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Fire Station/Truck Levy: A Q&A with City Finance Director Chip Corder

Patch asks City Finance Director Chip Corder to answer nine questions concerning Prop. 1, a tax-levy increase for tearing down and rebuilding a larger, modernized Station 92 and a new fire rescue truck.

Mercer Island voters will be asked this November to consider approving a property tax levy to help pay for tearing down and rebuilding "a safe, up to date" Fire Station 92 that will "serve the operational needs of the Fire Department now and for years to come" and a new "rescue truck which carries specialized equipment that is not carried on fire engines or aid cars", according to City Hall.

In recent weeks, Mercer Island Patch received two letters from Councilmember Mike Cero and Deputy Mayor Dan Grausz making competing claims about the proposed levy-lid lift.

We've asked Mercer Island City Finance Director Chip Corder to respond to nine questions that relate to issues raised in the letters, via a "question-and-answer" format, in the hope that his answers might provide voters with more information to make an educated decision in the coming election.

Question: What is the Fire Apparatus Sinking Fund, and how is it funded?

Answer: The fire apparatus sinking fund was established in 2007 with the approval of the Council.  Its purpose was to accumulate resources to fund the replacement of the City's fire trucks (i.e. 4 maxi pumpers, 2 midi pumpers, and 1 ladder truck), which had been acquired back in 1984 via the passage of a 1983 voted bond issue.  So, these fire trucks were 23 years old in 2007, when the sinking fund was established.  This situation was a major problem for two reasons.  One, the typical useful life of a fire truck is 20 years, and we were having significant repair issues with these fire trucks.  Two, because all of our fire trucks were the same age, the risk of a mechanical failure or breakdown was very high.  As a result, City staff recommended setting up a sinking fund instead of going to the voters again with a voted bond request.  Why?  Because, we wanted to institute a staggered replacement cycle for the City's fire trucks (so that they wouldn't all be the same age).  Initial one-time funding for the sinking fund came from the General Fund ($277K) and the Equipment Rental Fund ($179K).  The ongoing funding sources approved by Council, which took effect in 2008, consisted of:  1) 1.65% of the property tax levy (which amounted to $147K in 2008), and 2) surplus investment interest.  The annual funding need approved by Council was $185K in 2008 plus 4% annual growth thereafter.  So, $38K in investment interest was needed to make up the difference in 2008 (i.e. $185K annual funding need - $147K property tax levy).

Question: Why wasn't a new funding source found for the fire apparatus fund found after it became evident that the current revenue streams were inadequate?

Answer: Due to the recession, the returns on the City's invested cash have been abysmal.  As a result, I haven't been able to allocate any investment interest to the fire apparatus sinking fund for 4 years (2009-2012).  I alerted the Council to this funding issue beginning in 2009 and every year thereafter, but there wasn't majority support to use "banked" property tax capacity to address the funding deficit.  Why?  Because the City's budget was extremely tight due to the recession, and the sinking fund wasn't projected to go negative until 2015.  In other words, the Council didn't need to address the issue immediately.  FYI, if the Nov 2012 levy lid lift is approved, the sinking fund will go negative beginning in 2016.  This issue will be "teed up" again for Council direction on Nov 19th as part of the budget process.

Question: The city has a "Revenue Stabilization Fund" beyond the city's traditional reserve. What is the purpose of this fund?

Answer: The revenue stabilization reserve is an extension of the City's "Rainy Day" Fund (which is called the Contingency Fund), representing a "first line of defense" against a significant revenue shortfall.  It's $300K, and it resides in the General Fund.  All of the $300K was used in 2009-2010 to help bridge the General Fund deficit.  In addition, I needed to tap the Contingency Fund for $220K in 2011 to help bridge the General Fund deficit.  Both the revenue stabilization reserve and the Contingency Fund were subsequently replenished in Oct 2011 when the Council finalized its decisions on the disposition of the $2.0M in Sewer Lake Line project savings.

Question: Why can't the city council use the 1% for the Arts Fund to help pay for the fire station? How about the "Beautification Fund"?

