Published: Wednesday, March 25, 2009
County fears shortfall could grow to $11 million
EVERETT -- Worst-case estimates could put Snohomish County's budget nearly $11 million in the hole, in part because of sluggish home sales.
County councilmen said they were worried that a bigger-than-expected shortfall in projected real estate excise taxes could further pummel the county's general fund, widening the $6.7 million gap they're already trying to fill.
The new figure came up during a budget presentation by the finance department on Tuesday. It caught some by surprise.
"This is a big hole. It's even worse than I thought, and I knew it was bad," said Councilman Brian Sullivan, finance committee chairman.
County Executive Aaron Reardon's staff said there was no reason to worry, that the potential drop in real estate excise tax would have no effect on day-to-day operations.
"There is planning under way to prioritize other sources of available revenue," said Reardon's spokesman, Christopher Schwarzen.
County finance director Roger Neumaier told the council he expected to have a solution ready next month.
County officials have spent the past week looking at ways to cut about 3 percent from the county's $206 million general fund budget.
The latest signs are that the council and Reardon mostly agree about how to make those cuts through a combination of unpaid furlough days, a hiring freeze and other adjustments. All county leaders have said they want to avoid layoffs.
"I'm cautiously optimistic," Council Chairman Mike Cooper said Tuesday. "I think things are going smoothly up to this point."
The council expected to take up several of Reardon's suggested cost-saving measures on Monday. If the council approves emergency ordinances by four or more votes, then they take effect immediately. Union contracts would need separate approval.
Proposals from the executive include 11 unpaid days off for employees who don't belong to a union. That's approximately a 4 percent cut in pay, and equivalent to what's proposed for most union members. Law enforcement officers would be exempt from unpaid days off because they perform emergency functions. Instead, they would be asked to take a 2.5 percent cut in salary and benefits.
An important hurdle is to come to an agreement with the union that represents about 60 percent of the county's 2,892 employees, the American Federation of State, County and Municipal Employees. County negotiators presented a tentative deal to the council in a closed executive session Tuesday. It would involve a combination of shortened workweeks and furlough days. Both sides have said that an agreement might be possible by next week.
Employees with the County Council and the clerk's office already have consented to voluntary furloughs.
Furloughs and freezes could bridge the current budget gap. It isn't clear what the county would do if the shortfall were to balloon another 60 percent, to nearly $11 million.
The county had expected to get $15 million from home sales this year in real estate excise taxes.
When property is sold, the county collects a half a percent on the full sale price in excise tax. That money is divided into two equal shares. State law dictates how the county can spend the money from those two pots.
Instead of $15 million this year, the county is likely to collect somewhere between $7 million and $10 million, according to estimates Neumaier showed the council.
Councilmen are worried whether that's enough to cover $7.7 million in bond payments related to past projects, such as improving the county campus and upgrading emergency radios for police, firefighters and medics.
Only half of the excise tax money can be used for paying down debt. If excise tax projections come in at $7 million, the county would have only $3.5 million for debt payments. The only way to cover the remaining $4.2 million debt would be by tapping the general fund.
The amount of money the county collected from housing sales last year sank to around $10 million -- levels not seen since 2000. That's down from highs of more than $20 million in the housing-boom years of 2005 and 2006.
Still, one real estate manager hopes that low interest rates and federal incentives for first-time homebuyers will help things pick up.
"Right now, it's a perfect buyer's market," said Peter Paterno of Windermere Real Estate/Lake Stevens.
The market has improved for 1,500- to 1,600-square-foot homes priced in the $200,000s. Paterno expects the large inventory and the $8,000 tax credit for first-time buyers to boost sales later this year.
Interest rates are near 50-year lows, while home affordability is near a 20-year high, said Mike Appleby assistant vice president of Chicago Title's Snohomish County office.
Home sales generally rise in the spring, and Appleby cited figures that suggest the same trend is almost certain to show up in the coming months.
In February, people closed sales on 374 homes, but 663 residential sales were pending, he said. The pending sales should turn soon into closings -- and more excise tax for the county.
