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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

‘We’re in a big hole’: Spokane leaders point fingers as budget deficit looms


In mid-July, Spokane’s Chief Financial Officer Tonya Wallace released an early projection of the city’s 2024 budget – earlier than normal, she emphasized, and missing a number of important estimates.

Still, the projection was an alarming one, showing that without significant changes, the city was headed to a multimillion-dollar deficit in its general fund. Much of the city’s $1.2 billion budget includes funds to pay for dedicated expenses such as infrastructure. But the general fund is where the most flexible dollars available to the city reside, and pays for police, fire and other essential services.

City staff estimated that revenues deposited into the general fund would increase to nearly $237 million in 2024, but expenses would increase more quickly to roughly $249 million, making for a $12 million gap.

Wallace’s early projections considered dipping into savings to make up the difference. The city’s unappropriated reserves, its most flexible savings account, would be $7.5 million heading into 2024, Wallace estimated.

If every cent of those savings was spent to bridge the gap between forecasted revenue and expenses, the city would still spend $4 million more than it brought in next year, according to the administration’s projections.That estimate didn’t include the nearly $6 million in additional spending already requested by department heads for next year, nor several other significant, unquantified expenses, such as the cost of overtime for firefighters or whether the city would again defer spending on new police and fire vehicles.

The mid-July projection included an estimate for police overtime in 2024, a cost that has grown in recent years at a pace that has surprised City Council members and regularly outstripped budget estimates.

More recent estimates are even more stark.

By the end of July, after fully factoring in the increased compensation packages in the newly approved contract with the police union, and combined with new estimates for firefighter overtime, the administration estimated there would be as much as a $20 million hole in the general fund going into next year.

The City Council’s budget director, Matt Boston, estimates the looming deficit is worse than the administration is projecting: as much as $24 million. That’s around 10% of the entire general fund, which was $230 million in 2023.

Spokane is legally required to pass a balanced budget, meaning local lawmakers have just a couple of months to fill a large hole. Spokane council members who ultimately must adopt a spending plan are awaiting proposals from the administration to balance the budget.

“I think the administration is trying to piecemeal things, but I don’t think it fundamentally addresses the problems the city has with our budget,” said Councilman Zack Zappone, who has a seat at the table in meetings where the administration is proposing fixes.

“Maybe we can piecemeal it together,” he added. “But that would only get us through one year, and we’ll have the same structural problem going forward.”

Blame game

Lisa Brown, the former director of the state Department of Commerce and Mayor Nadine Woodward’s challenger during this year’s election, has been quick to lay the blame for the city’s budget woes at the mayor’s feet, as have Brown’s allies on the City Council.

Woodward isn’t having it. In early August, Woodward argued on social media with Brown.

“You give me too much credit,” Woodward said.

Woodward blamed the pandemic, skyrocketing costs driven by inflation and a tight labor market, forces outside of her control that she argues she responded to as best as could be expected. She defended her unwillingness to discuss spending cuts with the City Council earlier in her term and criticized the growing costs of the council’s office, which she referred to as a “shadow government,” and what she saw as the council’s frivolous spending on “rainbow crosswalks,” such as the Pride flag intersection recently painted near Riverfront Park.

The City Council’s office budget is $2.4 million, an 85% increase over the past 10 years.

Last October, the council approved spending as much as $300,000 for six artwork crosswalks, at least some of which are rainbows to represent LGBTQ+ pride, though Zappone has said the projects have come well under budget at approximately $8,000 to $15,000 each.

Funds for those crosswalks also came from a dedicated traffic calming fund that cannot typically be used to backfill the general fund, though Woodward has recently proposed doing so to pay for police personnel.

Woodward clarified her comments about the rainbow crosswalks shortly after she made the statement.

“The comment I made on Twitter about the crosswalks was really more about, what are our priorities?” she said in an August interview. “We can’t afford to continue to do extra stuff.”

Brown, a former economics professor, has made the city’s budget woes one of the main lines of attack in her race to replace Woodward. In a July news conference, she stood outside City Hall with a graph showing the unallocated reserves – the city’s most flexible savings account – taking a nosedive since Woodward took office.

“For three years, Mayor Woodward has overspent the budgets she proposed and filled the gap with one-time funds,” Brown said during the news conference . “The mayor has failed to notify the public of the impending budget crisis and has failed to provide solutions that would create a balanced budget.”

Brown took aim at Woodward’s use of the city’s “unallocated reserves,” separate from the more restricted contingency and revenue stabilization reserve accounts. Brown stood next to a graph that showed those reserves dropping from nearly $30 million in 2020 when Woodward took office to $9 million in the red by 2023, a nearly $40 million decline in four years.

Those numbers could be misleading, because they include unrealized gains and losses on the city’s investments, which the Woodward administration can’t control. As an institution, the city is heavily restricted in what kinds of investments it can make and almost always carries those investments to term, according to city finance officials.

“It’s nothing to be extremely alarmed about, unless you’re looking at your checkbook balance,” Boston told city council members at a May 18 meeting. “If you’re looking at your balance with your unrealized losses, that’s what you have to spend in an absolute emergency.”

It is true that unallocated reserves have fluctuated significantly since Woodward took office, though not always negatively. The city had $19.6 million in unallocated reserves at the end of fiscal year 2019, when Woodward succeeded Mayor David Condon, according to the city’s annual financial statements.

