EVERETT — Snohomish County’s tax revenues are falling short of expectations for the third straight year.
That’s according to a quarterly budget update that the county finance departm
ent released Monday. If the trend continues, the tax money the county brings in could fall nearly $3 million short of projections by year’s end.
Unlike past years, however, county leaders seem confident they can weather this setback without cutting county jobs or programs. The greater optimism owes in part to the county’s success with keeping spending in check during the first quarter of 2011.
“I don’t think there are any surprises there for us at all,” Deputy Executive Gary Haakenson said of the new budget forecast. “We’re still in a strong financial position.”
That said, the county only has the year’s first-quarter financial numbers in hand. The regional economy could change for the better or worse during the rest of the year. High gas prices, in particular, will be an area to watch. They could slow retail sales taxed by the government.
Snohomish County’s budget also had a nasty springtime surprise in 2009 and 2010.
County leaders had to make emergency fixes to match the county’s spending with declining revenue. More specifically, they discovered that revenue predictions from a few months earlier — made while drafting the budget — were much more optimistic than what they were seeing in real life.
In April 2010, county leaders acted to close a $3.6 million revenue shortfall. That owed to drops in collected sales tax, recording fees and motor-vehicle licensing fees. To fix the problem and to shore up the county’s cash reserves, county leaders opted to strip 2.6 percent off all county budgets.
In March 2009, county leaders imposed mandatory furloughs, wage freezes and hiring freezes. That year’s $6.7 million revenue gap was owed to shortfalls in sales tax, investment earnings, money collected from property sales and the county’s share of state timber sales.
The county’s $203 million operating budget for 2011 was supposed to avoid those kind of mid-year patches. The budget that passed was considered sustainable, meaning that it didn’t rely on one-time revenue sources or temporary measures such as hiring freezes.
In crafting this year’s budget, the county assumed no economic recovery. Yet sales taxes for the first part of this year are coming in lower than the conservative estimates in the budget. If the trend continues, the county projects general sales tax to be $2.5 million less than budgeted through the end of the year.
“In the coming months, the impact of increased gas costs on consumer spending habits will impact a variety of county revenue sources including sales tax,” the county’s budget update says. “The county will watch sales tax receipts closely in the coming months.”
Other areas of sales tax revenues are expected to drop, too. By the end of 2011, real estate excise taxes, which are collected during sales, are projected to be at their lowest since 1995.
A big part of the overall drop in sales tax owes to an unforeseen problem that’s unlikely to come up again: a $1.2 million refund of sales taxes on purchases between 2006 and 2010. The county only recently learned of the refund and its potential impacts.
The refund stemmed from equipment that King County bought for its Brightwater sewage-treatment project. King County sued the state Department of Revenue and got a partial refund after the two sides reached a settlement. Some of that money had gone to Snohomish County because the equipment in question was at Brightwater’s Maltby site.
The budget also showed some bright spots. One is spending staying on target. Another is state-level changes that give the county more flexibility in how it can spend certain types of sales-tax, rather than having it set aside by law for more specific uses. The county also expects to keep its cash reserves healthy.
With the good weighed against the bad, the finance department expects revenue in 2011 to come in about $1.5 million below projections. That’s likely to come out of the county’s cash reserves, Haakenson said, and should be replenished over time.
Looking ahead to 2012, the forecast predicts that staffing and other expenses at the county are expected to remain tight. The county operating budget has no money for new staff or programs without equal cuts or new ways to raise money.
A further economic downturn could lead to layoffs, though a strong regional economic recovery would give leaders more breathing room.
Noah Haglund: 425-339-3465, nhaglund@heraldnet.com.
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