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2023-10-19 Special MeetingEDMONDS CITY COUNCIL SPECIAL MEETING APPROVED MINUTES October 19, 2023 ELECTED OFFICIALS PRESENT Mike Nelson, Mayor Neil Tibbott, Council President Vivian Olson, Councilmember Will Chen, Councilmember Diane Buckshnis, Councilmember Susan Paine, Councilmember Dave Teitzel, Councilmember Jenna Nand, Councilmember 1. CALL TO ORDER STAFF PRESENT Dave Turley, Administrative Services Director Angie Feser, Parks, Rec., & Human Serv. Dir. Shannon Burley, Deputy Parks, Rec. & Human Serv. Dir. Uneek Maylor, Court Administrator Beckie Peterson, Council Legislative Assistant Jeff Taraday, City Attorney Nicholas Falk, Deputy City Clerk The Edmonds City Council special meeting was called to order by Council President Tibbott at 2:02 in the Brackett Meeting Room, 121 5' Avenue N, City Hall — 3' Floor, Edmonds, and virtually. Council President Tibbott reviewed the agenda, explaining during agenda item 5.3, 2024 Budget Workshop: 2024 Proposed Revenues, there are six potential sources of new revenue. He asked councilmembers to sign up to be the "discussion starter" for one of the six. The intent is to have a timed discussion on each and the goal is for councilmembers to learn from each other regarding sources of revenue. Councilmember Buckshnis asked what Council President Tibbott meant by discussion starter. Council President Tibbott answered for example one of the sources of revenue is ARPA funding. A councilmember would spend 2-3 minutes explaining why they supported or did not support that source of revenue for the 2024 budget. Councilmember Buckshnis commented the budget has only been available for two weeks and she has not had an opportunity to completely review it. Council President Tibbott suggested she choose a revenue source she was most familiar with or had the most interest in. 2. LAND ACKNOWLEDGEMENT Councilmember Paine read the City Council Land Acknowledge Statement: "We acknowledge the original inhabitants of this place, the Sdohobsh (Snohomish) people and their successors the Tulalip Tribes, who since time immemorial have hunted, fished, gathered, and taken care of these lands. We respect their sovereignty, their right to self-determination, and we honor their sacred spiritual connection with the land and water." 3. ROLL CALL Deputy City Clerk Nicholas Falk called the roll. All elected officials were present. Edmonds City Council Approved Minutes October 19, 2023 Page 1 4. APPROVAL OF AGENDA 5. COUNCIL BUSINESS 1. 2024 BUDGET WORKSHOP: QUESTIONS AND DISCUSSION Council President Tibbott advised the workshop would begin with a situation analysis of where the City is at the end of 2023 and an opportunity for councilmembers to ask questions. He explained in early October, the council received the August financial report. Concerns were raised related to the ending fund balance and the reserves which were below 50% at the end of August. He asked Administrative Services Director Dave Turley to give the council an idea of where the City stands and whether there will be a need to use the contingency reserve to finish out the year. Mr. Turley responded Council President Tibbott was correct, at the end of August the City dipped into the reserves and was probably below 50%. The strategic outlook projects the reserve will not have been completely replenished by the end of the year, but it will be better off than at the end of August primarily due to the receipt of $445 million in property taxes from Snohomish County in November. Cashflows go up and down; August and September are low points for cashflow which corresponds to fund balance. That will come back up some in November with the receipt of property taxes, but by the end of the year it is not anticipated the reserves will be fully replenished by the end of the year. The strategic outlook shows the reserves will be fully replenished by the end of 2024 and the end of 2025. Council President Tibbott observed that is the case if the proposed plan is adopted. Mr. Turley agreed. Council President Tibbott asked Mr. Turley to comment on the contingency or emergency reserve and cashflow for September -October. Mr. Turley answered there are technically two reserves, one is the General Fund reserve which is 16%, the contingency fund is a completely separate fund, a sub fund of the General Fund, and is required to have 4% of the operating budget and is fully funded. The contingency reserve has not been touched and he did not anticipating having to touch it at all this year. Funds were transferred in about March/April to bring the contingency fund to the correct level so it would be 4% and it has not been touched since. Councilmember Chen pointed out from January -May, the contingency reserve was below 4% and brought up to the 4% level in June. He asked if it was correct that the contingency reserve was not used, it was just an accounting update to bring it up to the 4% requirement. Mr. Turley responded the 4% requirement is unknown until the budget is adopted; once the budget is adopted, a calculation regarding 4% can be done and funds moved which was done in the first half of the year. Councilmember Chen observed the budget was adopted at the end of December, but the contingency fund was not brought to 4% until June. Councilmember Teitzel observed in the strategic outlook for the General Fund, the 2024 labor estimate is about 6.2% higher than the end of 2023 estimate and the 2025 labor estimate is about 7% higher than the 2024 budget estimate. He asked what those estimates were based on, whether it was national or local trends, noting they seemed high. Mr. Turley answered a lot goes into that number, not just COLAs and pay raises, it also includes vacancies, etc. When developing the 2024 budget which he noted he was tweaking until the end of September because things change, in September the national and regional projections were inflation for this area would be 2.5-3% in 2024 which was used as basis to start. He included increases of approximately 3% for most expenses to be conservative as it is preferable to over -estimate rather than under -estimate expenses. Salaries and benefits had increased at a faster rate than inflation for the last 2-3 years. In conversations with the HR director, one labor contract has not been settled, but she does not expect adjustments to bring labor to balance with market which was one reason recent salaries and wages exceeded the inflation rate. The HR director expects COLAs which will be in line with inflation. So instead of 2.5- 3% which he knew would not be well received, for the next 4 years he included increases of 6-8% for Edmonds City Council Approved Minutes October 19, 2023 Page 2 salaries and benefits; the increase for benefits are little higher because the City has less control over benefits and the cost of health insurance tends to increase faster than salaries. Councilmember Buckshnis referred to the Strategic Outlook for the General Fund which reflects a 18% decrease in revenues in 2025, a 15% decrease in expenditures, property taxes go from $15.9 million in 2024 to $11.4 million in 2025 and total expenses go from $59.4 million in 2024 to $50.4 million in 2025. She asked Mr. Turley to explain that. Mr. Turley responded he met with five of the seven councilmembers the week after the budget came out and addressed this topic. In the 2024 budget, revenues increased by approximately $10 million, $6.5 million of that is the anticipated transfer of ARPA funds which is shown in the grants row. The transfers row anticipates moving $2 million from Fund 016 into the General Fund. That $8.5 million accounts for most of the increase in 2024 compared to the 2023 estimate. Regarding expenses, there is not a lot of difference, it goes from an estimate of $57 million to a budget of $59 million, which is in line with inflation. In 2025 revenues go down because those are one-time transfers. Mr. Turley continued, revenues also goes down in 2025 due to the assumption built in regarding the RFA. The assumption could have been that the City would join the RFA or something like a property tax levy. The council has several options, but he had to pick one. The changes in revenue and expenses in the 2025 outlook are almost entirely due to the assumption that the City will join the RFA. If the City does not join the RFA, he will assume there will be a property tax levy or something like that so the numbers end up in the same place at the end of 2025, it is just the mechanism that council chooses to get there that differs. Councilmember Buckshnis observed expenditures for services go from $24 million to $13 million. If there is a property tax levy, the City will still retain fire services from SCF. She questioned why that was reduced. Mr. Turley answered if there was a levy, the 2025 outlook numbers would be different; instead of property taxes going down by $5 million, they would increase by $5-6 million. The numbers change, but hopefully the ending fund balance would get to the