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HomeMy WebLinkAboutWS 2025-08-18 Item 3B - Presentation - Budget Sustainability Project: Follow-Up on Revenue Proviso ReportTO: City of Tukwila Thomas McLeod, Mayor INFORMATIONAL MEMORANDUM Tukwila City Council FROM: Marty Wine, City Administrator Aaron BeMiller, Finance Director CC: Thomas McLeod, Mayor DATE: August 18, 2025 SUBJECT: Budget Sustainability Project and Follow-up from Revenue Proviso Report ISSUE During the development of the City's 2025 — 2026 budget, the Mayor's stated priority for his team in 2025 was to complete a formal review of current operating expenses and revenue generation to provide options for creating a sustainable budget in preparation of the 2027 — 2028 budget process. The purpose of this briefing is to inform the City Council about efforts underway to develop and propose a more sustainable 2027-28 Biennial Budget and 6-Year Financial Plan. BACKGROUND The City is legally required to adopt a balanced budget where resources are at least equal to budgeted expenses. However, adopting a balanced budget does not necessarily mean the budget is sustainable. A sustainable budget exists when normally occurring operational revenues are equal to normally occurring and ongoing expenses and where extraordinary resources are used for one-time expenditures. The City maintains a six -year financial forecast for the General Fund. Forecasting is a long- term planning tool that encourages strategic thinking and provides decision -makers with tools to allow for making more informed business decisions by focusing on long-term objectives and the future impact of current decisions. The most current forecast was developed in the fall of 2024 and was discussed with Council as part of the 25/26 budget process. Like most government entities, the City is experiencing a budget sustainability challenge where recurring operational expenses increase each year at a rate that exceeds the growth of recurring resources. Forecasted recurring revenues for 2027 — 2030 increase by an average of 2.7% annually while recurring expenses for the same period increase by 3.6%. This structural imbalance demonstrates that without a new revenue source, an increase in current revenues, a decrease in expenses, or a combination of those things, the City will need to continue to balance its budget over time using one-time resources. This budget model is not sustainable over more than just a few years. DISCUSSION The Budget Sustainability effort includes five (5) workgroups. Each workgroup is made up of a cross -departmental and cross -functional team of City employees tasked with developing revenue and expense options toward budget sustainability. The five workgroups are charged with reviewing all city services and programs and creating options aimed at efficiencies, cost reductions, or revenue generation. The five workgroups are: • Immediate Changes, Efficiency Improvements, Out of the Box • Revenue Options (Revenue Proviso) • Salary and Benefits Policies 33 INFORMATIONAL MEMO Page 2 • Operating Expenditures • Capital & Utilities Maintenance & Improvement Expenditures Administration began early this year to take up the challenge of working on solutions to achieve a sustainable budget beginning with the 2027/2028 biennium. The Revenue Proviso required the revenue options team to provide their report mid -year and that report was provided to Council on July 21st. The expenditure options are currently under critical review by the Budget Sustainability Leads Team, comprised of the Mayor, City Administrator, Deputy City Administrator, Police Chief, Community Development Director, Deputy Parks & Recreation Director, Public Works Director, Strategic Initiatives Director, Chief People Officer, and Finance Director. Other City team members, many of whom participated in the workgroups, provide important information as subject matter experts and are instrumental in helping clarify and analyze the options. Difficult choices will need to be made about ongoing City services and operations. The Mayor's and Council's priorities and the City's strategic plan will be used to guide those conversations. This briefing will update the City Council on the status of the current work toward the expense side of the budget sustainability effort as well as provide another opportunity for Council to provide feedback or ask questions on the revenue options provided last month. FINANCIAL IMPACT Discussion item only. There is no financial impact associated with this agenda item. However, decisions will be made on the information developed through the budget sustainability effort and recommended to the City Council for inclusion in the 2027-28 Proposed Budget. RECOMMENDATION Information Only. There is no recommendation currently for future action. The Council is being asked to identify questions, concerns, and issues to be considered as part of the budget sustainability work. ATTACHMENTS Powerpoint presentation 34 https://tukwilawa.sharepoint.com/sites/mayorsoffice/cc/CC Docs/2025 AGENDAS/2025 Agenda Packets/2025 COUNCIL - Agenda Packets/08-18-25 Work Session & Regular/Work