SEQUIM — For nearly four hours, seven City Council members looked into the future of Sequim, Clallam County and beyond — and walked up to a giant revenue gap.
Monday night’s Sequim council meeting was to begin with a discussion of the 2010 budget, with Finance Director Karen Goschen pointing out the grim landmarks: 10 percent unemployment in the county, sales-tax revenues down 19 percent this year in Sequim, a 38 percent plunge in housing growth across the state.
$850,000 gap
Sequim is approaching a $850,000 chasm between general fund revenues and operating expenses in 2009, Goschen told the stone-faced council members.
The shortfall is owing to severely reduced retail spending and building activity in the city, which in recent years has become a center of big-box and housing development.
To close a gap of that size, “there’s no way to not affect staff,” Goschen said, “and it won’t be a small effect.”
Eighty percent of the city’s general fund spending goes toward salaries, she added.
The council members were loath to talk about layoffs among the city’s 72 employees, however, and instead considered cuts in services and an increase in the city’s business and occupation tax.
An increase in the tax, which the city collects from private utilities such as telephone, sewer, water and garbage companies, could generate $200,000 for Sequim next year, Goschen estimated.
But since that’s a mere fraction of the $850,000 revenue gap, the city will have to find a lot of other money somewhere.
It could, like last year, dip into its reserves — and council members Ken Hays, Susan Lorenzen, Bill Huizinga, Paul McHugh and Mayor Laura Dubois agreed that letting the city’s rainy-day fund fall from $1 million to a $750,000 at the end of 2010 is acceptable.
Doing that will mean cutting staff, warned interim City Manager Linda Herzog, and when the economy does recover, restoring those positions will be expensive.
Capital facilities dip
Some council members responded by suggesting a dip into Sequim’s capital facilities fund, the one that is supposed to help pay for a $10 million City Hall and $6 million police station.
“If we have to dip into capital facilities to save jobs, I’m kind of that way,” Huizinga said, “but I would rather see some really hard work at what services are out there . . . that we could possibly cut.”
“There are a limited number of those things,” that it would be tenable to reduce, Herzog said.
Hays, however, said the capital facilities fund should stay “off limits,” and Dubois agreed.
At the same time, council members Walt Schubert and Erik Erichsen want to keep $1 million in the general fund reserve account.
Erichsen believes the city could slide onto a slippery slope, as in next year down to $750,000 could turn into $500,000 the year after that, while Schubert doubts the economy will improve much over the next two years and wants a thick cushion in the city’s coffers.
‘Crisis mode’
Hays said the city is in “crisis mode,” and should use more of its reserves.
But as he and the council enter the budget process, they mustn’t panic, mustn’t “wring our hands and run out of the room screaming.”
To that Schubert said: “Fiscal conservation is not panic. . . . It’s the kind of thinking that comes from being in business.”
Schubert is the owner of Action Property Management in Sequim, while Hays owns his own architecture firm.
Throughout the discussion, council members wrestled with their inability to be, as Hays put it, “soothsayers.” Past revenue levels may not be good indicators of what’s to come, he and Lorenzen agreed.
“We’re in a time now unlike any other,” said Lorenzen. “People are still losing jobs. . . . I don’t think we’re close to the bottom” of the recession.
“I think we need to be ultraconservative.”
“I don’t think the past is going to tell you a whole lot,” added Schubert.
“We need to be as conservative and careful as we can possibly be.”
Dubois has noted that Sequim’s spending and staffing increased substantially during the boom years of 2006 and 2007 — after Wal-Mart, The Home Depot, Costco Wholesale and other big chain stores came to town — and said it may be time for reductions, at least until the economy takes an upswing.
It took 30 months to recover from the recession of the 1970s, Dubois added.
“We need to hang on to the $750,000 [in reserves],” she said.
“It’s tough to say, but we may have staffed for the boom, and the boom is over,” and significant cuts in personnel may be unavoidable in 2010.
“We might look at ‘sustainable staffing,'” Dubois said. “It’s a tough choice; we may have to do it.”
Annexation approved
Near the end of Monday’s council meeting, the members did move to bring a fresh piece of revenue into the city’s purse.
They voted 6-1, with Erichsen dissenting, to annex Joseph Kelly’s 10.3-acre swath of land — which already has paved roads across it for 20 buildable parcels — southeast of Brown Road and Sequim Avenue.
Erichsen questioned the annexed property’s value to the city and objected to having to maintain the streets on it.
City Planning Director Dennis Lefevre responded by listing various sources of money generated by homes on the land: residents’ utility rates, property taxes and their per-unit sewer and water hookup fees, $6,600 and $4,950 respectively.
Those alone, he said, “would be an improvement for our revenues.”
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Sequim-Dungeness Valley reporter Diane Urbani de la Paz can be reached at 360-681-2391 or at diane.urbani@peninsuladailynews.com