same place. Councilmember Buckshnis observed the $24 million would probably have to be adjusted to reflect the City still having the fire contract. Mr. Turley agreed. Councilmember Nand commented on chatter she had seen on the listsery that there may be an afternoon surprise via the mayor's email. She asked for the RCWs that require a balanced budget and [audio interrupted]. Council President Tibbott advised the second half of this agenda item will be a discussion with City Attorney Jeff Taraday regarding the reserve policy. Councilmember Nand requested Mr. Taraday send her the text of the RCW and the resolution via email. Mr. Taraday said he was not aware of an RCW that requires that. Councilmember Nand asked if it was a local policy that required the budget be balanced. Mr. Taraday asked Councilmember Nand to describe what she meant by balanced budget. Councilmember Nand said she was looking at the legal requirements that state Edmonds' budget has to be balanced, whether by policy, resolution, ordinance or RCW and the exact text and details of the 20% reserve fund. Mr. Turley answered there is a balanced budget and asked if Councilmember Nand was asserting there wasn't a balance budget or did she just want to see the RCW. Councilmember Nand said she wanted to see the relevant text of law so she can understand the council's legal obligation in regard to the balanced budget and the 20% reserve fund policy. Mr. Taraday answered he was not aware of any RCW that requires city revenues and city expenditures be perfectly matched in every fiscal year. Councilmember Nand asked if there was a local resolution describing the 20% reserve policy. Councilmember Olson observed the policy was in the packet. Councilmember Nand apologized and withdrew the question. Councilmember Paine referred to the City's bond rating which is currently AAA. She asked if there was any impact on the rate from the discussion that has been occurring regarding the reserve such as a declaration the City is in a fiscal crisis. She asked if the City was in a position of losing the AAA rating. Edmonds City Council Approved Minutes October 19, 2023 Page 3 Councilmember Teitzel raised a point of order, asking whether that related to fund balance which is the final item on the agenda. Council President Tibbott commented Councilmember Paine's question may help with that discussion. Councilmember Paine reiterated her question whether the City's bond rating was at risk. Mr. Turley explained going out for a bond ratings call is a long process that requires a lot of work by the finance department to work with the bonding agencies, attorneys, etc. who look at a lot of things. There will be no adjustment to the current bond ratings; the outstanding bonds are under contract and will not be changed. The utility funds have recently contemplated issuing significant large new bonds. A lot of time was spent working with the bonding agencies during that process who look at a lot of things including the hard numbers, ratios, trends, the environment of the City, whether it is growing, shrinking, staying the same, etc. The bonding agencies also talk a lot about background stuff outside the numbers. They place importance on whether the council and administration work well together, whether there is a sense there is discord between the two, which does not look good to an outside agency. Every bit as important as the numbers, Mr. Turley said he will be blunt, if the council adopts a resolution saying the City is in dire financial straits declaring an emergency might play very poorly with the bonding rating agency. If they look at the City's numbers, they look great and there's a plan where the City is going and the City is on solid footing, but then the council says the City is in a dire condition, a public resolution like that could have a very negative impact. Councilmember Paine asked what are the top 1-3 items most heavily weighted when evaluators come in from bonding agencies such as Standard and Poor and Moody. Mr. Turley said he honestly couldn't say; it is like when someone applies for a home mortgage and is asked for 20 documents, you don't know which ones are the most important. They are probably all equally important, the agencies look at historical numbers, numbers in the future and present. One would have to get the chart from bonding agencies regarding weighting. Councilmember Paine observed there may be a formula but it is probably proprietary. With regard to a resolution, Council President Tibbott advised that is on the agenda for Tuesday's council meeting. He preferred not to get too deep in the weeds on that and to stay focused on the current situation, opportunities with property taxes and other sources and discuss revenues later on the agenda. He reminded this is all discussion, part of the public process, and understanding how each councilmember understands these matters. In a very short order, the council will be making decisions about the 2024 budget. Councilmember Olson recalled Mr. Turley stating when evaluators from the bonding agencies look at the papers and say everything looks great; she asked if he expected that would be their assessment. Mr. Turley answered yes, the utilities are considering selling bonds in two years. The council is considering the 2024 budget and the future outlook; he did not anticipate these discussions occurring in two years. He expected the evaluators would say Edmonds was in the same situation as everyone else, inflation hit the City hard, they had things to resolve, they handled it well and came out on really sound, solid footing. If the City follows the plans and does the right things, he absolutely believed the City would be in perfectly fine shape. Councilmember Olson was confident the City would correct and be fine on the other end; her question was his assertion that the evaluators would say that today. Mr. Turley responded the City will not be doing a ratings call for at least 1.5-2 years. Next year the council will be approving a biennial budget and the following year will be an off year from the budget which is the time to do things like sell bonds. Councilmember Olson observed the evaluators would not be looking at the same numbers the council was looking at now, they would be looking at 1-2 years out. Councilmember Teitzel said he has received a number of questions from citizens about this; the City collectively and the council and mayor have commented on record levels sales tax revenue and stable property tax revenue. With that in mind, he asked how the City can have a negative run rate between Edmonds City Council Approved Minutes October 19, 2023 Page 4 revenues and expenses. Revenue forecasts for the end of 2023 are $51.6 million and expenses are $56.8 million. The conclusion citizens are drawing is the City is overspending revenue and that needs to be fixed, that has gotten out of balance and caused the use of reserves. He asked Mr. Turley if the City has not been responsible with spending in his opinion. Mr. Turley answered the City has been more than responsible with spending. People do not realize that Edmonds runs very lean; there are 9 employees in finance, neighboring cities the same size have 18 employees. The economic development department has three employees. Edmonds runs a very lean, small government. The fact that expenses have gone up is due to the effects of inflation. Inflation hit globally, and the reason it is an issue now is inflation averaged 2.5% for the last 20 years. Mr. Turley continued, recalling 4-5 years ago, there was discussion about negative interest rates and negative inflation. Edmonds had moderate sales tax growth which was able to keep up with inflation and made up for fact that property taxes have been almost flat for years. Property taxes make up 1/3 of the General Fund budget and costs have increased 10%. The reason the council is having this discussion is record inflation; inflation has been 8-10% for 2 years. The City is not immune to inflation, when costs went up, outside of adding funds for the fire contract, everything else was a direct result of inflation. It is not bad management by council or the administration. Even adding positions a couple years ago was simply catching up from running too lean for several years. Nearly all the reason that costs have increased is due to inflation and the reason revenues have not increased is there has not been any action to taken to increase revenues. Councilmember Buckshnis explained the AAA rating is for GFOA bonds which are related to the General Fund. The City's rating for revenue bonds for utilities is AA. Utility bonds are treated differently because utility rates pay for the bonds. She clarified the City would not be going out for GFOA bonds, it would be going out for utility revenue bonds which have separate sources of repayment. That is why the utility rate study is so important; evaluators look to see if the utility bonds can be funded with utility rates. She summarized GFOA bonds and utility revenue bonds are two