The City of Washougal is short of money in its general fund and its enterprise funds for our water, storm water, and sewer utilities. The problem is a structural imbalance between revenues and expenses. In other words, we are spending more than we are bringing in.
In recent budget years, the city has drawn down its reserves to compensate for the structural imbalance. This policy was based on the hope that an economic recovery would increase revenues and change the revenue-to-expenses ratio. A sufficiently robust recovery has not materialized. Reserves are now low enough to raise questions about their continued use for this purpose.
While the economic downturn that began in mid 2007 is the primary reason for the drop in revenues in the general fund, the inadequate revenues in the enterprise funds are primarily a result of a policy of misguided benevolence designed to keep rates artificially low. Other reasons include continuing federal and state mandates for system upgrades. The reasons for the excessive spending are more complex.
Labor expenses are the most significant part of our budgets in both the general fund and enterprise funds. Nation-wide since 2000, municipal labor costs have increased significantly, particularly in the public safety arena (fire and police). Washougal shares that problem with many other municipalities. Recent cost of living increases have exceeded inflation rates. Adding in (1) high step increases, (2) increased vacation and sick leave benefits, and (3) escalating costs for medical, insurance, and retirement benefits has caused workforce costs to outpace revenue growth. Since the city needs employees to deliver essential services that it was created to deliver, labor costs must be controlled. The alternative is to raise taxes – not an option to seriously consider in the current economy, especially after having had to raise utility rates.
The solution to the excessive spending problem begins with defining the city’s mission, starting with a list of services the city (1) must, and (2) should provide. Prioritizing within each of these two categories is essential to making good budget decisions during difficult economic times such as these.