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Transmittal LetterMarianne Klaas, Mayor
To: City Council & Residents of Clyde Hill
From: Mayor Marianne Klaas
Date: November 8, 2022
Re: 2023 Budget Message
I would like to thank the City Council, Staff, and the resident Budget Advisory Committee (BAC) members (Shanlenn Colby, Mike Foley, Amy Kwan, Spencer Nurse, Lisa Slivka, and Anand Soumya) for their active and direct participation in the development and preparation of Clyde Hill's 2023 Budget. It is through the efforts of these residents that Clyde Hill has consistently been able to provide exceptional public services and facilities while maintaining a high degree of fiscal responsibility.
Budget Background
The goal for the 2023 Budget process is to develop a balanced budget that aligns to the policy direction provided by the City Council while maintaining the high-level of essential services and facilities that the residents of Clyde Hill have come to expect. While we believe that this budget achieves those goals, this budget is being balanced through the use of ending fund balance carryover from 2022 and by utilizing available federal funds from the American Rescue Plan Act of 2021 (ARPA). These funds are primarily being used to facilitate the pandemic related inflationary adjustment to staff salaries, along with certain special projects like the upcoming city hall offices and council chambers renovation and fiber upgrade.
As our community recovers from the COVID-19 pandemic, we find ourselves in a high inflationary environment not seen since the 1980’s. Although cost increases have been held to a minimum, and reduced whenever possible, rising costs are a theme throughout this budget:
- Contract with Bellevue Fire increased $89,000 or 14%.
- Insurance costs jumped $52,000 or 45%.
- Legal costs are budgeted at $70,000 higher than 2022.
- The City’s four-year collective bargaining agreement (CBA) with our Police Officers includes annual salary increases of 4.0% in 2023 and 2024.
- In September 2022 the City provided Police “take home vehicles” as a retention and recruitment incentive.
- A salary study was conducted for comparable non-union positions to transition to a positional salary schedule with pay scales. The City is working to incorporate the salary schedule into this budget.
- Additional cost pressure is being applied to City finances as non-union salaries have been traditionally tied to the CPI-W June over June index. This year’s applicable CPI-W rate is 9.5%.
- It is the Administration’s belief that the current inflationary environment is attributable to the ongoing economic impacts of the pandemic. The City proposes to absorb this inflationary hit in 2023 by utilizing ARPA funds to account for the Cost-of-Living Adjustment (COLA), salary adjustments, and to fund a new limited-term Public Records Officer. This is budgeted at $308,073.
COVID-19 remained a factor for the City in 2022 with operational impacts extending through all of our services. On October 31, 2022, Clyde Hill joined Governor Inslee in rescinding our public health state of emergency proclamation. City Hall remains open to the public with appointments recommended. Public meetings are held in a hybrid format including in-person and virtual platforms and Staff retains the ability to work remotely as public health conditions dictate. We remain fortunate that the majority of COVID-19’s negative financial impacts are being mitigated by ARPA funding.
Although the City of Clyde Hill is a small residential community consisting of about 3,110 people and 1,100 homes, we are still charged with providing essential services to our residents, including administrative, police, fire, public works, building, code enforcement, streets, and adjunct services while working within significant budgetary restrictions.
Given the residential nature of our community, the City does not have a diversified tax base and has limited revenue sources from which to deliver the services it provides. Approximately 25% of the City’s revenue is derived from property taxes. However, for each $1.00 in property taxes paid in the aggregate by its residents, the City receives just under $0.05 with the remaining dispersed to taxing districts over which the City has no control or influence.
The remainder of revenue comes from a combination of sources such as sales tax, development, investment income, fines, wireless communication facility leases, utility and franchise taxes as well as contracted police services provided to Yarrow Point. The City’s ability to increase revenue from any one or all of these sources is limited by legality, practicality, and basic fairness.
2023 Budget
The 2023 Budget anticipates total revenue of $6,639,491 and total expenditures of $9,526,003. The difference between revenue and expenditures is balanced from strategic capital reserves and existing fund balances. The City anticipates the General Fund will have total revenue $5,175,421 and total expenditures of $5,630,156. The General Fund deficit is balanced with interfund transfers, ARPA, and existing fund balances.
