Mercer Island Could Be Broke By 2022, Budget Forecast Predicts

MERCER ISLAND, WA — A long-anticipated forecast of Mercer Island's budget future was delivered to city officials Tuesday, and the results are grim. The forecast proposes tough solutions — shutting down fire stations, asking voters for a property tax increase — to prevent impending deficits.

The forecast predicts that, without action, Mercer Island's general fund will be "almost depleted" as soon as 2022. A structural budget deficit will begin in 2021 with the city $1.7 million underwater. That deficit will balloon to $4.8 million by 2024, the forecast says.

The forecast, created by the firm Management Partners, follows recent budget cuts in response to the failure of the Proposition 1 levy lid lift in November. On April 2, the City Council approved $1.34 million in budget cuts, including cutting various festivals, and eliminating staff positions.

City officials have been predicting budget deficits since 2014 due to property tax caps under state law, but the pressure has increased recently due to falling construction sales tax revenues.

To prevent the structural deficit from taking hold, Management Partners has given the city options for reducing expenditures and raising new revenue.

The easiest ones to achieve, according to the forecast, include further service reductions, increasing the business and operating tax, and renewing the parks levy. Other moderately easy solutions include increasing utility tax rates, increasing city fees, and going back to voters to try for a property tax linked to a special purpose.

After those items, the city would face a series of increasingly difficult decisions, the forecast suggests.

Those include contracting with King County for police services; replacing a fire engine with an EMS unit staffed with non-department employees; creating a fire protection district to pay for fire services; getting rid of or reducing marine patrol; and shutting down a fire station, most likely the new Station 92.

And, going back to voters to ask for a general property tax increase.

In the most aggressive scenario suggested by Management Partners, Mercer Island could eliminate the structural deficit and maintain reserves of 12.5 percent of operating expenditures (considered a minimum threshold for cities) in 2022 by:

• Getting a property tax lid lift approved in 2021, increasing taxes 7.5 percent in 2021, and 5 percent each subsequent year
• Increasing the utility users tax from 5.3 to 8 percent beginning in 2022
• Increasing the business and occupation tax from 0.10 to 0.15 percent starting in 2023
• Pushing up building and planning fees in 2023
• Renewing the parks maintenance and operations levy before it expires at the end of 2023

On top of revenue generated by those measures, the city would still have to cut spending by $400,000 annually by 2024, or increase revenue by that much.

The delivery of the Management Partners forecast kicks off budget deliberations that will last through 2020. The City Council will review the forecast on April 16, and Management Partners representatives will return in June for a followup Q&A. Over the summer, city officials hope to launch an online engagement campaign, with followup live town hall meetings beginning in September.

You can read the full Management Partners budget forecast here.