Answer: The 1% for the Arts Fund can only be used to purchase, install, and maintain art in public places.  It has legal strings attached to it.  It can't be used to help pay for a new fire station.  BTW, there's only $330K in the 1% for the Arts Fund currently.  As for the Beautification Fund, expenditures are restricted by Council ordinance for a variety of purposes including beautification of the Town Center, acquisition of open space, promoting the Town Center, and adding parking spaces.  A full listing of the purposes can be found in the 2013-2014 budget document (see page C-3 to C-4 in the Budget Policies section).  FYI, the primary funding source in the Beautification Fund is B&O tax, which is paid by businesses (1/10 of 1% of gross receipts with the first $150,000 in gross receipts exempt from the tax).  Because the Beautification Fund was created by the Council, it could, if a majority of the Council was so inclined, amend the ordinance to add a fire station to the current list of purposes.  Doing so would allow the Council to use up to $313K in available fund balance.  However, it should be noted that there are other funding needs over the coming six-year CIP planning period (i.e. 2013-2018) that are vying for this $313K.  The rest of the fund balance in the Beautification Fund is either reserved for specific purposes or proposed as a funding source for parks capital projects in 2013-2014.

Question: How many times has the city gone to the voters to ask for a tax increase over the past 15 years?

Answer: I believe that the City has gone to the voters 3 times since 1998:  1) Nov 1998 Community Center construction bonds, which failed;  2) Nov 2003 Luther Burbank Park levy lid lift (6 year levy), which was approved; and 3) Nov 2008 Parks M&O levy lid lift (15 year levy), which was approved, and Nov 2008 Parks bond measure (20 year levy), which failed.  The Nov 2012 fire station & apparatus levy lid lift (9 year levy) would be the fourth time in 15 years, if I'm not mistaken. (Ed. Note: An earlier version of this answer stated that the city placed an Ivy measure on the ballot, but that was actually a citizen driven initiative — i.e. the City didn't put it on the ballot. Corder later corrected this in a subsequent email to Patch on Oct. 11)

Question: How many "new taxes" did the city create in November, 2011?

Answer: In November 2011, the Council increased the 2012 property tax levy by 1.5% (equals $158K in new revenue), which consisted of a 1.0% optional increase plus 0.5% banked property tax capacity.  The annual impact on a $700K MI home was $13.07.  That's it for new taxes.  It's probably worth noting that the Council set the 2012 water, sewer, storm water, and EMS utility rates in November 2011 as well, but those are charges for services, not taxes.  In other words, the revenues generated by those utility rates can only be spent on the operating, maintenance, and capital replacement costs associated with each utility.  They can't be used to fund police and fire services, for example, which are funded by tax revenues.

Question: "The Council balanced its last biennial budget by raising taxes while funding and expanding discretionary projects and services." True, False, something else?

Answer: I'm going to assume you're referring to the 2011-2012 General Fund budget only, because that is where I was projecting a significant deficit.  The 2011-2012 General Fund budget was balanced mostly through expenditure reductions/savings, though there were some revenue increases and a planned draw on the "Rainy Day" Fund to fully bridge the projected deficits.  Of particular note, a 1.5% property tax increase was approved for 2012 (there wasn't a property tax increase in 2011), development fees were increased in 2011, and a new ambulance transport fee was instituted in 2011 on a one year trial basis (which was later extended through the end of 2012).  With the exception of ambulance transports, I cannot think of a service that was expanded or increased in 2011-2012.  Of the few requested service packages, two of them (Plans Examiner and Community Center Custodian) were existing contract positions that were approved for another two years to maintain the current level of service.  It is true that the Council could have cut more "discretionary" services in 2011-2012 to balance the General Fund budget, thereby reducing the need for new or enhanced revenues, but a majority decided that the City Manager had cut enough.  In fact, the Council restored some of the cuts recommended by the City Manager, such as parks maintenance level of service.  Very simply put, the projected 2011-2012 General Fund deficits have been (and will be) bridged via the following:  82% in expenditure reductions/savings and 18% in new/enhanced revenues.  There was a planned draw on the "Rainy Day" Fund, which amounted to 9% of the projected deficits, but so far we've been able to secure additional expenditure savings over and above what was budgeted in 2011-2012, thereby avoiding the need to tap the "Rainy Day" Fund.

Question: "The Council has plenty of money to pay for fire trucks. There are hundreds of thousands of dollars in many discretionary funds." True, False, something else?

Answer: The only place that there is available, uncommitted fund balance that could be used to buy a new fire truck is the Beautification Fund ($313K noted above), provided that the Council was willing to amend the list of approved expenditures in the Beautification Fund to include a fire truck (reminder:  the primary revenue source in the Beautification Fund is B&O tax).  I should note that there are available fund balances in the Capital Improvement Fund and the Capital Reserve Fund, for example, but those balances consist of real estate excise tax, which can't be used to purchase equipment or vehicles (according to state law).  Alternatively, the Council could choose to not fund a discretionary service in order to free up the funding needed for the fire apparatus sinking fund.  However, the cuts being proposed by the City Manager in the 2013-2014 Budget are needed to help bridge the projected deficits in the General Fund.