Total General Fund revenues are anticipated to increase by 15.3% from the 2022 Budget. Total General Fund expenditures are expected to increase by 21%. The following list highlights some major trends included in the 2023 Budget:
- Consistent with municipal best practices, Staff recommends that the City continue to utilize all of its property tax levy capacity including our statutory 1% property tax increase plus new construction value an increase of $24,074.
- Development Revenue is projected to increase by $1,000 compared to the 2022 budget.
- Sales Tax is projected to increase by $100,000 from the 2022 budget.
- Based on the actual results of 2022 and rapidly rising interest rates, investment income is budgeted $310,000 or 2067% over the 2022 budget.
- In 2021, Council committed the remaining ~$1.9M in the Special Projects Fund for the Facilities Master Plan (FMP). During 2022, Staff met monthly with Bellevue Fire to work towards a Development Agreement that will lead to the demolition and reconstruction of Fire Station #5 by the City of Bellevue. FMP funds will now likely supplement ARPA funding to renovate City Hall. The entire FMP has been budgeted in the event Council approves additional expenditures. Budgeting these committed funds provides flexibility and allows the City to move quickly as plans are developed and opportunities arise.
Staff continues to strive for efficiencies and cost containment measures to help offset inflationary processes.
Within the 2023 Budget, about 76% of all operating expenditures will fund two major City functions: Public Safety and Public Works.
Public Safety
The Clyde Hill Police Department will continue to serve the City of Clyde Hill and the Town of Yarrow Point with a total budget of $1,986,954 in 2023; an increase of 7.8%, of which Yarrow Point pays ~25%. The Police budget represents about 35% of all General Fund expenditures. The Police Department is fully staffed at seven officers, Chief of Police, Lieutenant, and a records manager (a total of nine commissioned officers).
Clyde Hill will continue to contract with the City of Bellevue for Fire Protection and Emergency Medical Service. The City will pay $720,122 for these services in 2023, a 14.1% increase from 2022. This service represents 13% of the City’s General Fund expenditures and includes assistance in emergency preparedness and hazardous material response. As other areas served by Bellevue Fire have grown, the percentage of Clyde Hill calls has decreased as a percentage of the whole. This has helped manage our service costs the past couple of years. For 2023, Bellevue Fire staffing costs are increasing, which affects our costs in 2023 and will likely do so again in 2024.
Public Works
Clyde Hill’s Public Works Department’s budget for 2023 is $1,549,535 which represents 28% of the City’s General Fund expenditures. This is up 50% from the 2022 budget.
Staff is proposing major changes to the Public Works Department’s budget for 2023. Public Works will reorganize into five Divisions to more accurately represent its costs. Public Works Divisions will include:
- Community Development (Building & Planning)
- Engineering
- Parks and Recreation
- Stormwater
- Transportation
The Public Works Department staff has 5.7 full-time employees who are charged with the on-going maintenance of the City’s infrastructure, capital projects and building and planning functions. Comprehensive Planning, ARCH, City Celebration, Arbor Day, Lake Washington/Cedar/Sammamish Watershed, also known as Water Resource Inventory Area (WRIA8), GIS infrastructure mapping, and the Parade of Pumpkins were moved out of the Projects fund and into Public Works Department due to their operational nature.
Public Works oversees the Capital Improvements portion of the City budget including various road, storm, sidewalk, and other community projects. The Capital Budget includes several noteworthy capital projects planned for 2023 including:
- $375,000 for various stormwater-related projects
- $960,000 for roadway overlay and sidewalk projects
- $80,500 for allowable King County park-related projects
- $75,000 for capital asset maintenance
Administration
Administrative and Support Services make up the remainder of the 2023 Budget. It is comprised of legal, accounting, audit, insurance, elections, administrative, and support costs for the entire City. Throughout the year, the City staff actively support the work of the Hearing Examiner, Planning Commission, Civil Service Commission, and the City Council. The City Administrator and Mayor are regularly in communication with surrounding Points communities to coordinate on regional issues of concern. Support Services expenses are budgeted at $1,375,545 which represents 24% of the General Fund expenditures. This is up 19.8% from the 2022 budget primarily due to insurance, legal, and staffing increases.
