As I’ve written, Seattle may have a general fund shortfall in the next few years. In response, the city is talking about new taxes. However, the city has also been laying the groundwork to improve budget processes and transparency. To the extent that budget process changes improve sustainability, the city will be better prepared to face future budget challenges with minimal disruption to residents.

To her credit, as chair of the City Council’s Finance and Housing Committee, Councilmember Mosqueda has made a point of making the budget process more transparent. A few years ago, the city created the independent Office of Economic and Revenue Forecasts. Additionally, in November, the city council approved a statement of legislative intent creating a central staff and City Budget Office workgroup to make recommendations on updating the budget process. A report from the workgroup was presented during the July 19 meeting of the Finance and Housing Committee. Councilmember Mosqueda asked staff to prepare a resolution adopting four of the workgroup’s eight recommendations: define new practices for mid-biennium review, limit grant appropriation bills to three times a year, review supplemental budget ordinances twice a year, and explore new planning reserve practices.

Some of the other recommendations in the workgroup’s report are related to financial planning and monitoring. As the report notes, “Good financial planning allows the decision-makers to improve budget decisions through more transparent and better information about future year costs, and to minimize the occurrence of future budget deficits through better projection of growth in revenues and expenses, allowing gaps to be addressed sooner.”

Along those lines, a review of the city’s fiscal note process was provided to the Finance and Housing Committee on Aug. 2. Currently, as a central staff memo notes, fiscal notes only present revenue and expenditure impacts of bills for the current and following year. Thus, the long-term costs of proposals are downplayed if not completely hidden. The memo suggests that the city may want to revise the template to include multi-year cost tables. This would improve transparency and help the city make better informed decisions.

Indeed, the city has made budgetary choices in recent years that have contributed to the estimated future deficit. For example, as shown in a central staff memo about how the budget deficit developed, the city has adopted new, ongoing spending programs using one-time funds. It is a budgeting best practice to avoid using one-time sources to fund ongoing spending. Otherwise, when the temporary money runs out (if ongoing revenues haven’t increased sufficiently), the city must either cut spending or increase taxes.

Another budgeting best practice is to maintain reserves, which can help maintain spending in the event of a temporary downturn without increasing taxes. Yet according to the staff memo, in 2016 the city approved a resolution that purposely slowed the growth of its emergency fund.

Previously, Seattle’s policy was to maintain its emergency fund at $0.375 per $1,000 of assessed value (AV), which is the ceiling allowed under state law (RCW 35.32A.060). But assessed values in Seattle were rising fast, so the city decided to tie the growth of the emergency fund balance to the slower-growing consumer price index instead. The central staff memo notes, “The rapid growth in AV would have required larger contributions to the fund at a time when other service needs were growing, particularly with regards to the homelessness emergency . . . . In retrospect, this decision to save less in the good times was premature.”

Jurisdictions should save more during good times in order to be prepared for future bad times. (This is why the state constitution requires the state to save a portion of any extraordinary revenue growth.) A high savings rate also has the beneficial effect of tamping down spending in good times so that the spending level is more easily maintained if revenues drop. At the beginning of 2020, the city’s emergency fund balance was $65 million. I estimate that if the city had continued to tie the balance to assessed value, the emergency fund would have held about $94 million heading into the pandemic. (Incidentally, the fiscal note for the resolution making the change stated that it would not have “indirect or long-term financial impacts to the City of Seattle.”)