separate animals. Reserve Policy Council President Tibbott asked Mr. Taraday to address the General Fund Reserve Policy. Mr. Taraday suggested as only 25 minutes was allocated for this discussion, going straight to council questions. Council President Tibbott said an overview of the reserve policy would be helpful for council. It would also be helpful to know whether there are ambiguities in the reserve policy and obligations for council to act and any decisions the council needs to be aware of as they begin budget planning for 2024. Mr. Taraday said the reserve policy could be thought of two funds sacked atop each other, the contingent reserve at that bottom which is 4% of the adopted General Fund operating expenditure budget and the reserve policy which is 16% of the operating reserve, together they are supposed to total 20% of the adopted General Fund expenditure budget. As stated in the reserve, policy, the point of the policy is to "define that portion of fund balance that is unavailable to support the current budget." Ideally that money is supposed to sit there and not be used. The policy lists scenarios where it might be used. At a fundamental level, the council has decided via this policy that the 20% should sit there and not be used except in exceptional circumstances. There are some procedural pieces missing from the policy, for example, it is not clear exactly when the City is supposed to take stock of this measuring point, whether that occurs only once a year when the budget is adopted, The word "annual" is used in the first paragraph Article III which addresses the adopted annual operating expenditure budget. That can be read two ways, that the reserve level is, 1) set and reviewed annually, or 2) set annually and reviewed continuously. Councilmember Buckshnis raised a point of clarification, suggesting Mr. Taraday read Article V. Mr. Taraday responded his overview was only at Article III at this point. Edmonds City Council Approved Minutes October 19, 2023 Page 5 Mr. Taraday continued, under the theory the reserve level is supposed to be continuously reviewed, other than obvious reporting dates in the policy, it is not clear whether it should be done with every budget amendment. That might be a good idea, but the policy does not expressly say that. Arguably one could say to prevent funds from being used, that needs to be done at the budget amendment stage, but the policy does not expressly call that out. There has been some discussion about the phrase "fiscal emergency" used in policy. He read from Section 1 (bottom of page 6), "A separate balance sheet account shall be setup by the Finance Director for the General Fund Operating Reserve, to be used in instances of fiscal emergencies that include: economic uncertainties, unforeseen emergencies, and unanticipated operating expenses or revenue shortfalls." The word emergency can be a loaded term in some people's perception, but the way the policy uses that term is a fairly inclusive definition of emergency to include things like unanticipated operating expenses. Mr. Taraday referred to Section 1 (top of page 7) which states the mayor can declare a fiscal emergency. The mayor has the power to declare a fiscal emergency in certain situations and three are listed in the policy but do not include unanticipated operating expenses which was listed in the previous paragraph of Section 1. He was uncertain if that was an intentional omission or sloppy drafting. In comparing those two paragraphs, fiscal emergency is defined quite broadly, but used more narrowly in the mayoral declaration that only identifies three situations. He pointed out that distinction because not all fiscal emergencies are declared by the mayor. There is room in the policy for a fiscal emergency that would not be the type declared by the mayor but the council could determine there is a fiscal emergency. Mr. Taraday continued, the meat of the policy is in next two paragraph in Section 1, Limitations of Fund Use. The gist of those paragraphs is the funds are not supposed to be used except in cases of fiscal emergency. The second paragraph describes the process of what ideally happens when use of the funds if preceded by a presentation and vote. The council voted on budget amendments, but there was no express statement at that time about using the fund balance. When there has been a use of fund balance, which it is fairly clear in this case there has been, is there by definition a fiscal emergency? If the policy states these funds are only supposed to be used in a case of fiscal emergency and the funds have been used, is there any logical way around that to not describe that as a fiscal emergency? He was unsure there was, but that is ultimately for the council to decide. Mr. Taraday explained, ultimately, he was unsure it mattered whether this was described as a fiscal emergency because the General Fund Operating Reserve Replenishment paragraph outlines the duty to develop a plan to replenish the reserves which Mr. Turley already described. The policy does not speak to replenishing the reserves overnight, but over a certain period of time depending on how much the reserve is drawn down. Mr. Taraday said he would not review Article IV regarding the Contingency Reserve Fund Balance Policy because it was repetitive of the Operating Reserve and the Contingency Reserve has not been used. Mr. Taraday continued, Article V addresses reporting; there are two times in the year when the fund balance is supposed to be looked at, 1) when adopting the budget, and 2) a status report that provides a snapshot of fund balances on June 30t' and council is notified of the fund balance reserve levels. There is no other action contemplated in the policy other than a report to council. Every five years, the policy is to be reviewed and potentially updated; the policy was adopted in 2019 so in 2024.Obviously the council can update the policy whenever they wish.. Article VII addresses deviations and that no deviations from the policy will be allowed except as approved by a simple majority of the council, and definitions. He highlighted the definition of structural budget deficit (bottom of page 12), the last sentence of which states, "Another description is that the current revenue structure is insufficient to maintain services at the current level." Mr. Taraday said after reading the policy and listening to the May 2019 meeting where the reserve was discussed, it is not that the City can never have an adopted budget where expenses exceed revenue. If there Edmonds City Council Approved Minutes October 19, 2023 Page 6 is extra fund balance, for example 24%, the adopted budget could draw down the fund balance. In fact there was some expectation to make good use of tax dollars, rather than having them sit in a bank, it is better to put those to public use. It would be a mistake to look at the definition and come away with the idea that any time a budget's expenses exceed revenue, it is somehow a violation of the policy. Where it becomes a problem is dipping into the fund balance that is not supposed to be used for the current budget. Council President Tibbott relayed his understanding that one of the reasons the City achieved a AAA bond rating was the reserve policy and success over the years in maintaining the reserve. Even looking into the end 20023, there are things that can be done to bring the reserve up to even again. Edmonds has been very responsible, but in considering the 2024 budget, obviously some actions need to be taken to adjust revenues to catch up with anticipated expenses. Councilmember Nand asked whether the COVID pandemic and related emergency orders that were issued during that time could be considered to construe a fiscal emergency because inflation is arguably an after- effect of the pandemic. Mr. Taraday said any of things described in Section 1 (bottom page 6), economic uncertainties, unforeseen emergencies, unanticipated operating expenses unanticipated revenue shortfalls, could be considered a fiscal emergency under the right circumstances. The right circumstances are where fund balance below the 20% needs to be used to address the situation. Councilmember Nand said there is an argument that the world and society have been in an emergency state for the last few years due to the pandemic and its economic impacts. Councilmember Nand asked if Mr. Turley was aware of any other local municipal finance departments or budget administrations that had dipped into reserves to address inflation as an economic uncertainty. Mr. Turley said he did not know what kind of reserve policies the other cities have. He has seen a lot in the media about cities saying they need to raise revenues to better balance their budget, but their reserve policies do not accompany those articles. Councilmember Nand wondered if Edmonds was an exception in dipping into its reserve or were other local entities were experiencing the same thing. Mr. Turley responded he was not sure. He referred to an article he sent to