By Oscar Halpert Herald Writer
LYNNWOOD —— This city’s financial problems can’t entirely be blamed on the economic recession that started in late 2007, an accountant told the city last week.
Overly rosy income projections in 2008 about how much sales tax the city would receive in 2009 and 2010 played a big role as well, the accountant hired by the city’s main police union told the City Council.
“You’re in very bad shape,” Timothy Reilly said. “This is the worst financial statement I have ever seen.”
The city’s expenses have exceeded its income, he said.
Reilly, a San Francisco certified public accountant, said he’s often hired by police and fire unions to analyze city and county budgets. He’s reviewed budgets for San Francisco; San Jose; Las Vegas; Portland, Ore.; and Vallejo, Calif, a city near San Francisco that had its moment of infamy when it declared bankruptcy in May 2008.
He said city officials erred by anticipating nearly $10 million in new income when the 2009-10 budget was drawn up in the fall of 2008, a time when investment bank Bear Stearns collapsed and Wall Street’s financial woes reached a crescendo.
“One would expect that revenues would not be increasing but would be decreasing,” he said.
Mayor Don Gough could not be reached for comment.
In a prepared statement to The Herald, assistant city administrator Art Ceniza wrote that the city was as well prepared as “can be expected” to handle the economic downturn and Reilly’s report didn’t reveal anything city officials didn’t already know.
“In spite of the deep recession, we have been able to maintain a high level of service to the public,” he wrote.
Lynnwood has faced a budget shortfall since early 2009, when expected sales and property tax income fell short of expectations. From 2008 to 2009, sales tax collections dropped $3.2 million, or more than 17 percent.
Last year, the city trimmed its budget across-the-board 3.5 percent without layoffs or furloughs. It cut an additional 1.6 percent at the end of the year.
The cuts weren’t enough.
They didn’t plug what’s amounted to a $5 million budget gap, and the council has been busy since March working on ways to do that. In March, John Moir, the city’s finance director, resigned after some contentious budget meetings.
The council approved new taxes on gas, water, utilities and sewer April 19. The taxes are expected to bring in $1.3 million by the end of the year. Further cuts are anticipated and they’re likely to be deeper than in 2009.
Reilly, who examined Lynnwood’s annual financial reports from 2004 to 2009, said last week the city’s budget picture was generally stable until 2009, when the bottom fell out on the economy.
To help make up for the shortfall in its general operating fund, the city borrowed $3 million from its utility fund and transferred $2 million — the remaining balance — from a reserve fund.
“Without that money, the city would not have been able to meet its expenses,” Reilly said.
Earlier this month, a council-hired accountant said the council should prepare for a worst-case scenario in considering plugging the budget hole.
Mark Brinkman, president of the 105-member Lynnwood Police Officers Guild, said the union had nothing to gain by hiring Reilly. The union’s three-year contract expires at the end of 2011.
“The guild’s goal in doing this was to give the council and mayor information so they could see exactly what position the city’s in, start making appropriate cuts and (finding) tax revenues now,” he said.
Councilman Mark Smith said it was good to get a second outside perspective on city finances.
“The council is trying to move ahead,” he said. “We’ve been thrown into a role we don’t normally occupy. All of us have been working very hard putting in a lot of hours trying to get a handle on this.”
Oscar Halpert: 425-339-3429, email@example.com.