October 30, 2006

Council President Joe Shogan
& Members of the City Council
City of Spokane
808 W. Spokane Falls Blvd.
Spokane, WA 99201

Re: Mayor's 2007 Budget Message

Dear Council President Shogan and Members of the Council:

It is my privilege to present you with the 2007 proposed City of Spokane Budget.

The framework for this budget is my top three priorities:

• To grow Spokane’s economy and create jobs.
• To keep our community healthy and safe.
• To provide outstanding, affordable service to our citizens and secure the City’s financial stability.

This is a Strategic Budget. It is designed to anticipate and prepare us for the future. It is not just the x's and o's of the income and expense of the year 2007. This budget enhances our financial health by avoiding new embedded costs and includes substantial savings for challenges anticipated in 2008. At the same time, we are proposing a handful of key investments designed to help our economy continue to grow and prosper, which will build on the strong revenue growth we are experiencing this year. You will also see the same emphasis on the quality services our citizens deserve and expect from their city government.

To achieve our goals, we worked hard:

• To preserve revenues earned this year.
• To limit expenditures to 2006 levels plus increases agreed to by contract or over which we have limited control, including costs of fuel, asphalt, utility payments, etc.
• To create a budget that helps us in 2008 and beyond.

In addition, we have reserved decisions on a number of requests for additional employee positions and programs until we are able to review and consider the recommendations that will come from the Matrix Efficiency and Effectiveness Study that you approved earlier this year. I appreciate your ongoing support for this effort, and I look forward to working with you on implementing the recommendations of the study's findings.

Overview
We are proposing a $530.1 million budget for 2007 that includes the following:

• A General Fund with revenues of $137.7 million and expenditures of $134.2 million. Please note that revenues collected in 2007 are projected to surpass budgeted expenditures by $3.5 million. This is the third year in a row that revenues are expected to exceed expenditures, something that had not occurred in the previous 30 years or more. We have absorbed double-digit increases in medical insurance, higher wage and benefit costs, and increased costs for fuel, electricity, and natural gas.
  
  This portion of the budget supports general municipal services, including police, fire, criminal justice, streets, parks, libraries, planning, community and economic development, and a host of smaller specialized services aimed at neighborhoods, youth, the arts, historic preservation, and human services, among others. The majority of this fund is supported by general tax dollars, including sales, property, and utility taxes.
• A $225.7 million Enterprise Funds Budget, up from $212.6 million in 2006. The year-to-year amount varies widely depending on the cost of capital projects that are planned. These funds are supported by fees charged for services and include water, water reclamation, stormwater collection, garbage pick-up and disposal, building services and code enforcement, and golf operations.
  
  This amount includes a 3% increase in the solid waste utility and a 3.5% increase in the wastewater utility. The water utility will see an overall 3% increase, but increases are limited to high-volume users to promote water conservation. We are also proposing a $3 per month increase in the water reclamation rate stabilization charge—to help pay for significant capital projects to meet environmental requirements at the water reclamation facility and to reduce overflows from combined sewers. This will bring that charge to $13, which is sufficient to meet our capital needs for planned projects for the foreseeable future.
• The balance of the overall budget—or $170.2 million—is used primarily for Capital Projects, Debt Service, and other Special Dedicated Fund expenditures. These non-operating funds are reserved for capital projects such as major arterial street projects and public works upgrades, debt service on general government bonds, and special dedicated revenue and other funds, which include local law enforcement block grants and special quality of life projects. Capital projects alone will total $51.1 million in 2007 compared with $64.2 million for 2006.
• The City also has "internal services" funds. These internal programs, including fleet services, management information services, and risk management, charge fees to other City departments to cover the cost of their services.

Let me also point out some important information regarding the income side of our General Fund budget:

• Projected sales tax growth of 2.5 percent over 2006 actuals. (2006 sales tax receipts are up 11 percent over 2005 actuals.)
• Increase in property tax equal to CPI as approved by voters last November as part of the levy lid lift.
• Projected property tax growth resulting from new construction of approximately $900,000 for the General Fund.
• Projected growth in revenues from external utilities of about 4 percent, or $1 million.
• Projected drop in gambling tax revenues of $600,000 because of the reduction in the tax rate approved by Council last year.

Key investments & Strategies
In 2006, we are experiencing higher property and sales tax receipts as a result of our markedly improving economy. We remain on pace for another record-setting year for building permits and our sales tax receipts are up 11 percent to date over last year.