councilmembers about Poulsbo, Seattle, and King County having the exact same discussion. He has seen this same conversation occurring in a lot of cities, but they don't directly address their reserve policy the way the city council is today. In response to Mr. Taraday's overview of the reserve policy, Councilmember Chen pointed out Section 1 on page 6 broadly described when the reserve can be used such as unforeseen emergencies, unanticipated operating expenses or revenue shortfalls. In the same section, at the top of page 7, the policy list three situations when the mayor can declare a fiscal emergency, the third of which is a significant decline in General Fund revenue. His understanding of the reserve policy is for the City to have a 20% cushion in reserve in case of unexpected either revenue shortfall or unexpected expenses that outpace revenue. In Edmonds' case, revenues have been very strong even in the pandemic year, so obviously there is not a revenue shortfall. However, expenses have been outpacing revenue which is why the City is in this situation. Looking at the policy as a whole, the City meets the emergency definition. That section also has a paragraph on Limitations of Fund Use which states any use of the committed General Fund Operating Reserves shall be used only in cases of fiscal emergency and shall not be used to augment ongoing budgetary/operating spending increases. Council President Tibbott observed Councilmember Chen may be getting into the discussion planned for Tuesday's council meeting. He encouraged Councilmember Chen to ask his question related to the reserve policy. Councilmember Chen asked whether the City has a fiscal emergency. Mr. Taraday answered under the language of this policy, looking at the policy one way, any time operating reserves are used, there is a fiscal emergency because according to the policy operating reserves can only be used in cases of fiscal emergency. That is a valid way of interpreting the policy, but it may not be only way to interpret it. Edmonds City Council Approved Minutes October 19, 2023 Page 7 Councilmember Teitzel relayed Councilmember Buckshnis and he were on the Finance Committee in 2019 and worked with former Finance Director Scott James to develop this policy. He recalled Mr. Turley was also an employee at that time. The genesis of the plan was the convening the long range financial planning committee in 2018 to discuss how to control the City's finances more effective. The fund balance policy was carefully considered by the council which included Councilmembers Tibbott and Nelson at that time. He claimed no ownership over the reserve policy and acknowledged it wasn't perfect and could be improved, but this policy is what the council has to work with. Councilmember Teitzel continued, having said that by way of background, he read the definition of a structural deficit, "Structural Budget Deficit or "Gap" — A budget deficit (Gap) that results from a fundamental imbalance whereby current year governmental expenditures exceed current year revenues without any consideration of carryover or prior year unspent revenue balances if they exist. A structural deficit remains across the operating fiscal cycle because the general level of government spending is too high for the prevailing revenue structure (e.g., taxes fees, and other sources). A fiscal Gap, is a structural budget deficit over an extended period of time and not only includes the structural deficit at a given point in time but also the difference between promised future government commitments, such as health and retirement spending, and future planned or anticipated tax and other revenues. Another description is that the current revenue structure is insufficient to maintain services at the current level." As an author of this policy, Councilmember Teitzel asserted the City had exactly this situation, a structural budget deficit and the deficit is being fixed with short term infusions of cash primarily from ARPA and Fund 016, one-time fixes that do not fix the structural budget deficit. The deficit is driving the crisis in 2023 and that needs to be addressed. The council needs to take strong action in 2024 beyond what is proposed in the budget such as potential hiring freezes, not backfilling certain vacancies, etc. to fix the structural budget deficit. These are hard decisions the council will need to work through with the administration's cooperation over the next month, otherwise next year's council and whoever the mayor is will have to deal with this which will be very difficult. Council President Tibbott agreed to extend the discussion on the first agenda item for seven minutes. Councilmember Buckshnis relayed the late Councilmember Kristiana Johnson, Councilmember Teitzel, Scott James and Dave Turley spent over a year on long range financial planning so that the City could achieve a AAA rating. She referred to page 25 of the budget book, Expenditure Summary — All Funds, which indicates not only is inflation part of the problem, but a lot of expenses have increased significantly over the past 3-4 years; for example, professional services have gone up $14 million. She summarized revenues have been strong, but expenditures have outpaced revenues. She agreed with everything Councilmember Teitzel said. Councilmember Olson referred to Section 1 of the Fund Balance Reserve Policy where it states a separate balance sheet account shall be set up to be used in instances of fiscal emergencies where funds in the operating reserve are being used. She asked if that was underway or something that could be attached to the monthly financial reports. Mr. Turley said he would need to address that next year when the policy itself is readdressed. He did not understand that paragraph, did not know who wrote it, or the intention. There is no separate balance sheet account for this fund. Council President Tibbott commented it is during times of enormous inflationary pressures that policies like this are tested. It is an opportunity to see where the deficiencies are and address them when the policy is revised next year. Councilmember Paine recalled the council has made decisions such as salary increases to ensure salary equity which is directly related to inflationary pressures as well as to retain staff. The section on deviations Edmonds City Council Approved Minutes October 19, 2023 Page 8 from policy states no deviations from the policy are allowed except as approved by a simple majority vote of the council; however, the council knew this was happening and that inflation was hitting the City hard. She agreed with Councilmember Teitzel that this needs to be fixed, but the pressure hasn't been felt until this year due to an abundance of ARPA funds and the revenue side has been minded as well it as it should have been. There are times when the council needs to take ownership of decisions they have been making and for not minding the revenue side too much. Those were some of the things she saw going on in the lens of this reserve policy. If there this many ambiguities in the policy, the council should probably spend time revising the policy next year. Councilmember Teitzel referred to Limitations of Fund Use in Section 1, which states a simple majority vote of the council shall be required to approve the amount and use of funds. He asked if his understanding was correct, that the council needed to specifically vote to approve the use of ARPA funds to close the gap. Mr. Taraday responded those are two separate questions; closing the gap is related to replenishment. Councilmember Teitzel restated his question, to refill the $2 million shortfall in the General Fund, will council need to approve funds to fill that shortfall to get back to an even state by the end of the year? Mr. Taraday said the sentence, a simple majority vote shall be required, contemplates a vote of the council when the reserve is drawn down. The council will obviously be involved in bringing the fund back up, but this is related to drawing down the reserve requiring a council vote. Councilmember Teitzel observed it was a question of timing; when are the funds in the reserve being used. The strategic outlook show the ending balance, but the fact is the end of the year is not here yet so when were the funds actually used and when did council need to vote on that. Mr. Taraday said that points out an ambiguity in the policy; the policy also calls for a June 30' snapshot which shows that the funds have been used. Councilmember Buckshnis commented there is no June 30th snapshot. Mr. Taraday assumed calculations would show that the reserve funds have been used by June 30, 2023. Councilmember Teitzel's question is related to what action should be taken retroactively and the policy is silent on that. The policy addresses what should happen prospectively; the only thing the policy addresses retroactively is replenishment, once the funds have been used, how they are replenished and the policy provides a schedule for replenishment. The reason the reserve