Tough decisions ahead as WL faces deficit
Several years ago, as West Linn faced an uncertain financial future, then-City Manager Chris Jordan framed his new biennial budget as going "from Nordstrom to Costco."
West Linn had become accustomed to high-end service similar to that of an expensive store like Nordstrom, and it would have to adjust to a more "back to the basics" approach akin to Costco.
As history repeats itself in 2019 — the City is projected to face a deficit between $1.2 and $1.3 million in the 2020-21 budget — City Manager Eileen Stein preferred to compare the city to a family unit.
"If the family loses income, the family has to figure out how to live within its means," Stein said. "The City has to do the same."
Stein said the deficit is primarily related to the rising costs of the Public Employee Retirement System (PERS) — an obstacle that came as no surprise to the City, but is nonetheless difficult to overcome.
"It's really increases in what we're going to have to pay for employee pensions ... those increases have been expected for two or three years now based on a judicial ruling," Stein said. "(The case) was an attempt on the part of the state to try to put more of the burden on existing retirees to make up for stock market losses during the recession, and the court said 'No, you can't do that.'"
It's a problem for cities across the state, Stein said, though West Linn's case is especially burdensome due to its low property tax rates.
"Back when property tax reform was enacted in the 1990s ... West Linn ended up with a very low tax rate, and so we're limited in how much tax revenue the City can bring in," Stein said. "So you have these low increases in property tax revenue ... but you can look at the cost of goods and the cost of labor, and revenues are just not keeping pace with natural increases in expenditures."
As budget season approaches — the Citizen's Budget Committee will begin evaluating Stein's proposed budget in April, and it would likely go to the City Council for adoption in June — the deficit is expected to primarily impact the City's General Fund.
"(It's) the General Fund, and the funds that are operating funds that are fed by the General Fund," Stein said. "So the parks and recreation fund, the library fund, the police fund, the planning and building funds — those are the funds that receive some kind of infusion of dollars from the general fund.
"We take money from the General Fund and use it to balance each of the budgets in those other funds ... and the cumulative total of those funds is what we're using to project the $1.3 million deficit."
With a projected deficit of $3.5 million, Stein said the outlook for the next biennial budget — in 2022-23 — is even more concerning.
"So just because we plug this hole in this next two-year cycle, the two-year cycle after that is far worse," Stein said.
Beyond PERS concerns, Stein said the City's ballooning legal services budget was another culprit in the deficit. After Assistant City Attorney Megan Thornton — an in-house attorney whose work complemented that of West Linn's contracted city attorney, Tim Ramis — resigned last May, Stein opted not to fill that position while she and the City Council evaluated how to best move forward.
"I am very concerned about the City's costs for legal services," Stein said. "Every time the City has an investigation or has a lawsuit or has an employee personnel matter ... all of those costs come from the same place in the budget. We are obviously using Jordan Ramis (Ramis' firm) more because we don't have an in-house attorney right now."
Whereas Thornton's position was salaried and thus a fixed cost, Ramis bills the City on an hourly rate — which is expected to increase soon — and that means expenditures increase during the council's frequent late night meetings.
"The more (the council) meets — and given that Tim (Ramis) bills on an hourly basis — the more we pay," Stein said. "Not to lobby the council at all, but an in-house attorney who is salaried works a set amount of hours."
Discussions about the future of the City's legal services are expected to continue this year. Stein said she was in the process of gathering more information about costs to present to the council, but couldn't release that information public yet.
In the coming months, the City will consider a number of options as it looks to balance the budget. Cutbacks in services are always a possibility, but Stein said she may also propose new fees or levies that could generate additional revenue.
"We already have a park maintenance fee in West Linn, but other communities are looking at ways to supplement property tax revenues to pay for police services for example," she said. "So they would enact a police services fee or would ask voters for a supplemental operating levies."
Operating levies only last through three- or five-year cycles, however, so the City would be relying on voters to renew such a levy on a regular basis.
"Whereas a public safety fee gets enacted and isn't a tax — it's a service fee and can be continued in perpetuity," Stein said. "So we may be forced to consider things like that."