City of Port Orchard: Thrifty or Cheap?

You’ll have read in today’s Kitsap Sun that the county’s projected sales tax revenues are lower than expected.

According to the story by Steve Gardner:

“Revenues came in $600,000 less than expected for the year, even after the county had trimmed its original budget expectations by $2.8 million.”

Ouch.

The county is in good (?) company. Gardner writes:

“On Bainbridge Island, the city learned last week that permitting fee revenues were dramatically less than expected for the end of the year.

In Bremerton, the city closed its offices to the public on Fridays, in part to deal with a $4.4 million budget hole there. Poulsbo came in $1 million short after 2008. Steve Gardner just informed me (1:30 p.m.) that he heard from the city of Poulsbo an update that this city also came in about where they expected for revenue.

Port Orchard was the only city to come close to its original budget.” Port Orchard and Poulsbo both came in close to their original budgets.

When asked if Port Orchard was feeling the other cities’ budget pain, City Treasurer Kris Tompkins e-mailed me:

“We came into 2009 pretty close to budgeted beginning cash balances. We will be watching revenues (and expenditures) closely each month, particularly sales tax collections. I will be briefing the Mayor and
Finance Committee regularly so we can adjust if necessary.

As you know we tend to budget conservatively here.”

I can testify to this. I don’t live within city limits, but we get our water and sewer from Port Orchard. I can remember a time (definitely less than five years ago, possibly less than three) that the city did not provide return envelopes with its bills. I have jokingly said they charge by the sheet for toilet paper if you want to use the restroom at City Hall. It’s not true, but it reflects the mentality of at least the last 20 years, which is at least how long Tomkins has been with the city. In all probability she will continue to keep the city council on a short leash to extent her job description allows.

Gardner and I were talking about this yesterday evening. Playing devil’s advocate, Steve asked if budgeting conservatively is being straight up with constituents. After all, it boils down to underestimating revenues and overestimating expenses. City officials who budget spot on get dinged in an economy like this, where nasty surprises are the order of the day.

South Kitsap School District does the same thing as Port Orchard. The district reported a $2.9 million budget shortfall for the 2008-2009 school year, but about $2 million of that was what Terri Patton, assistant superintendent of business and support services, calls “soft money.” Because the district budgets conservatively, they ended up ahead by about $1 million at the end of the last school year. They used $470,000 for the district’s needs, reducing the fund balance below the targeted 3+ percent. They used $250,000 of their “contingency fund” (savings account for emergencies), and they had $184,000 in “carry over.” According to Patton, “We made real cuts of $900,000.”

So, playing the devil’s advocate, I would ask, “Is this playing the shell game with the public’s money or responsible stewardship of same? How does a public entity strike the balance between providing for the constituents’ needs and providing for a rainy day?”

(Let it be noted that both PO and SKSD, like all other jurisdictions, invest any excess funds to generate additional revenue. According to Patton, their cushion will be depleted by the 2009-2010 school year, and they’ll be looking at “real cuts of $3 to $5 million.)

3 thoughts on “City of Port Orchard: Thrifty or Cheap?

  1. “So, playing the devil’s advocate, I would ask, ‘Is this playing the shell game with the public’s money or responsible stewardship of same?'”

    It’s not a shell game when the budget is prepared by underestimating anticipated revenue and overestimating anticipated expenditures.

    It’s how budget writers try to avoid unpleasant surprises when revenue comes in at a lower than anticipated figure or expenditures are unavoidably higher than anticipated.

    The shell game is what reporters of an other-than-“conservative” persuasion refuse to consider, since they only hear “conservatives” point it out.

    When Bremerton, for example, told you that the city faced a budget deficit of more than $4 million this year, you didn’t ask what spending increase would cause such a deficit. In fact, it would have been an increase of about 7 or 8 percent. In other words, the big “budget cuts” the city said were needed were actually reductions in their desires to increase spending.

    In the narrative portion of the budget for 2008, the city stated the budgeted expenditure increases for the previous few years — I think it was two but it might have been three. Their budgeted increases in those years and in 2008 were about 8 percent a year, if I recall correctly. (I haven’t checked to see if they really increased spending that much each year, but their narrative pointed out that they were spending down their reserve fund to less than the amount their budget policy called for; so they may well have been increasing spending faster than their revenue increases allowed.)

    Too often, “budget cuts” in this shell game are not cuts in anything other than the desired spending increases for the coming year.

    Right now, of course, the question seems to be how to project revenue in uncertain times.

    You need not worry about shell games in answering this question, since the county and cities have nothing to gain by overestimating in their revenue projections.

    But, you might find it helpful to get the budget resolutions for each of them and see what they projected for sales tax revenue for the budgets they adopted for 2007, 2008, and 2009. Put their revenue figures into a spreadsheet, then calculate the percentage rate of increase they had projected. Compare that to actual revenue in 2007 and 2008 to see whose projections turned out to be far too optimistic.

    You will probably find that the ones who made projections of sales tax revenue that were small percentage rate increases were the ones who came closer to the actual revenue.

    In 2006, things seemed to be going well, so I doubt any of them projected really small sales tax revenue increases for their 2007 budgets.

    In late 2007, it was obvious that the economy was slowing down (later the NBER decided they would fix the start of a recession as December 2007); so their sales tax revenue projections should have shown a lower increase than the previous year’s projected increase. Did they?

    In late 2008, it was obvious that things were going downhill, so their projected sales tax revenue perhaps shouldn’t be any increase at all for this year’s budgets — but did any of them project no increase at all for this year’s budgets?

  2. To further expand on the conversation we had yesterday, I was making the point that, like so much in government and life, budgeting is a “damned if you do or don’t” proposition. If you overestimate revenues and you end with a deficit, you’re accused of pie-in-the-sky ambitions “with my money.” If you underestimate, you’re accused of taking too much “of my money.”

    Some of this came from my experience when I was covering both Bainbridge Island and Poulsbo. On the island the late finance director there told me he tried to base the budget on real expectations. In Poulsbo they were willfully conservative, underestimating revenues and overestimating costs as much as would be realistically allowed. Honestly, I didn’t hear too many complaints from citizens about their budgeting, but that was before we had blogs and reader comments.

    Steven Gardner
    Kitsap Sun reporter

  3. It isn’t a shell game so much as it is a ‘predict the future’ game.

    I prefer a conservative approach to the budget, where income is slightly understated and expenses are well planned and realistic to the slightly understated income projection. This should include a ‘contingency’ pot of money in case something major has the audacity to break unexpectedly.

    Then, since you have planned well there are funds available as the year goes forward, you have three very good choices…

    1. Return the money to the public. Novel concept (though sometimes not as easy to do as it sounds).
    3. Pay-off bond debts early – if fiscally wise (sometimes it isn’t).
    3. Use the funds to attack the secondary projects list that didn’t make the first priority cut for the budget (every good organization has this sort of list… can you say “shovel ready”?)

    Whatever you do, be open and honest with the public about it and have a plan for both being ahead of or behind revenue projections. Taxpayer money is a stewardship. It shouldn’t be left to chance and it shouldn’t be a secret squirrell affair either.

    Regards,
    Kathryn Simpson

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