rainy-day fund is a budget set-aside intended to pay for financial emergencies, such as revenue shortfalls.
The council wants to wait until they get a chance to look at Mayor Mike McGinn's budget, which McGinn will release next Monday afternoon, and see what the November revenue forecast looks like. The city releases a revenue forecast shortly before adopting the budget each November; this year's forecast is expected to be lower than the one on which McGinn is basing the budget he will release next week, requiring cuts.
In 2009, the city dipped into the rainy day fund to help close a $40 million revenue shortfall. Revenues have continued falling short since the beginning of the recession, and aren't expected to rebound significantly until 2012 at the earliest.
The legislation the council decided to postpone today would have required the city to put aside the equivalent of 0.25 percent of its forecast tax revenues, or about $1.9 million, in 2012, and 0.5 percent starting in 2013. The transfers would automatically stop if the city's revenue forecasts for one year are lower than the level in the adopted budget of the previous year. If the fund reaches the equivalent of 5 percent of forecasted tax revenues, the city would spend the excess money for "one-time expenditures" such as capital projects, as opposed to ongoing expenditures like new full-time employees.
Council president Richard Conlin said he was concerned that, under the proposal, the city would be forced to put money in the rainy day fund even during years when its actual costs (for things like health care, for example) were increasing. "Obviously, if we even have the same revenue from one year to the next, that still is a huge budget challenge," Conlin said. "There are potentially some fairly fierce and difficult challenges to meet the standard of still contributing to the rainy day reserve even though we have to cut personnel."
Conlin proposed putting off the legislation until 2013. "In the middle of a recession, we should be talking about keeping services going and keeping people employed, and I'm really worried about taking the Republican strategy" of focusing on setting money aside rather than spending money to help citizens directly, he said.
Nick Licata, who supported the wait-and-see compromise the council ultimately adopted, said he was concerned "that unless we explain it to our citizens, there will be a tremendous amount of pressure on the council to not put away $2 million when we're closing libraries or reducing hours, which I've heard being discussed."
However, those who supported moving ahead with the mandatory set-aside now argued that things aren't going to get better in a year, and noted that one credit-rating agency, Moody's, has already put the city on a "negative watch," meaning that the city's credit rating could get downgraded from AAA to AA, because the city relies so heavily on waning federal dollars like community development block grants and federal housing grants. (Standard and Poor's also had Seattle on a negative watch after the federal government's credit was downgraded, but took the city off its list earlier this summer.)
"I completely appreciate that $1.9 million is a significant mat of money," council member Mike O'Brien said. "At the same time, it's hard for me to imagine that it's going to be easy at any time in the near future." Sally Clark added that while "it's a very difficult decision to make this year to put money in the piggy bank when we're going to be laying people off … I think it might be the more prudent thing to do to start now and try to build up for what could be [a] worse [economic situation] in two or three years."
Clark, Licata, and Conlin were joined by Sally Bagshaw and Tom Rasmussen in today's vote to hold the rainy-day legislation until November 10. Budget chair Jean Godden, O'Brien, and Tim Burgess voted to move forward with it now, and Bruce Harrell was absent.
The council wants to wait until they get a chance to look at Mayor Mike McGinn's budget, which McGinn will release next Monday afternoon, and see what the November revenue forecast looks like. The city releases a revenue forecast shortly before adopting the budget each November; this year's forecast is expected to be lower than the one on which McGinn is basing the budget he will release next week, requiring cuts.
In 2009, the city dipped into the rainy day fund to help close a $40 million revenue shortfall. Revenues have continued falling short since the beginning of the recession, and aren't expected to rebound significantly until 2012 at the earliest.
The legislation the council decided to postpone today would have required the city to put aside the equivalent of 0.25 percent of its forecast tax revenues, or about $1.9 million, in 2012, and 0.5 percent starting in 2013. The transfers would automatically stop if the city's revenue forecasts for one year are lower than the level in the adopted budget of the previous year. If the fund reaches the equivalent of 5 percent of forecasted tax revenues, the city would spend the excess money for "one-time expenditures" such as capital projects, as opposed to ongoing expenditures like new full-time employees.
Council president Richard Conlin said he was concerned that, under the proposal, the city would be forced to put money in the rainy day fund even during years when its actual costs (for things like health care, for example) were increasing. "Obviously, if we even have the same revenue from one year to the next, that still is a huge budget challenge," Conlin said. "There are potentially some fairly fierce and difficult challenges to meet the standard of still contributing to the rainy day reserve even though we have to cut personnel."
Conlin proposed putting off the legislation until 2013. "In the middle of a recession, we should be talking about keeping services going and keeping people employed, and I'm really worried about taking the Republican strategy" of focusing on setting money aside rather than spending money to help citizens directly, he said.
Nick Licata, who supported the wait-and-see compromise the council ultimately adopted, said he was concerned "that unless we explain it to our citizens, there will be a tremendous amount of pressure on the council to not put away $2 million when we're closing libraries or reducing hours, which I've heard being discussed."
However, those who supported moving ahead with the mandatory set-aside now argued that things aren't going to get better in a year, and noted that one credit-rating agency, Moody's, has already put the city on a "negative watch," meaning that the city's credit rating could get downgraded from AAA to AA, because the city relies so heavily on waning federal dollars like community development block grants and federal housing grants. (Standard and Poor's also had Seattle on a negative watch after the federal government's credit was downgraded, but took the city off its list earlier this summer.)
"I completely appreciate that $1.9 million is a significant mat of money," council member Mike O'Brien said. "At the same time, it's hard for me to imagine that it's going to be easy at any time in the near future." Sally Clark added that while "it's a very difficult decision to make this year to put money in the piggy bank when we're going to be laying people off … I think it might be the more prudent thing to do to start now and try to build up for what could be [a] worse [economic situation] in two or three years."
Clark, Licata, and Conlin were joined by Sally Bagshaw and Tom Rasmussen in today's vote to hold the rainy-day legislation until November 10. Budget chair Jean Godden, O'Brien, and Tim Burgess voted to move forward with it now, and Bruce Harrell was absent.
