One takeaway from the City of Mountlake Terrace six-year financial forecast presentation at the city council’s Feb. 13 work/study session: While there will be future budget challenges, Sound Transit’s Lynnwood Link project — which will bring a light rail station to Mountlake Terrace in 2024 — was a contributor to the city’s coffers in 2019.
City Manager Scott Hugill provided councilmembers with the forecast after Councilmember Bryan Wahl had requested it amid concerns that the city budget would be in the red in coming years.
Hugill said that projections last fall did indicate the city’s general fund would have a shortfall, but that was before the council voted to approve a utility rate increase.
As a result, “revenue is going to come in higher than previously forecasted,” Hugill told the council.
“With the increase in utility rates to sewer and storm water that kick in this year, the utility tax that will come in from that increase is enough to address going into the red in 2024 and 2025,” the city manager said.
In presenting the six-year forecast, Hugill noted that the city has not yet completely closed out its 2019 books because certain revenue sources — including sales tax from the state — have not yet been received. In some cases, the forecast includes projections of that anticipated 2019 revenue, he said.
The projected beginning fund balance for 2020 — at $2,486,519 — is about $100,000 above last year’s adopted budget, Hugill said. Property tax revenue is “down a bit” because the city hasn’t yet received all of the 2019 collections from the county, he noted.
Thanks mostly to light rail construction, sales tax is also projected to be about $300,000 above the adopted budget. “A good portion of that is associated with Sound Transit — the materials they are bringing in, they pay local sales tax on products delivered in Mountlake Terrace,” Hugill said. “So that’s a bump we’ll see for a few years that is built in somewhat to the forecast but we wanted to wait and see how it came in before we put some hard numbers to it.”
Total development service fees — such as building permits, engineering fees and plan check zoning fees — have also come in higher than forecasted, Hugill said, adding however that “a good portion of that” is associated with Sound Transit. “They paid for their permitting, their conditional use permit and other permit revenues. But on the flip side you’ll see that (the revenue is) spent in plan reviews and professional services,” Hugill explained.
The city’s revenues related to fines and forfeitures has been down “because we haven’t had a traffic officer for a few years and we weren’t fully staffed.” Hugill said. Now that the city has returned to full staffing, it’s anticipated that revenue line will increase. However, because the city has to pay court costs and related expenses, “it doesn’t result in a positive,” he said.
A big unknown in the budget is the amount the city will pay the South Snohomish County Fire Authority (formerly Fire District 1). The city’s contract with South County Fire — which provides Mountlake Terrace with fire and emergency medical services — goes to end of 2024-25. In 2014, Mountlake Terrace received a surprise $665,000 billing from the fire district related to retroactive pay raises for its union employees. The payments were for represented employee pay raises accruing from 2013 and 2014.
“So we know to set those dollars aside and consider them paid, even though we haven’t been billed for an amount that incorporates the increased labor costs as they work through their labor negotiations,” Hugill said. “We just don’t want to be caught off guard so we are expensing those costs.”
The city’s adopted budget for 2020 include $3,337,233 for fire services in 2020, and that amount increases steadily each year to $3,812,699 by 2025.
The city budget also incorporates $400,000 annually in project fees from Sound Transit for the next two years. “Those go out to 2022 and that is part of the $2 million that Sound Transit is providing for pedestrian infrastructure improvements,” Hugill said. A portion of those dollars will be spent by city staff who are designing those projects, he noted.
Hugill also explained that the city will see a dip in the city’s property management expenses due to construction of the new city hall, expected to be complete at the end of 2020. The city has been paying rent of $431,000 annually for its interim city hall space in the Redstone Building, and that will go away in 2021
Hugill did point to some areas of concern that the council will have to address in future budget discussions. For starters, the street operating fund will have a negative fund balance starting in 2023, which means that revenues are not covering expenses. “So those dollars need to come from somewhere.”
And then there is the city’s recreation fund, where revenue sources such as field rentals and pool fees don’t completely cover expenses. The recreation program “is able to cover their costs for everything except supervisory oversight,” which Hugill said in his experience “is really good” compared to other municipalities.
“Revenue does not increase greatly over time in the recreation program,” Hugill said. “It’s due to competition (from other cities that offer field rentals), it’s due to changes in the customer base — league sports are not what they once were. The city hopes to take advantage of the new turf field that will replace the current dirt field at Evergreen Playfield 1, he added.
“That should help not only with the rent revenue from that field but also bring more people into Mountlake Terrace to see that complex that’s available for sports and start using it more often,” Hugill said.
The city’s pool “is a revenue generator but it is also one of our greatest costs,” he added.
The topic of the city’s aging pool led to a conversation among Hugill and the councilmembers about the long-term need for a new pool and Recreation Pavilion.
Councilmember Wahl asked about the revenue decreases the city could experience if the current pool is closed while a new one is built. One option would be to build a new Recreation Pavilion next to current pavilion “so that it remains operational so customers would not be lost,” Hugill said. This would prevent what the City of Lynnwood experienced when Lynnwood’s pool was closed during construction of a new facility, and those customers came to Mountlake Terrace instead.
“It’s part of the conversation of a new pavilion — where do you build it so we can keep our current pavilion open and we have to do that relatively quickly because the current pool is approaching 20 years old,” Hugill said. “The liner has been replaced three times…and at some point you’ve got to think it’s time to find a way to get that new pavilion.”
In general, while the city’s revenues are projected to grow a bit over time, they are not going to keep pace with expenses. “That will be a conversation at budget time,” Hugill said.
There is also the impact of Initiative 976 — which is currently being challenged in the courts but would prevent cities from obtaining street revenue through vehicle license fees. “We can adjust somewhat by pushing projects out to later years, which buys us a little time,” Hugill said.
The area’s hot housing market is projected to bring more real estate excise tax (REET) dollars into the city, and that — “at least on a short-term basis” — could help cover street construction costs, Hugill said. “We anticipated that we would begin 2019 with $750,000 in the REET fund; we ended up with $1.6 million because of all the property sales,” Hugill said.
However, the city manager attributed much of that REET increase to the sale of a few large properties in the city, such as the Taluswood Apartments, Roger’s Marketplace and Terrace Station. “We can’t count on those large properties selling every year, so it’s going to return to a more baseline level of REET revenue,” he said.
You can see the complete six-year financial forecast document at this link.
— By Teresa Wippel