Session/Info Memo 08182025_v2.docx BUDGET SUSTAINABILITY PROJECT City Council Work Session August 18, 2025 The City of opportunity, the community of choice. The Challenge • Like most cities, normally occurring expense growth outpaces normally occurring revenue growth; main tax revenues (sales & property) do not keep up with inflation. • City must follow financial policies and adopt a balanced budget • Past: revenues increase avg 2.7%. Expenses increase by 3.6%. • 2025-26 budget used one-time revenues to cover operational expenses. The City's General Fund would have been out of balance with a forecasted gap, increasing by about $1.0M annually • Not sustainable over more than just a few years. • Acknowledged need to stop erosion with increased revenue, reduced expenses, or a combination. Tukwila's 2025-2023 Forecast Expenditures Exceed Revenues — Includes Property Sales eve ue $90 _ — Q e first two years is the c ore D get Forw r - ooIdrg to e`r to Lorg-term sustaii $85 * on status uo© e at©rs $80 $75 $70 $65 2025 Expenses or revenue ci es n L ne w t ore` iou years' acLLaLs and known changes 2026 $6M 2027 e Excess of Revenues $6M 2028 $7M 2029 $7M 2030 Commitments for Future Budgets What we did: 2025-26 Adopted Budget • Reduced Property Tax collections by $6 million • No new rate increases • Met financial and reserve policies • Budget enhancements limited to available resources • No planned debt issuance • Fleet fund management returned to replacement cost model • Deferred GF transfers to capital for 2025/26 • Used one-time funds (land sales) to balance budget Commitments to Review Issues in 2025 • Avoid use of one-time revenues for ongoing expenses • Council Revenue Proviso: bring new/expanded revenue options • Review all city services and programs • Describe trade-offs: service levels and new investment • Financial policy, indirect cost allocation model • Review compensation policy (Res 1951) What's the Budget Sustainability Project? • Develop a budget we can maintain into the future • Develop Mayor's Proposed 2027-28 Budget including a 6-year plan through 2032 so that: • City recurring general fund revenues exceed ongoing spending each year through 2032 • Yearly cost savings or net new revenues is about $6M Budget Sustainability Expenditures AND Revenues Examples of Expenditure Changes • Changes or reductions to programs or services • Cost of Service & Fee studies • Efficiencies • Review of salary and benefit policies • Other ideas: what would control costs, N Examples of Revenue Changes • Revenue Proviso Report (July) • B & O Tax Changes • Sales Tax: Transportation Benefit District • Sales Tax: Criminal Justice (HB 2015) • 12 others Unlikely to Recommend • Property tax changes Revenue Options (Proviso Report) Salary Et Benefit Policies Capital Et Utilities (GF OEtM) • Budget Sustainability Ideas from 5 Topic Areas 1 Operating Expense or Program Changes Out of the Box or Efficiency Improvements Process and Timeline • Two efforts, revenue & expenditure analysis, are meant to complement each other to strengthen the City's financial outlook. • Expenditures/Cost Ideas — Review now through November 2025 • Generated 50+ ideas to consider that could lead to a more sustainable budget • Evaluating the ideas for savings, relevance, feasibility • Recommendations to Mayor by end of 2025 to include in budget development, Spring 2027-28 • Include Council (work sessions), community, and employee input Revenue Proviso — 2025-26 Adopted Budget Council Request • "...The City cannot depend exclusively on cost-cutting measures to address future budget deficits. To ensure long-term financial stability... imperative to identify new revenue sources and strengthen existing revenue streams... • Directed the Finance Department to return mid-2025 to present and discuss potential additional revenue options. • The report is intended as a starting point for policy conversations, not a recommendation. Revenue Report Highlights Proviso Report • 15 revenue options available in current law. (July 21, 2025) • Builds on community Financial Sustainability Committee report (2023). • Options are analyzed using a standard framework to support side -by -side comparison. • Component of the larger city-wide effort aimed at creating a sustainable budget. Revenue Proviso Report (July 21, 2025) • Report is a technical resource designed to support informed policy deliberation. • High -potential options. • Questions for further analysis. • Topics for public engagement. • Council Feedback/Discussion: • We have received about a dozen questions on the options and work on those is underway. • Is there consensus on options the Council would like us to explore further or provide additional information? Next Steps • Council, Community, staff engagement • Expenditures — report on ideas to consider (Work Groups - idea generation) • Mayor will provide the City Council with recommendations for creating a sustainable budget late Fall 2025. • Recommendations, including any modifications made in partnership with the City Council, will be included in the City's budget process and planning for the 2027 - 2028 biennium budget.