exists is to allow the City to respond to things like periods of high inflation. It is not so much improper that the funds were used because that is why the reserve exists in the first place. Most businesses can respond promptly to inflationary pressures by raising their prices. Cities cannot do that because they are limited by 1 %/year property tax increases, money the council has not taken over the last several years, and most of the City's revenue sources are beyond its control. That is one of the reasons the reserve funds exists, to respond to periods of high inflation when the City cannot just raise its prices. Councilmember Teitzel said he did not believe the policy allowed the mayor and the finance director to unilaterally use reserves; a specific vote of the council is required to allow that. He asked when that vote should happen. Mr. Taraday said the question is whether it had already happened. One of the things that is not clear in the policy is if the council expressly approves a budget amendment that brings the ending fund balance below the level of the reserve, is that a council -approved deviation from the policy? He did not know the answer and said it was a fair question to ask because the policy did not say exactly what kind of affirmative vote of the council was needed. Clearly the funds have been used; that is beyond dispute. Councilmember Olson questioned if the council was aware at the time that occurred. Councilmember Nand commented it sounds like in order to spend into the reserves, the mayor was supposed to have declared a fiscal emergency and that was approved by the council. She referred to Section 1 of Article II, reasons the mayor has the power to declare a fiscal emergency, and asked if the public safety challenges related to the COVID or the opioid pandemic could be construed as an immediate threat to health and public safety and thus triggering events for declaring a fiscal emergency. Mr. Taraday responded if Edmonds City Council Approved Minutes October 19, 2023 Page 9 there was any tacit consent to using the funds, it would have been in the form of budget amendments that occurred in 2023. 2. SNOHOMISH COUNTY TAX ASSESSOR PRESENTATION Council President Tibbott introduced Linda Hjelli, Snohomish County Assessor. Councilmember Olson explained she met Ms. Hjelli at a candidate event and began talking about challenges with understanding the process of calculating property taxes and the taxes property owners pay as individuals. Residents assume if property taxes go up, the amount of tax they pay goes up proportionately based on their valuation going up the same amount. She thanked Ms. Hjelli for offering to make a presentation to the council. Ms. Hjelli reviewed: • What is the Assessor's job? o Washington State law requires that Assessors assess (value) all real and personal property in the county at 100% of true and fair market value in money, unless specifically exempted by law o Real property includes land and all buildings, structures and improvements to the land o Personal property includes machinery & equipment, fixtures, furniture, other moveable items owned or leased by a business o Add new construction information and value to roll We are also responsible for o Administration of exemption programs such as senior citizen and non-profit o Administration of special programs ■ Open space (farm, agricultural, timber, and general), forest land and historical restoration o Maintaining Assessor's GIS parcel layer and maps used by all county departments o Responding to appeals to the BOE and BTA o Parcel maintenance — segregations, combinations, BLA's, new plats short plats o Calculation and administration of levies o Customer service Councilmember Nand asked if Ms. Hjelli could address the impacts of HB I I10 and companion bills on valuations of previously single family zoned properties. Ms. Hjelli asked if she was referring to ADUs. Councilmember Nand answered ADUs and the increased density requirements. Ms. Hjelli said that was not part of her presentation, but she could come back for that further discussion, noting it is impactful to the Assessor's Office. Tax Code Areas & Limits o Snohomish County has ■ 68 taxing districts (state, school, fire, hospital, etc.) ■ 382 tax code areas o Example 0 Tax Code Area Local School District #1 #2 #3 Hospital #5 #6 #4 Fire District #7 Three taxing districts create 7 tax code areas. Edmonds City Council Approved Minutes October 19, 2023 Page 10 • Where do property taxes go? Snohomish County Distribution of 2023 Taxes Clues & To nns Ports Roads Libraries 0, 36o, 4,32% 3.54% Regbnal Transit Aultlonty Parks & Recreason 8.5346 1.26% coui 6.27 Fire Disficts 11.34% Hospitals State School 0.72% 29.22% School Distncts UAW, Levies & Rates o Taxing district establishes levy amount (original amount by vote) o Levy (budget) amount is provided to our office with documentation by end of November o We check limitation o We calculate the final levy amount and rate Levy terms o Highest lawful levy ■ Taxing districts do not have to collect the total amount they are allowed to collect. o Actual levy ■ What a taxing district actually takes o New construction ■ In addition to the allowed 1 % increase in property taxes, additional funds can be collected for new construction that occurred within the taxing district because services are being provided to additional residents o State Utilities o Annexation ■ If additional area was annexed that services are provided to o Refunds ■ Properties that became exempt during the year that received a refund, the taxing district can collect that amount the following year from the other taxpayers o Banked Capacity Councilmember Nand asked if new construction was jurisdiction wide. Ms. Hjelli answered it is the value of new construction within the taxing district, calculated in the summer months. The Assessor determines that amount and the amount that can be added to the budget and collected the following year. Levy Limit (101%) & Amount authorized by Resolution/Ordinance o Banked Capacity ■ Is the difference between the highest lawful levy that could have been made and the actual levy that as imposed. ■ Taxing districts can increase their budgets by 1 % each year although not every taxing district does. When the increase is not taken and an ordinance is passed to banked that amount, the taxing district reserves the right to tax at a higher level in the future. ■ Having banked capacity for one year does not guarantee the district will have the same amount or more the following years ■ Districts can protect levy capacity by passing the appropriate resolution(s)/ordinance(s) ■ If a district wants to use banked capacity, their resolution/ordinance must authorize the increase Edmonds City Council Approved Minutes October 19, 2023 Page 11 ■ Future levy capacities for district who levied less than their highest lawful levy are protected under RCW 84.55.092 Councilmember Nand asked if the 1% increases can be stacked. Ms. Hjelli answered yes, the highest lawful levy is calculated as if the taxing district took the 1% every year and passed the ordinance every year to reserve the ability to do so. Councilmember Nand asked if there is a cap on banked capacity. Ms. Hjelli answered no, but a taxing district could be limited by their rate in particular year under certain circumstances. She clarified the 1 % doesn't go away, but it might be limited one year. • Statutory Dollar Rate Limit State $3.60 equalized County General $1.80 County Road $2.25 Cities $3.375* RTA $0.25 Fire $1.50 RFA $1.00-$1.50 EMS $0.50 Library $0.50 Hospital $0.75 *Cities may levy up to $3.60 if they have annexed to a library or fire district less the actual levy rate for the library or fire district and also may levy an additional .225 if they have earmarked firemen's pension funds. • Examples of Estimated Levy Disclaimer: The following requested scenarios include estimated amounts. Final values that will be used in the levy calculations for 2024 taxes are as of a December 1, 2023 date o Three scenarios ■ No increase Ed—ft Hll 1U",31-6 1% 112A63.11 11.319,43e 8] 103% I.— 11,318,131.H] NC M,052.71 I— Kays Uo.- 6,600. e11 el roll <bu Mneaxion - Pefund 29,126.21 1l 3e2e / 15,424Ae3.338 a low 0, 23788285a08 Nll AV Hll • 11 31,31Aa3a-8] ual 4vy 10,685,180.53 Iculale Increase 5 and% Ddference 633.254.33 5.926e]29091]930% Mwllery 10,663,180.53 10,685,160.5a 1%IrNrease 106,8s161 NC 29.M2.11 last Kais Ulildies 1,600a5 eit at rollcbw Armeaatbn Refund 29,126.21 l0,]4],m.91 / 15A26,N3,3M a 1" 0.696831542N actual e.rwunl leased andrate PreyawM Mrvya AV St,996,963.)) a ISA2a,0a3.338 / 1000 3.62500000000 statutory amount 5l—,—AmaNN AV Statutory Pale ■ 1% increase Edmonds City Council Approved Minutes October 19, 2023 Page 12 Edmonds N4 11,2%371.16 I% 112AM.71 11,31&�47 1 101%lit[reeae SL318.a3a 8) NC 29AS2.71 last ywra -W., A,BOOAS esl al rollcbu MntaMlOn - R9 29,12&21 11 1a26 / 15A24,043,336 . I" 0.231NI854 NLL AV Nll • 1% 11,11104.11 wl kv) 10,68&180.51 NV4u increau5entlx odercnte 633,25L.33 5.92W)29091)930% AstuN Ltey f0,6K,160S1 IOU 10.685.180.5A 1% Incrsaie 3%,35m NC 29,052 7I a ue;nuea a.lsm.as nn n rou raw Mne.ml9n Me1wM 29.12fi.21 f0,)A),959.91 / 15A&24jN3,338 a 1000 0.6968315a2ae xtual emount Imed and rate e.nv acutal Nvy AV 56,9%,965.)) x 15.a1a.0a3,338 / 1000 3.82500000000 atatNory amount Statulay Anpiant AV Slaluttwy Mate ■ Banked capacity Ed—W 1— 11,20&371.16 1% 112A6d.71 11.318.43..8) 101% MN— 11,318,434.87 NC 29.052.71 last ycar'a iln � ies A,600.a5 rst at roll cloy¢ Annexation - Ilefund 29,126.21 IL36L21a.26 / 15.424,09L138 x lt3lp 0-7378879S M AV NLL • 11 11,31&A3/.81 ual l., 10.665.160.Sa —.1— i--. $.M % off-, 633.3".33 5.926aJ29091J93(NG Miwl Levy 1&655,160." �926)291% 03.181.70 1 L318.A62.2a I%MttNu 106,85181 NC 29,p52.J1 last ytar'a txdioes A,600.