To keep up with this rate of growth and development and to facilitate continued strong economic growth, we must make some key investments:

• Continue to fund the nine new Building Services positions approved by the Council a few months ago.
• Complete the installation and on-line application of the new permit system.
• Add a deputy fire marshal to complete fire inspections, two inspectors and an associate traffic engineer in Engineering Services, and a planner in the Planning Services Department—all to respond to and facilitate growth now and in the future.
• Provide funding to implement the University District Master Plan.
• Partner and contract with The Institute for Systems Medicine and the Fox Theater.
• Establish a centralized City information desk to improve customer service.
• Move forward on the development at the former Playfair site.

In addition, this budget also provides for three key investments to help improve the health and safety of our citizens. We propose to:

• Add to the Police Department's patrol strength by eliminating the weekend traffic unit and to deploy those resources in a way which results in greater safety for our citizens.
• Provide an additional $500,000 to pay for police cars and communications equipment. Our officers must have resources which maximize their safety and enable them to do their jobs well.
• Make a $75,000 direct allocation to Project Access, a program that pays for medical care and prescription drugs for our citizens who need it most.
• Remarket and brand our Crime Reporting Center to restore confidence in the public that their non-emergency concerns have a voice.

This budget is a manifestation of our plan to secure the financial stability of our City. It also includes resources to enable us to continue to provide outstanding, affordable service.

Housed within this budget is a strategy predicated on a conservative spending platform which anticipates future needs and assumes modest revenue receipts. It moderates our appetite for additional personnel, programs, and capital projects. Our goal is to minimize the inclusion of items which imbed themselves in our budget structure or culture until such time as our future financial strength becomes substantially more predictable than it is today.

We are engaged in an efficiency and effectiveness study—the scope and depth of which this institution has likely never seen. It comes with a commitment from this administration to use all diligence, within the bounds of acceptability and legal application, to evaluate its conclusions and to implement its recommendations. In preparation of this budget, we solicited and received many requests for additional positions, programs, and capital needs. As outlined above, we said yes to only a modest number and deferred most until they could be evaluated through the filter of the Efficiency & Effectiveness Study. Although the timing of the study could have been more optimum, it was important to launch it as soon as possible. The resources necessary to implement the study are being preserved.

New Initiatives
Our 2007 Budget will also support a number of new initiatives that we are developing. To recap:

• We are continuing to evaluate new ways to ensure the City remains a leader in economic growth and job creation. We are working on plans to:
  • Address concurrency and impact fees.
  • Increase capital investments in strategic infrastructure.
  • Enhance Spokane as an urban place.
• We're also examining how we can leverage our assets—and in particular, our real estate--to create revenue opportunities to fund critical City functions and programs. We are seeking ways to diversify our income resources that don't require our citizens to contribute more.
• We are closely examining what it means to be a responsive, customer-service driven organization.
• We are working on plans to make government more transparent and addressing issues related to potential conflicts of interest, and setting standards for responding to customers.
• We'll also continue our work to enhance our quality of life. People live here because they choose to. They want this urban center within a stone's throw of an abundance of nature's wonders, and we as a City must protect and enhance this unique quality. So, we're pursuing ways to further preserve and enhance our quality of life by using smart growth concepts to promote:
  • Environmental stewardship.
  • Responsible use of energy.
  • Multiple transportation options.
  • Healthy lifestyles.

Preparing for the Future
For the first time in a number of years, we are not struggling with dramatic cuts to balance this budget. Our revenues are better than we have had for some time.

With change, with modest success, comes temptation. We are tempted to restore funding for programs we previously reduced or eliminated. We are tempted to add new programs or personnel that will enhance services to the public. We are tempted to pursue capital projects long overdue.

Our budget structure is strategic and conservative. Our budget message is to encourage caution and to ask you to resist the temptation to spend. Commitments in this budget mean obligations in years of uncertain finances. The Efficiency and Effectiveness Study will be completed shortly, and this will be the platform for the next conversation about how these recommendations will be implemented.

For more than the last year, we have known that our larger budget challenges will arrive in 2008, when the levy lid lift passed in 2005 will expire. Our budget estimates for 2008 have projected a shortfall as high as $10 million to $12 million. While stronger revenues in 2006 are narrowing that gap, it is clear that considerable financial restraint this year is required to avoid the painful cuts we have experienced in the past.

We must heed the process we have put in place to determine how to best spend the money we have. The results of the Efficiency and Effectiveness Study must be considered when evaluating many of the requests for personnel, programs, and capital needs.

As of this day, the 2007 Budget becomes yours. I ask you to join me in this strategy of long-term financial health and stability. Be strategic. Be conservative. And be mindful of the results of the study. Together, we can lay the foundation for a bright future for Spokane.

Sincerely,
Dennis P. Hession
Mayor