Unallocated reserves increased to nearly $21 million at the beginning of 2022 but plummeted to $7.4 million by the end of the year, as the city drew down its savings primarily to pay for police vehicles and retroactive payments to city employees after many union contracts were finalized.

Boston and the City Council had been requesting that the city administration consider spending cuts and to put away more significant savings in 2021 in preparation for those budget negotiations, but argue their pleas went unheard.

The issue wasn’t just retroactive payments, but also increased costs going forward. The city during the Condon administration maneuvered to cap annual salary increases to around 3%, roughly how much city revenues increase each year. Recent contracts with the police guild, fire union and other city unions negotiated by the Woodward administration included annual salary increases closer to 5%, creating a gap between expected growth in revenue and expenditures.

Woodward has pointed to a tight labor market and a need to hire and retain city employees to justify the wage increases. Even council members who often criticize the mayor for the budget crisis tend to be sympathetic to this argument.

“Honestly, they deserve the raise,” Council President Lori Kinnear said in August. “But we’re faced now with, how do we pay for it?”

Shortly after the attacks from Brown began, the Woodward administration argued that its use of the city’s savings was appropriate.

“It’s akin to, in a consumer household, you’re setting aside money for a new car or a home repair,” said city spokesperson Brian Coddington, who also functionally serves as Woodward’s chief of staff. “In this case, a large chunk of those dollars were set aside for the guild contract that was four years out of date.

“To just make the blank statement and say the reserves are being depleted and they’re about out is grossly oversimplifying the budgeting process.”

While the Woodward administration negotiated the contracts, the City Council has to approve them. The same is true for the costly Trent Avenue homeless shelter, or for spending COVID-19 relief funds to backfill overtime or to buoy the city’s shelter system. While Woodward has been the recipient of much of the blame for these expenses, the City Council has had to approve them, she noted.

Zappone disagreed, arguing that the council had repeatedly been put between a rock and a hard place by the administration without a clear look at the bigger picture.

“It’s hard when you’re getting things piecemeal,” he said. “When you separate things like this, it backs the council into a corner where you’re anti-police or anti-fire or anti-city workers if you push back on the costs.”

The City Council is limited in its ability to analyze the financial impacts of recommendations by the administration, Zappone continued, and the mayor has a full finance department to write a budget, while the council has just one staff member, Boston, to provide feedback before it’s approved. Zappone noted that Boston and other council staffers like him are part of what Woodward has criticized as a “shadow government.”

“We can’t do what the admin can do,” he said.

Councilman Michael Cathcart, one of Woodward’s few frequent allies on the City Council, agrees that cost cutting should have happened during the pandemic and more money saved ahead of recent budget negotiations, but believes both sides of City Hall share some of the blame.

“I put some of this on myself,” said Cathcart, who is often on the losing side of 5-2 votes against the council supermajority. “If I could go back in time and change a few spending votes, knowing where we are now, I probably would have been more strict on these decisions.”

Cathcart voted against the 2022 budget, in part, because it didn’t set aside more funds ahead of contract renewals, he said.

“As we entered the pandemic, I don’t think we took the steps we should have to reduce spending,” Cathcart said. “We’re in a big hole.”

Filling the hole

Throughout her tenure, but especially as inflation has become a driving force in the economy, Woodward has fought against tax and fee increases for residents. If there is a need for additional services, such as for a new jail, Woodward has argued that choice should made by voters, not unilaterally by the council.

She vetoed a property tax increase approved by the City Council last year and held a news conference earlier this year to rail against the City Council’s approved sharp increases in General Facilities Charges fees on new development.

“As our citizens tighten their budget, now is not the time to ask more of them,” she wrote in her veto of the property tax increase, which was overridden by the council and raised nearly $650,000 for the 2023 budget.

But now, facing an approximately $20 million hole in the 2024 budget, Woodward is looking toward increased fees to help right the city’s balance sheet, such as reinstating a waived permit fee for installing solar panels, and looking forward to some increases in development fees.

“We’re looking at the (General Facilities Charges) for development and housing, some areas that we have not updated, permits or fee schedules, parking – those are all things on the table right now that we’re looking at,” she said in August.

The mayor has also proposed pulling from the city’s traffic calming funds to help fund the police department next year, and Woodward has not taken a position on whether to ask for a property tax increase in 2024.

During a closed-door meeting in early August, the administration discussed possible steps to cut costs for the rest of this year to put the city in the best possible position going into 2024.

These included a freeze on hiring for vacant positions in all city departments with some exceptions, including if a position was expected to increase revenue. The administration also called for an end to all nonessential spending, travel and conferences, and stated that all contracts of over $100,000 would need to be approved by the mayor’s office.

The administration has said the departments are each evaluating ways to increase internal “efficiencies,” though no concrete proposals for further spending cuts have been publicly revealed. Some on the City Council believe they are being intentionally kept in the dark about possible painful cuts that will need to be made in the year ahead.

“The only thing that makes sense is that there’s an election right around the corner and they’re trying to make it unclear and muddy going into the election and not disclosing the budget deficit and the solutions to it,” Zappone said.

Coddington dismissed this claim, noting that both the mayor’s preliminary and final proposed budgets are legally required to be released before the election.

A preliminary budget proposal from the mayor is due Oct. 2. Two public meetings to discuss that proposal are scheduled for Oct. 6 and Oct. 13.