&5 eat at ral [1me Annaaatron - W-d 29.126.21 1Lwi."L61 / 15,aI.,0a3.338 x 1— 0.73-96-8 —.1 amount IMM and rate %H siadal leyya AV S&9%,%5.)) M IS,aIa,0a3,338 / 1000 3 82500000000 atatulary amount SlatWory Amount AV ltiiurr.ry 0.atn • Basic levy process o The taxing district's "levy" divided by assessed value of all taxable parcels in the district equals the tax rate ("levy rate") for the district: o Example of calculating a levy rate: Levy = Levy rate Taxable Value $50,000 = $,501$1,000 AV $100,000,000 o Example of tax bill calculation using the levy rate above: $.50 Levy Rate x 300 (300,000 AV) $150 Tax bill • Estimated impact: o Average Edmonds residence AV $896,700 ■ 0% increase — est. rate .69683154244 $896,700 x .69683154244 = $624.85 ■ 1% increase — est. rate .70375915589 $896,700 x 70375915589 = $631.06 ■ 5.9% increase — est. rate .73788962858 $896,700 x .73788962858 = $661.67 Edmonds City Council Approved Minutes October 19, 2023 Page 13 Councilmember Nand referred to senior citizens who originally purchased their single family residence for $86,000 and their property value has increased 1000%. She asked if more property taxes been collected from them even though the City has been banking the 1% increase. Ms. Hjelli answered no. Washington is a budget based state, not a rate based state. In a rate based state, a rate is voted in and whatever the assessed value is, the calculation is the rate times the assessed value determines the amount to be collected. The issue with that system is it's very unstable; assessed/market values can change dramatically. With a budget based system, taxing districts decide what they are going to collect first based on what has been voted for and the amount that can legally be increased. The amount to be collected is established first. The assessed value determines what portion of the amount to be collected each property will pay. It does not determine how much will be collected, it just spreads out who pays what part of the amount. That is why to collect the same amount each year, if assessed values go up, the rate has to go down and vice versa. During the past year the assessed value went down in several areas so the rate has to increase. Councilmember Nand observed the property owner who bought at $86,000 and their house is now valued at $896,000 isn't seeing too much fluctuation. Ms. Hjelli said they are not seeing fluctuation because the assessed value changed, but due to approval of school district bonds, levy lid lifts, etc. She summarized there are other ways for property tax increases occur, but it is not directly related to the increase in value. Councilmember Paine recalled when she was on the school board, the way it was explained was the amount of peanut butter that can be spread on difference size pieces of toast; the smaller the toast, the thicker the peanut butter, the peanut butter being the tax. This is a difficult thing to describe. Councilmember Teitzel asked if the 5.9% increase was the actual amount, recalling discussion about a 4.5% increase. Ms. Hjelli answered the 5.9% includes the 1% increase. It is the difference between the highest lawful levy and the actual levy which can change from year to year. Even though the banked capacity may have been estimated to be a certain amount, 5.9% is what it would be. Mr. Turley said in preparing for his presentation next week, he was looking at the property tax numbers and these look very similar to what he was researching. Councilmember Buckshnis asked the number of years the 1 % had been banked. Mr. Turley answered five years. • Examples of Estimated EMS Levy o No increase Ed—, EMS P9mbnant 2000.00 NLL Oa6 a,325.R16K 1101%lope 6,325,9]6.95 NC A33.K est N M dose Rn RNuno u 11.616A3 aA9g91f.n / Al • 1000 0,19209D>3%1 I leuv e.iK.135.n aisle moea.e5ane% 0 921201-089— ONINenT 39,TI.K ATW 4uY 1AK135A) 0% 12K.135A] 1Y Mc 42,K1.35 II,K2.K en at.eil ci ReNnE 11,61— 6,311A39A1 / 15A110e3.3K • 1000 0.3]95U15303 aquN amount YrW aM rNe Rnvaatal leW RV ,71a 1.67 ISA21.033333 / 3000 O.saoo99mom shtutoryamoum SmtNory Rmount RV NNutory Rah / ISA241K3339 • 1030 —1.dlmoum 1V Myhh 4LLneW Tea: 9%.MO RNe V O.I]951N5303 FstlmatM Ta• ]SOM ■ 1% Increase Edmonds City Council Approved Minutes October 19, 2023 Page 14 Etl13 68 EMS Perstlarlmt 2004on MLL 4 ,M3,OKA9 % 411, J e,3I5A)D.D5 C NC 11,653DJ est a[ml-1b ne•atbn 1 0.ehnE 11,616a1 35Q9TD.)9 / 15.<3t,0a3,338 • 1000 0283090)3941 AV a a,3I5,1DS mvease nal Im 3S47 Iate 5 ana x 0.Rereri¢ 39,711,38 093)30))oo0J930% MualLm a.1DD.135A) 0ID,9%.Di I% Ircrease 03.861.35 NC 1I653.DJ U#yeals Ut9Rks 1,D33.J5 estnrollMu,3nnuatitn RehnO 11,616A1 4,35I,OM.76 / 15AI4,b3,331 • ]000 0.22229301906 actual amount kvkEaM rate Prev acutal levyr pV ),)1 ..7 • 15,421,-,338 / 100D OSOOOOOW000 sutWaryam�unt 5[alulory Amount AV Statutory Ratt / 3e,0a3,— • — Ct011kE•maunt AV Im rate 6tbk[M Tnn: 253.13 O.IM29 F Rtlmatetl Ta• 253.13 ■ No example for banked capacity as the 1 % increase has been every year WA State Property Tax System o Dept of Revenue Property Tax Division o RCW's and WAC's Washington State Laws and Rules o Adhere to IAAO Standards o All property adjusted to current market value as of January 1 each year o New construction assessment date is July 31st instead of Jan 1st of each year Annual Revaluation o All property is valued every year 0 1/6tt' of the property is physically inspected each year o Sales information used in valuation and/or in support of the values are ones that occurred in the market in the previous year/s o Per RCW 84.40.030 property is valued at 100% of market value Councilmember Nand said she has heard about segments of communities trying to opt out due to significant land change uses around them that greatly increased their property values. She asked if that was happening in Snohomish County. Ms. Hjelli answered the rules apply to everyone, there is no opting out, all property is valued at 100% of market value. There are property owners who think their property values are different than what the Assessor's Office calculations. The Board of Equalization or the Board of Tax Appeals requires evidence to show the value is something other than the Assessor's Office indicates. People with a concern about their value are asked to call to ensure the Assessor's Office has the right information about their property, like did something change, are there wetlands that the Assessor's Office was not aware of, etc. If the information is not accurate, the Assessor's Office will adjust their records and update the value according to the new information. If the information is accurate and the Assessor's Office is confident the right information was used to evaluate the property based on sales, the next step is to go to the board and present information to prove the Assessor's Office's value is incorrect. • Residential Appraisal Areas 0 4 Work Regions 0 6 Inspection Areas Per Region Edmonds City Council Approved Minutes October 19, 2023 Page 15 Councilmember Teitzel commented it sounds like a massive job to inspect that many properties. He asked how many inspectors the Assessor's office has. Ms. Hjelli answered there are 70 employees and about 30 are appraisers. Appraisal Tools o We use ■ For residential property - a predictive valuation model - Predicts value based upon property characteristics and sales price ■ Market calibrated stratified cost approach (MCSCA) - Based on Marshal & Swift ... cost approach, a national standards for estimating `cost,' calibrated to local market conditions Commercial Property - Income, Market and Cost Approaches o Commercial Property is typically valued and assess using one or all of the 3 approaches to value: 1. Income approach - IRV (income divided by rate equals value) 2. Market or sales comparison approach 3. Cost approach Councilmember Teitzel asked what is someone completely gutted and redid the interior of their house which is not visible from the exterior. He asked how internal remodels are accounted for. Ms. Hjelli agreed it was difficult, but cities are required to submit permits to the Assessor's Office and during the summer, an effort is make to physically inspected each permit. They also use information available on online real estate sites to gather additional