Noah Haglund: 425-339-3465, nhaglund@heraldnet.com.
County councilmen said they were worried that a bigger-than-expected shortfall in projected real estate excise taxes could further pummel the county's general fund, widening the $6.7 million gap they're already trying to fill.
The new figure came up during a budget presentation by the finance department on Tuesday. It caught some by surprise.
"This is a big hole. It's even worse than I thought, and I knew it was bad," said Councilman Brian Sullivan, finance committee chairman.
County Executive Aaron Reardon's staff said there was no reason to worry, that the potential drop in real estate excise tax would have no effect on day-to-day operations.
"There is planning under way to prioritize other sources of available revenue," said Reardon's spokesman, Christopher Schwarzen.
County finance director Roger Neumaier told the council he expected to have a solution ready next month.
County officials have spent the past week looking at ways to cut about 3 percent from the county's $206 million general fund budget.
The latest signs are that the council and Reardon mostly agree about how to make those cuts through a combination of unpaid furlough days, a hiring freeze and other adjustments. All county leaders have said they want to avoid layoffs.
"I'm cautiously optimistic," Council Chairman Mike Cooper said Tuesday. "I think things are going smoothly up to this point."
The council expected to take up several of Reardon's suggested cost-saving measures on Monday. If the council approves emergency ordinances by four or more votes, then they take effect immediately. Union contracts would need separate approval.
Proposals from the executive include 11 unpaid days off for employees who don't belong to a union. That's approximately a 4 percent cut in pay, and equivalent to what's proposed for most union members. Law enforcement officers would be exempt from unpaid days off because they perform emergency functions. Instead, they would be asked to take a 2.5 percent cut in salary and benefits.
An important hurdle is to come to an agreement with the union that represents about 60 percent of the county's 2,892 employees, the American Federation of State, County and Municipal Employees. County negotiators presented a tentative deal to the council in a closed executive session Tuesday. It would involve a combination of shortened workweeks and furlough days. Both sides have said that an agreement might be possible by next week.
Employees with the County Council and the clerk's office already have consented to voluntary furloughs.
Furloughs and freezes could bridge the current budget gap. It isn't clear what the county would do if the shortfall were to balloon another 60 percent, to nearly $11 million.
The county had expected to get $15 million from home sales this year in real estate excise taxes.
When property is sold, the county collects a half a percent on the full sale price in excise tax. That money is divided into two equal shares. State law dictates how the county can spend the money from those two pots.
Instead of $15 million this year, the county is likely to collect somewhere between $7 million and $10 million, according to estimates Neumaier showed the council.
Councilmen are worried whether that's enough to cover $7.7 million in bond payments related to past projects, such as improving the county campus and upgrading emergency radios for police, firefighters and medics.
Only half of the excise tax money can be used for paying down debt. If excise tax projections come in at $7 million, the county would have only $3.5 million for debt payments. The only way to cover the remaining $4.2 million debt would be by tapping the general fund.
The amount of money the county collected from housing sales last year sank to around $10 million -- levels not seen since 2000. That's down from highs of more than $20 million in the housing-boom years of 2005 and 2006.
Still, one real estate manager hopes that low interest rates and federal incentives for first-time homebuyers will help things pick up.
"Right now, it's a perfect buyer's market," said Peter Paterno of Windermere Real Estate/Lake Stevens.
The market has improved for 1,500- to 1,600-square-foot homes priced in the $200,000s. Paterno expects the large inventory and the $8,000 tax credit for first-time buyers to boost sales later this year.
Interest rates are near 50-year lows, while home affordability is near a 20-year high, said Mike Appleby assistant vice president of Chicago Title's Snohomish County office.
Home sales generally rise in the spring, and Appleby cited figures that suggest the same trend is almost certain to show up in the coming months.
In February, people closed sales on 374 homes, but 663 residential sales were pending, he said. The pending sales should turn soon into closings -- and more excise tax for the county.
Noah Haglund: 425-339-3465, nhaglund@heraldnet.com.
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