Shortfall forces Langley to tap its nest egg

Declining revenues and mounting red ink forced the city of Langley to dip into its savings this week, amid predictions that the city’s economic outlook for the next two years is far from bright.

“This is so different from anything we’ve been through,” Finance Director Debbie Mahler said this past week about the city’s fiscal situation.

“We’ve had low revenues before, and we’ve had dips in sales taxes and other revenues,” she said. “But not everything all at the same time. And it’s never taken so long to come back.”

The city council on Monday adopted a resolution authorizing Mahler to transfer as much as $150,000 from city reserves to bolster the general fund, the pot of money that pays for most city services.

“It’s like a line of credit,” Mahler told the council. “I don’t think we’ll need that much.” She said figures indicated $85,000 would probably see the city through the rough patches this year.

“We’re not that far off on the budget, but we’ve had a lot of cash-flow problems,” Mahler said.

The loan will come from the city’s capital reserve fund, a kind of accumulating savings account funded by predetermined amounts taken from various revenue streams, Mahler said.

The reserve fund’s current balance is about $575,000, she said.

The city is required to repay the loan in three years, at 1-percent interest.

This year’s general fund budget, primarily funded by sales tax revenue, is $1,357,057, down from last year’s $1,438,114. The budget reflects reductions in employee hours adopted at the end of last year, Mahler said.

Several revenue streams that feed the general fund are well below the level forecast by the city when the 2010 budget was prepared.

Sales tax revenues, solid-waste utility taxes and real estate excise taxes are all down significantly.

The amount of sales taxes received by the city through the first six months of the year is less than anticipated; Langley expected to bring in $303,725, but only 44 percent of the budgeted amount has been received.

“The sales tax is scary,” Mahler said Wednesday. “It’s not coming in that good, and we budgeted low.”

The drop is the worst in five years.

“Last year at this time we were at 51 percent [of the budgeted amount],” Mahler said.

That bump-up in revenues was short-lived, however.

“Last year we got record sales tax in the first six months of the year, but then for the rest of the year it just tanked,” Mahler said.

Typically, sales tax receipts are higher in the second half of the year. With last year as a lesson, the sales tax revenue stream for 2010 has city officials worried.

Early shopping in town typically provides a boost to tax receipts in the first half, with increased tourism, and revenues from festivals and the Island County Fair providing a big boost in the second half.

“But tourism is way down,” Mahler told council members Monday.

Councilwoman Rene Neff, the owner of a Langley gallery, has said merchants in town have been talking about a dismal June, and a July that doesn’t look much better.

“The sales tax figures just make me really nervous, because I don’t know if it is going to improve in the second half of the year,” Mahler said later in the week.

Hotel-motel taxes are also down.

The city saw its first decline in recent memory in that revenue stream in 2009, and this year looks terrible, too.

“It has increased every year in my history here, and I’ve been here 18 years,” Mahler said. “Last year it went down, and this year it’s even worse.”

Real estate excise taxes have also fallen, but that’s no surprise given the state of the housing market.

“Nothing much is selling,” Mahler noted.

Passport revenues have fallen, planning and development fees have dropped, and interest revenue — once a major revenue source — has fallen from the previous level of approximately of $30,000.

“Now we’re lucky if we get $5,000. Interest rates are just nothing,” Mahler said.

It took longer for the recession to hit Langley than other cities across the country, Mahler said. “The recovery is going to take us longer, too.”

City officials have said more cuts will be necessary if the downward trend continues. That likely means staff reductions, given the spending cuts that have already been made.

“We’re real good at having bare-bones budgets around here, but we’ve never had to cut to the extent that we’re cutting now,” Mahler said.

Mahler told the council on Monday that this year’s general fund started out with a built-in disadvantage: a zero balance. Previous years have seen an average of $20,000 carried over, she said.

Mahler blamed the zero balance on a severe downturn in revenues in the last half of 2009. She said the general fund budget has been in and out of the red ever since.

Mahler said that unexpected legal fees and a rise in insurance rates have contributed to the general-fund deficit this year. She said the general fund also owes the street fund about $20,000.

Councilman Bob Waterman reminded his colleagues at Monday’s council meeting that state law requires that city budgets be in balance at the end of each year. That’s the reason the city’s Finance Committee recommended that the capital reserve fund be tapped, he said.

“We’ve been out of compliance,” Waterman said.

Neff said the council needs to know by September if general-fund deficits will continue through the rest of the year, requiring more cuts.

“If things continue like they are, revenues are still going to be way down,” Neff said.

“It’s a wake-up call,” Councilman Robert Gilman said. “I want to see a plan about how to make this up.”

As for any chance or an improvement in revenue, Gilman added: “I wouldn’t hold my breath.”

He said all indications are that revenues will continue to lag in the next two years.

“We need to budget carefully,” he said.

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