information. Oftentimes property owners want them to come inside to ensure assumptions are not made that overvalue the property. Councilmember Nand asked if the income approach for assessing commercial property excluded residential rental properties, Airbnb, etc. Ms. Hj elli said there are typically good sales comparisons for those properties. It is not always easy to get the income information for an Airbnb. The Assessor's Offices uses the best approach they can to come up with accurate value based on the available information. • Mass Appraisal vs Fee Appraisal o Creating a model & applying it to multiple parcels vs 3 comp appraisal for lending purposes o Sales verification o Identifying influences that affect value o Statistical analysis - use of measurement tools Edmonds City Council Approved Minutes October 19, 2023 Page 16 o Mass appraisal report — online for both residential and commercial properties • Senior Citizen Disabled Persons Exemption for 2023 tax year Status Income Level Amount of Reduction A $0 to $38,591 Exempt from excess levies (ie: local school levies) and Part 2 of the state school levy imposed under RCW 84.52.065(2), plus a reduction of assessed value of 60% or $60,000, whichever is greater B $38,952 to $47,167 Exempt from excess levies and Part 2 of the state school levy imposed under RCW 84.52.065(2), plus a reduction of assessed value of 35% or $50,000, whichever is greater, not to exceed $70,000 C $47,168 to $55,743 Exempt from excess levies and Part 2 of the state school levy imposed under RCW 84.52.065(2) • Senior Citizen Disabled Persons Exemption for 2024 Tax Status Income Level Amount of Reduction A $0 to $54,000 Exempt from excess levies (ie: local school levies) and Part 2 of the state school levy imposed under RCW 84.52.065(2), plus a reduction of assessed value of 60% or $60,000, whichever is greater B $54,001 to $64,000 Exempt from excess levies and Part 2 of the state school levy imposed under RCW 84.52.065(2), plus a reduction of assessed value of 35% or $50,000, whichever is greater, not to exceed $70,000 C $64,001 to $75,000 Exempt from excess levies and Part 2 of the state school levy imposed under RCW 84.52.065(2) o Taxable value is frozen at the year a property owner enter the program. If property values go below the frozen assessed value, it will be refrozen at the lower value o Assistance completing forms is available at the Assessor's Office Mr. Taraday asked what sources of income are included. Ms. Hjelli answered it is gross household income not net, although there is a list of things that can be used to reduce income. With regard to the increased income level for the 2024 tax exemption, Ms. Hjelli explained with the 8% increase in social security, assessors were concerned senior citizens would no longer quality for the program. A group of assessors worked with the legislature to reconsider the levels. Next year's maximum to qualify for the exemption goes up to $75,000. She has requested additional staff in the next budget cycle, anticipating about 4,000 more applicants in 2024; there are about 12,000 properties on the program now. Councilmember Paine asked if applicants have to come to the Assessor's Office to apply for an exemption. Ms. Hjelli answered they can mail in their information. the Assessor's Office does not have an efile yet although she hopes to add that in the future. Councilmember Olson asked how the exemption affects the amount the City collects. Ms. Hjelli answered it does not reduce the amount collected, it changes who pays it; exemptions shifts the tax burden to other taxpayers in the area. Councilmember Nand asked about community partner organizations that assist seniors citizens or disabled individuals. Ms. Hjelli answered before COVID there were volunteers that assisted with completing forms. She often visits entities to distribute exemption packet. She does not have any volunteers who are providing assistance now, it is currently only her staff. Councilmember Nand asked if that was something the City's human services could potentially support. Ms. Hjelli advised the Assessor's Office can provide packets and Edmonds City Council Approved Minutes October 19, 2023 Page 17 show people how to fill out the forms; she did a presentation for seniors at the Mill Creek YMCA recently. Councilmember Olson envisioned the senior center could also set up a program with volunteers. What is available on the Assessor's website o SCOPI interactive map — aerial photos, parcel boundaries, assessed values, sales info, property characteristics, taxes, etc. o Sales Search/Comp Search app o Mobile App o Assessor Parcel Maps o Personal Property E-File & FTP Data o Mass Appraisal Reports o Performance Statistics o Special Programs/Classification Information o Tax Relief Program Information o Forms and Publications • Property tax distribution tool o Shows who taxes were paid to for the past few years and how it has changed. Poop" Tasty Total $4.746,768,146 Sl+r<t 1. mar(s) 2023 2d22 2021 Look at my Indyidwl Te. 1 r Noptrry la L11SIrllwlron a.rt. Pp.as la3'11 a7N SOW Onu.t, 34 331 cerrmr ea2w 0— a T-- 012% F.. dfn— 1.— M.l. S —1 28YN Tas &eakd b, Veal gpiVli.n I..nato....ai.wmtyalire p.errn. a.btpr.l. �trbrw. •NvktM1 Pr.rMorr ftrtt alleow..l lrnrn Auticrnv NoeOt aSctoAtrrtnr;t. •vnlr:xtrri 3a71 ' Waa. v. /tcb. fr lon Ms. Hjelli said she has a teaching background and one of her biggest goals is getting good information to people to make good decisions. Mr. Turley agreed the Assessor's Office does an outstanding job of doing that. Ms. Hjelli advised the Assessor's Office provides an annual levy class which was already held this year. The Department of Revenue also offers a class. She invited councilmembers to contact her with any questions or if they needed help. Council President Tibbott declared a brief recess. 3. 2024 BUDGET WORKSHOP: 2024 PROPOSED REVENUES Council President Tibbott explained this agenda item is regarding sources of revenue, the council is not voting on them or not committing to any action other than a robust discussion in a short timeframe. He asked councilmembers to spend two minutes describing what they liked or did not like about a specific revenue source which would then be followed by about five minutes of discussion. He identified topics and councilmembers: ARPA funds: Councilmember Chen, Building Fund Transfer: Councilmember Olson, Red Light Cameras: Councilmembers Teitzel and Paine, Grants: Councilmember Nand, and Levy options: Councilmember Buckshnis. ARPA funds Edmonds City Council Approved Minutes October 19, 2023 Page 18 Councilmember Chen observed the City is dealing with a financial situation; according to the proposed budget, by the end of the year $2.2 million from reserves will be needed to cover daily operations. He proposed using ARPA funds to get through 2023 and not start 2024 with a deficit. About a year ago he learned at a AWC conference that federal regulations allow local jurisdictions/city governments to use ARPA funds up to $10 million for day-to-day operations even if there is no revenue shortfall. Originally the intent of ARPA funds was to supplement cities who experienced revenue shortfalls, but that is not the case for Edmonds. Since the use of ARPA funds is allowed by federal law and the City still has about $8 million in M ARPA funds, there just needs to be an announcement that there is a need to use the funds and that will allow the City to start 2024 clean. Councilmember Chen acknowledged that was just a band -aid, not a long term solution. As Councilmember Teitzel mentioned, the council and administration need to work together as a team to determine ways to generate additional revenue, perhaps a levy or reducing expenses. He summarized his proposal was to use ARPA funds and look at revenue sources in combination with cutting expenses. The City needs to be realistic and tighten its belt, expenditure levels cannot keep increasing without additional revenue sources. For example, the HR presentation indicated the City added 47 people in 2023. Councilmember Paine observed Councilmember Chen said 2023 and asked if he meant budget year 2024. Councilmember Chen answered he meant 2023, use the funds this year to get the reserve back up to 16%. Councilmember Paine said she had no objection to using ARPA funds for 2024 or to replenish the reserves. Because it is allowed and is absolutely germane to what the City has been going through for the last 2 years, she would actually like to use ARPA funds to bolster the budget as proposed. Councilmember Teitzel did not object to using ARPA for 2023 to get back into balance and replenish the reserves. However, using ARPA funds going forward seems like putting band -aid on a bleeding artery, it is a very temporary measure and does not fix the underlying problem. The council has to be disciplined. He feared if all the ARPA funds were used to help close the gap it would take away the immediacy to work on the core problem and fixing the core problem will not be easy. He did not object to