Lynnwood City Council reviews proposals to fill $2.2 million budget shortfall

Lynnwood Finance Director Sonja Springer (bottom right) briefs the Lynnwood City Council on proposals to fill the city’s $2.2 million financial gap.

With the financial impacts of COVID-19 looming, the Lynnwood City Council Monday discussed how to close a $2.2 million gap in the city’s budget.

During its June 29 work session, the council received a briefing from city Finance Director Sonja Springer regarding a $7.8 million loss in city revenues as a result of COVID-19. Additionally, the city saw revenues dip by $1.6 million in 2019, making the total shortage to its general fund $9.4 million.

The council asked city staff to examine their budgets and find ways to trim costs, and in recent weeks has invited staff to present their cost-cutting measures. Since then, $274,000 in reductions have been identified, including canceling non-essential travel and training, keeping staffing vacancies unfilled, and reducing part-time staff members, professional services and transfers from the general fund account.

“The city has been really busy trying to identify expenditure reductions and so forth to offset the $9.4 million revenue shortage in the general fund,” Springer said.

At the Monday meeting, city staff presented six options to address the budget shortfall, ranging from using the city’s emergency funds to laying off staff. During her presentation, Springer recommended the council authorize the city to temporarily use some of its revenue stabilization fund — a portion of the general fund unassigned balance. According to Springer, the fund is “designed to help the city in these kinds of situations when there’s an adverse financial condition brought about by an unanticipated event.”

Springer also suggested a one-time transfer from the economic development infrastructure fund (EDIF) to allow the city to meet its reserve requirements of two-and-one-half months at the end of the year. She added that the EDIF fund could be replenished when a healthier economy returns.

If the city was to discontinue transferring funds to EDIF for the rest of the year, Springer conservatively estimated it would add about $1 million in revenues to the general fund. Between those savings and the $274,000 in additional expenditure reductions, Springer said the city would need to use $1.9 million from either EDIF or a portion of the revenue stabilization fund. 

Additional options included mandatory furloughs for city employees, excluding the Lynnwood Police Department. For perspective, Springer said a mandatory furlough of city employees for eight days could save the city about $648,000 and a 15-day furlough would generate $1.2 million in savings for the general fund. Another option included laying off 56 city employees for the last three months of the year.

The final two options included combinations of the first and second proposals or a combination of the third and fourth options. Springer added that should the council choose either option involving furloughs or layoffs, a decision would have to be made as soon as possible to allow for the city’s human resources department to begin the process.

“It takes months to negotiate with the unions and it takes a long time to notify the affected people,” she said. “We can’t just lay off people right away.”

At the end of each year, the city is required to have the equivalent of two-and-one-half months’ worth of revenues based on the amounts from the previous year. Based on the numbers from 2019, the city needs to have $3.5 million in the general fund and $6.5 million in the revenue stabilization fund at the end of 2020. Currently, there is around $9.2 million in funds between the two reserve accounts. 

Council President Christine Frizzell said she was in favor of using the revenue stabilization fund to address the impacts.

“This is when we need it, this is when we’ve been impacted,” she said.

Councilmember Ruth Ross asked why using funds from EDIF wasn’t city staff’s first option. In response, Springer said using those funds could reduce the city’s ability to fund capital projects. According to Springer, Lynnwood has around $10 million in capital projects planned, some of which are funded by government grants that the city would have to pay back if the projects are not completed. 

Councilmember Jim Smith said he was against using the stabilization funds and added that the funds are Lynnwood’s “absolute last resort.”

“The stabilization fund is there (for) when an emergency is so bad we’re totally and completely out of money,” he said. “To me that is not the recommended relief on this.”

Should the city resort to layoffs, Smith said city administrators would have to make recommendations to the councilmembers, who would discuss the matter further in an executive session. The councilmember added that some of the projects tied to the EDIF fund are years away from development and the city would have plenty of time to recover the funds.

Councilmember George Hurst agreed with Councilmember Smith that the city should be cautious about using the city’ stabilization fund while the economic impacts of COVID-19 still remain uncertain.

“I would be very careful taking a large amount of money out of the revenue stabilization fund because we don’t know what the next biennium is going to look like,” he said.

Hurst also pointed out the city should not be too concerned about city projects being affected by temporary dips into the EDIF fund, and said projects like the Poplar Way Extension Bridge and 196th Street Widening will happen regardless.

However, Council Vice President Shannon Sessions said she is in favor of using the revenue stabilization fund or a combination of those funds and EDIF to fill the gap.

“If ever there was an emergency, this is it,” she said. “That is what the fund is for — for times like this and to help.”

Sessions also disagreed with Councilmember Smith that the council would need to hold an executive session to discuss possible furloughs or layoffs, adding that if the majority of the councilmembers decide that’s the best option, a decision needs to be made soon. Additionally, she said the city may still have layoffs in the future.

“It’s very likely we will still…have layoffs, but it won’t be for 2020, that’s why there’s still time, but for 2022,” Sessions said.

Following Sessions’ comments, Council President Frizzell said she would also be in favor of a combination of the first two proposals.

Councilmember Ian Cotton said he was not in favor of using EDIF, because those funds are one-time transfers for large projects and the city is currently facing a shortfall of operations dollars, not capital funds. He added that it does not make sense to use capital funds to pay for operational shortfalls.

“I think we should leave EDIF alone, because that’s our future,” he said. “I don’t think we want to buy today at the cost of tomorrow.”

Councilmember Smith stood by his initial statement that the city has enough money in the EDIF and should leave the stabilization funds alone.

“We have plenty of money in the EDIF fund that we can take this $2 million and not even blink an eye,” he said.

Following the discussion, the council generally agreed that it would continue to pursue solutions under the first two options presented by Springer and forgo furloughs and/or layoffs. Next, Springer said city staff will draft a budget amendment for the council to review before action is taken.

In other business, the council revisited a previously tabled motion to authorize the city to partner with the Communities of Color Coalition to handle distribution of CARES Act funds to community members. 

After multiple discussions on how to allocate the funds, the city decided it would use $200,000 to establish a community relief fund and award grants to Lynnwood residents that range between $500 to $1,000 per household. The funds may be used for rent or mortgage payments, and qualifying residents will be required to provide proof of financial hardship due to the pandemic.

To distribute the funds, the city has been looking to partner with a local non-profit organization to assist in distributing grant funding to residents impacted by the health crisis. The council previously announced it had selected the Communities of Color Coalition.

However, a motion was made during last week’s meeting to postpone awarding the contract to ensure there was no conflict of interest involving Councilmember Julieta Altamirano-Crosby, who serves as a non-paid board member for the organization. Prior to the council selecting the organization, Altamirano-Crosby was also part of a work group tasked with selecting a non-profit to issue grants.

“Out of an abundance of caution to avoid the appearance of a conflict, she’s recused herself from any decision making related to this matter,” said city spokesperson Julie Moore.

The council has scheduled a special business meeting Monday, July 6, to decide whether the city will partner with the Communities of Color Coalition. The council will then adjourn into its scheduled work session.

–By Cody Sexton

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