The Projects Fund budget for 2023 incorporates a combination of Special Projects and Equipment which includes the Facilities Master Plan ($1,948,036), redevelopment of the City’s website ($40,000), Wetherill Nature Preserve ($1,000), and a $10,000 contingency for 520 lid maintenance.
Long-Term Considerations
Reorganizing the Public Works Department into Divisions initiates the process of identifying direct and indirect costs allocable not only to our Stormwater Division, but among all the Public Works divisions. The overall goal is funding, consolidating, and modernizing our aging stormwater utility system and laying the foundation for creation of a stormwater utility; however, the data will also help to inform level of service decisions across the entire department in the future.
Fiscal year 2022 has again seen high home sales in Clyde Hill. The City receives a portion of the Real Estate Excise Tax (REET) generated from every home sale. REET revenue is a “Restricted” form of revenue that must be used for Capital purposes and cannot be used for operational costs. The combination of record home sales, pandemic induced slowdown in our capital construction program, and receipt of federal ARPA funds have resulted in an abnormal and unanticipated spike in our overall fund balance.
The cyclical nature of construction activity and the local economy results in fluctuating development revenues. Since 2011, the City has seen increasingly more homes sold resulting in new and remodeled home projects. City finances have benefitted from this favorable trend along with school redevelopment projects. The housing and building demand has allowed us to build reserves rather than expend reserves. Due to rising interest rates and a slowing housing market, we have reduced our forecast for REET revenue in 2023. It is critical that future development be closely monitored to assure sound budgeting in future years.
Every ten years the state of Washington’s Growth Management Act (GMA) requires updates to the City’s Comprehensive Plan. In 2022, the Blueline Group was hired for this task along with a limited-term staff member, with extensive Planning experience, to help manage the effort. Major initial tasks related to “Visioning” and compiling an “Existing Conditions” report has made significant progress to date. Staff also worked to make requested changes to the City’s land use code, utilizing the Planning Commission, consultants, City Attorney, and a significant amount of staff time.
The Facilities Master Plan sets the long-term path for modernizing aging critical City facilities. At the April 5, 2022 City Council meeting, Staff updated Council on the status of work on the Bellevue Fire Station #5 replacement project, our desire to utilize a Development Agreement, and solicited input on how to best utilize the remaining half parcel when construction is complete. Consensus led to the design of a Police parking compound. We anticipate the Bellevue Fire Station #5 redevelopment project will begin in 2023.
The City of Clyde Hill has a structural budget issue revolving around the fact that expenditures continue to grow faster than revenues. For example, property taxes are allowed to grow only 1% per year while the local Consumer Price Index (CPI) tends to grow faster. Last year, CPI-W grew at a rate of 9.5%. Salaries and contracts are commonly linked to CPI-W and the cost of construction activity and capital maintenance often exceeds CPI.
The projected budget deficit is balanced by interfund transfers, ARPA, and utilization of existing fund balances. Though our Reserve Fund provides a cushion for short-term budget imbalances (projected to last 5 years), feedback from our BAC meetings has emphasized a strong desire to find a sustainable solution to the structural imbalance between revenue and expenditures to maintain our levels of service.
Next Steps
The Mayor, Council, and Staff have steadfastly monitored key City economic indicators utilizing an extensive monitoring program with checkpoints throughout the year. This process will continue and provides the necessary information to avoid financial surprises and to implement best financial practices. The City strives to provide residents with information and knowledge regarding fiscal policies and financial and economic factors that impact the City.
The administration recommends that the Budget Advisory Committee (BAC) commit to work with staff to develop a strategy to deal with this long-term situation in the first quarter of 2023. The use of reserves and ARPA to balance the budget is not a sustainable, long-term strategy. Formation of a Stormwater Utility and a Levy LID Lift are two potential options for addressing the structural issues being experienced.
The process of providing a fiscally responsible annual budget remains a constant challenge and requires a careful balancing act. Maintaining or increasing city-wide levels of service, while remaining confined to our traditional revenue sources, has repeatedly put the City into an annual deficit. A permanent solution will require difficult conversations regarding revenue streams or levels of service being delivered. We are committed to working with the City Council and our community to confront these issues and ensure Clyde Hill’s future is one with a financially sustainable outlook while delivering services to our residents.
Budget Book
Final Version
Last Updated 04/29/23