Question: Why did the city choose not to pursue councilmanic bonds?

Answer: The debt service on councilmanic (i.e. non-voted) bonds must be paid off using existing revenues.  If I had ongoing, surplus revenue coming in from taxes, then councilmanic (i.e. non-voted) bonds would be a great option.  However, I'm forecasting a $1.19M and $1.48M General Fund deficit in 2013 and 2014 respectively, and real estate excise tax receipts, which have been recovering slower than projected two years ago, are already committed to various capital projects in 2011-2012 and are needed to fund other planned capital projects related to streets, parks, and facilities in 2013-2014.  If the Council wanted to issue councilmanic bonds for the fire station and not impact current service levels, it would have to:  1) dedicate future real estate excise tax receipts (beginning in 2013) to pay the debt service on the bonds, and 2) significantly reduce the street, park, and facility CIP projects planned for 2013-2018 in order to free up $608K in annual funding for debt service.  Given the City's existing CIP needs and constrained revenues, the Council decided that a new revenue source was needed to fund the construction of a new fire station.  As a result, they decided to put it on the Nov 2012 ballot and let the voters decide whether to tax themselves or not.

Kendall Watson October 11, 2012 at 06:17 PM
A good point, Ira. Nonetheless, Mr. Corder should not be considered a partisan in this debate and — arguably, as you point out — he is certainly the local expert on this. Also, I'd point out that you should probably add a step there before step #1 in your sequence: Conrad identifies an action item that requires council approval, and presents the issue (mostly via city staff) to solicit feedback from the city council. The city council does not dictate all action items to the city, according to what I have been told by the City Manager.
Kendall Watson October 11, 2012 at 06:22 PM
As I recall, Tom, you were not amused by the council's "banter/light-hearted" questioning about the lack of a traditional fire pole, among other issues. But I remember that was the one that really struck you, and prompted you to ask me why they were doing that as we sat in the audience.
Ira B. Appelman October 11, 2012 at 09:11 PM
Hi Kendall: Finance Director Corder is UNQUESTIONABLY a partisan in this levy AS ARE ALL STAFF. In our form of government, the council-manager plan, all of the staff work for City Manager Conrad and Conrad works for the City Council. Senior staff like Corder are "at will" employees and can be terminated at any time by the City Manager alone. The City Council has no authority over employees, but can only hire and fire the City Manager (RCW 35A.13.100-140). Since the City Manager can be fired at any time and even without cause by the City Council, he is highly motivated to follow council direction. City Manager Conrad has fired or forced out a number of senior employees so department heads are highly motivated to follow manager direction. City Manager Conrad meets with the Mayor and Deputy Mayor each week. I doubt he presents anything at a City Council meeting without their approval. All staff presentations must be approved by the City Manager as you can see his signature on all agenda bills. If the City Council wants a levy or bond, which frees up other funds for councilmember pet projects like the road diet, the City Manager and staff are well-motivated to make it happen.
Kendall Watson October 11, 2012 at 10:40 PM
It's certainly an interesting viewpoint on non-union staff. Your view was no doubt re-enforced by the Lindell lawsuit. A minor quibble: I disagree with your assertion that "ALL STAFF" must be viewed as partisans, partly due to the reasons you cite. To wit, unionized employees are afforded additional layers of protection and are not "at will", for starters. An example of this was the Firefighter's local voicing opposition to the ambulance fee. They were certainly vocal in their opinions and not obviously worried of how their opposition to that measure would affect their employment.
Ira B. Appelman October 12, 2012 at 01:58 PM
Hi Kendall: You make a good point about the distinction between union and non-union employees; however, almost all the city employees involved in local political decisions like levies and bonds are non-union, including Finance Director Corder. I doubt that even union employees will publicly disagree with City Manager Conrad, and they certainly work for him and are under his control. The "Firefighter's union" is NOT an employee of the city, and their statutory responsibility is to represent the concerns of union members. In the ambulance issue you cite, firefighters were concerned that if they had expanded responsibility to transport NON-CRITICAL 911 patients to the hospital, instead of the usual practice of calling an ambulance to transfer NON-CRITICAL patients, response time to 911 calls might suffer because they would be off the Island at a hospital when a 911 call came in. As far as I know, once the council made the decision to expand transport responsibilities, the union accepted the decision without complaint.

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