City of Blaine prepares for steep drop in tax revenue

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The city of Blaine is preparing for a significant shortfall in revenue following the sharp decline in economic activity and cross-border traffic caused by border restrictions, governor Inslee’s stay-home order and other COVID-19 response measures.

City manager Michael Jones and finance director Jeff Lazenby prepared a memo for governor Jay Inslee and district 42 legislators outlining the city’s anticipated budget impacts, increased expenses and reduced revenues attributable directly or indirectly to COVID-19. The memo said the city anticipates a minimum $700,000 drop in a $7.1 million general fund budget based solely on the immediate impact of border restrictions and the governor’s “Stay Home, Stay Healthy” order.

“We modeled the impacts of what we can be virtually certain of: sales tax, lodging tax, border gas tax and local [business and occupation] tax shortfalls based on the April through June border restrictions, combined with the immediate impacts of sheltering in place,” read a three-page draft of the memo circulated to city councilmembers and dated April 9.

“Further ripple effects from the closures are assured, but the impact is unclear and we have not modeled these longer-term effects,” the memo said. “Our $700,000 shortfall could easily be double or triple if a recession follows the pandemic.”

The memo requests the distribution of federal relief dollars to small cities, and for the state to add flexibility in the use of existing revenue, such as by making Transportation Benefit District (TBD) funds available for general street maintenance and by making real estate excise tax (REET) funds available for maintenance of capital facilities in the 2020 calendar year.

In addition to the governor and state legislators, city leaders have also been communicating with U.S. congresswoman Suzan DelBene’s office. “We asked for some specific attention to the very impacted border communities but also very specific attention to very small communities,” Jones said.

The city is now taking steps to address what will likely be at least a 10 percent impact to its general fund. “I had staff meet, and the department heads have put together a preliminary budget amendment and budget cuts,” Jones told councilmembers at their April 13 meeting. “I asked people to dig deep and see what they can do to their budgets and potentially reduce. We did this a couple of times during the budget’s development, so there wasn’t a lot of fluff by any means in the budget.”

Jones said that his team has identified about $250,000 so far in potential budget cuts that don’t affect level of service or staffing directly. “Given the potential $700,000 shortfall, we still need to do more in that area,” he said, adding that he was considering introducing the concept of a one-week furlough for all employees except some police personnel and wastewater treatment plant operators. “Time off in those areas would result in a lot of overtime so it wouldn’t really be beneficial for the budget’s bottom line,” he said. “But we will begin a conversation with the union about the possibility of a one-week furlough for the rest of us,” he said, noting that this could save the city about $70,000.

Jones said that additional cuts may be necessary. He also said the city currently has sufficient finances to operate. “Provided things don’t get substantially worse, we do have the balance to ride this to the end of the year and then make our decisions in a much more thoughtful and planned way going into 2021,” he said.

According to Lazenby, the city’s $700,000 deficit forecast is preliminary and was modeled on two past events: the Great Recession and the temporary closure of the Semiahmoo Resort in 2012. Both of those economic shocks resulted in 10 to 12 percent reductions in the city’s general fund over the course of a year. Lazenby said that there is a two-month lag between when tax revenue gets reported and when the city receives it. “We won’t know the true, full impact until I would say June,” he said.

Lazenby said sales, lodging and gas tax receipts are declining precipitously. “We are projecting at least a 50 percent decrease in the penny-per-gallon gas tax which is going to have a major impact on streets and maintenance,” he said. “It’s going to be very big. The lodging tax – we know that people are not staying at the resort, so that’s going to take a big hit. The main driver behind these revenue decreases is really the closure of the border, so once the border opens back up, that will be a positive sign.”

City manager takes additional emergency actions

At council’s April 13 meeting, councilmembers ratified two additional emergency actions taken by city manager Michael Jones since the last council meeting. Councilmembers voted 7-0 to pass Resolution 1809-20 confirming Emergency Order EO20-02 and Emergency Order EO20-03.

Emergency Order EO20-02 relates to late fees for monthly penny-per-gallon tax payments by local gas stations. “The first order stems from calls that we received right when the governor’s order came out that implemented changes that were going to potentially make it difficult for some of our gas stations to get checks cut from their corporate offices or from their accounting firms they work with,” Jones explained to councilmembers. “We received a couple of calls and they were concerned that they might be subject to a late payment fee because of not being able to get checks cut in a timely manner.”

To alleviate those concerns, Jones authorized waiving the late payment fees for these tax payments. However, none of the businesses needed to take advantage of this relief. “All of the fees were submitted in a timely manner,” Jones said. “We would anticipate, now that the emergency situation and the governor’s order has become kind of commonplace, if you will, they will probably be prepared to make their payments on time at the end of April as well.”

Emergency Order EO20-3, meanwhile, changes sick leave policies for city employees in two ways. First, it allows people to use sick leave for instances where they believe they may have been exposed to COVID-19 or have been ordered to quarantine. “Our sick leave policies and our contracts for collective bargaining require that people use sick leave for either their own illness or an illness for someone who they care for, a spouse or child or other dependent,” Jones explained. “This allows them to quarantine themselves if they feel it’s necessary or to follow quarantine orders from someone else.”

The second change to sick leave policies created a COVID-19 sick leave pool, consisting of sick leave and vacation time donated by city employees. “An employee impacted by COVID either through a quarantine or an actual illness of themselves or others could draw on that pool if they run out of sick leave,” Jones said. “That would only apply to a few of our employees for a protracted illness because most folks do have a fair amount of sick leave built up, but there are some new employees or folks who have been through other illnesses who have depleted or small sick leave balances.”

Telephonic meeting goes relatively smoothly

The April 13 council meeting was conducted telephonically pursuant to governor Inslee’s current prohibition on in-person city council meetings throughout the state. The meeting utilized the audio conferencing software OpenVoice. To listen in, members of the public could call a toll-free number and input an access number. The voices of those listening in were muted for the entirety of the meeting. This format is expected to continue into May and possibly beyond, mayor Bonnie Onyon said at the outset of the meeting.

Onyon asked councilmembers to first state their names before speaking up on any matter, so that their voices could be easily identified. She asked them to speak slowly and not interject too quickly due to a slight time lag on some councilmembers’ phone lines. Most, but not all, of the speakers could be heard clearly. Prior to voting on each agenda item, Onyon asked each councilmember individually if they had any comments or questions. Each vote was held as a roll-call vote.

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