using part of the ARPA funds, but did not want to use all of it Councilmember Buckshnis said the simplest thing would be to use all of it, the whole $2.2 million via a budget amendment. Councilmember Nand said while ARPA funds could plug holes in the budget, other jurisdictions such as a city in the Midwest used all their ARPA funds to pay off medical debt for their citizens, acting as a pass through to provide an economic stimulus to people who were economically distressed and affected by the pandemic. She wanted to apportion a percentage of the ARPA funds the City received in a pass -through manner to benefit the most vulnerable and marginalized in the community which was Congress' original intent. Councilmember Olson pointed out household support grants have been set up and funded with ARPA. She recalled discussion during last year's budget cycle about using ARPA funds to avoid increasing utility rates, but legally that was not an option. Residents will be asked in some way to make up shortfalls so using ARPA funds is consistent with wanting to make things better for residents. Building Maintenance Fund Transfer Councilmember Olson recalled the council vote well, when the council chose to spent money on bonds when interest rates were really low because councils past and present did not have the discipline to choose to do boring deferred maintenance projects instead of fun things. The council at that time chose to take advantage of low interest rates to bond for money to do deferred maintenance because deferred maintenance results in bigger expenses. For example, a crack in the foundation causes a water leak that requires drywall Edmonds City Council Approved Minutes October 19, 2023 Page 19 to be removed and replaced, etc. The City has very big deferred maintenance issues, big enough that the council bonded for that expense. The funds have not been spent yet, but Public Works has $1.5 million in projects planned and docketed for next year. Spending that money to cover operating expenses is absolutely the wrong thing to do, the thing she was most disturbed about in the budget. She hoped council could be convinced not to use it in that manner so that the $1.5 million in projects, which may cost $2 million, can be accomplished. She really objected to not doing the deferred maintenance when the reason the council choose to pay interest was to make the money available for deferred maintenance. Councilmember Paine did not disagree that deferred maintenance was a problem for the City. She wondered if more information was needed from Public Works facilities regarding whether they have the capacity to do all the projects that were anticipated with the building study to accomplish the deferred maintenance. She feared there was not enough capacity to manage all those small projects, projects estimated at $50,000- $100,000, and there are a lot of them. It is one thing to manage a big $3 million project and another to manage a lot of smaller projects. She recommended asking about staff s capacity. Councilmember Olson added she asked Mr. Antillon if the projects could be done in 2024 and that is where the $1.5 million project list came from. Council President Tibbott observed they are also in the proposed budget. Councilmember Buckshnis raised a point of clarification. She recalled questioning the use of the bond funds in the 2021 budget, and learning the bond funds cannot be used for anything but building maintenance because that is in the purpose so the bond funds cannot be used to fill the gap. She recalled that was in the Finance Committee meeting minutes. Councilmember Olson agreed that was the purpose when the fund was established, but believed the council could change its mind. Councilmember Buckshnis disagreed, stating it was part of the bond issuance. Council President Tibbott requested Councilmember Buckshnis send that question to Mr. Turley and asked Councilmember Paine to send her question to Mr. Turley and Mr. Antillon. Councilmember Chen agreed building maintenance that has already been deferred cannot be deferred even longer which is why the council issued bonds to meet those needs. He recalled asking about plans for building maintenance during last Tuesday's meeting and Mr. Antillon said building maintenance is being done. He was amazing that work was being done but money was not being spent. Councilmember Olson commented the $2 million is the differential that hasn't been spent yet. The bonded amount was much higher. Council President Tibbott summarized the $2 million was the amount that had not been spent yet and Councilmember Chen preferred it be used for building maintenance. Councilmember Chen agreed. Red light cameras Councilmember Teitzel explained the primary focus of red light cameras was to improve safety for pedestrian and drivers. Twelve dangerous intersections have been identified; the plan is to focus on 6 of the 12 by installing red light cameras. This is a safety issue, not a revenue generating issue although he acknowledged revenue was a byproduct of the cameras. The plan is to roll out the red light cameras in 2024; DP #7 shows roll out in about April, but the police chief s presentation stated June so when the cameras will be implemented needs to be clarified as it will impact revenue projections. The revenue generated by a combination of the red light and school zone cameras is estimated at $3.5 million in 2024. Councilmember Teitzel continued, there needs to be an understanding of the assumptions, how the projections were derived. For example, the red light camera in Lynnwood at 196t' & Hwy 99 has extremely high volume; Edmonds' intersections are not that high volume. He did not want the council to approve a decision package that has inaccurate revenue projections. Before red light cameras can be implemented, the code needs to be revised to allow light cameras. He was confident red light cameras would be installed at some point so it makes sense to amend the code now to accommodate red light cameras, allow the public Edmonds City Council Approved Minutes October 19, 2023 Page 20 to comment and then make a decision. Council President Tibbott requested he send the question about how the revenue assumptions were derived to staff. Councilmember Paine did not disagree it was a public safety matter as well as a revenue matter. She suggested council consider that the police budget is $15 million so any additional revenue to the General Fund will help support police services. In the last 15 months, there have been 10-12 neighborhoods complaining about speeding and asking for relief. If relief can be provided via red light camera revenue, the question is whether more than six red light cameras are needed. She suggested analyzing comparable cities such as Kirkland which doesn't have a throughfare like Lynnwood. She pointed out more tickets will require more court staff. She summarized it was worthy of further investigation and helps support public safety goals. Councilmember Teitzel agreed with Councilmember Paine's point about additional expenses. He recalled Chief Bennett saying the department may also need a desk officer to monitor tickets and issue citations. That is not in the budget and may be a midyear amendment. Councilmember Paine anticipated that could probably be done with light duty staff. Council President Tibbott asked who on staff should the question about the number of red light cameras be sent to. Mr. Turley answered certain steps have to be taken to implement a red light program. The police department analyzes intersections to determine the most dangerous ones. Those are submitted to council and analyzed by the vendor to ensure the intersections are viable for cameras. That has been done with 12 intersections. Six cameras were included in the budget, but council could approve up to 12 because analysis has been done on 12. The number of cameras is up to council because administration has already done the work necessary to identify 12. Councilmember Olson asked when the code revision is coming to council. Council President Tibbott answered it is on the November 6 extended agenda. Councilmember Nand said as she expressed at the meeting where Chief Bennett presented the red light cameras, she remains skeptical. While other councilmembers have mentioned neighborhoods expressing concern with speeding such as during the town hall in Meadowdale, Meadowdale and other neighborhoods with the greatest potential for pedestrian accidents due to speeding are not targeted for red light cameras. The highest volume intersections are where red light cameras are proposed and while there may be a public safety component, there is a strong revenue component in targeting those intersections. She was hesitant to use Lynnwood as a comparator due to Alderwood Mall which is a regional draw. Lynnwood has adopted a revenue generating model in which they penalize people for using their roads via the use of what some feel are abusive red light cameras, as well as multiple stops that people feel are racially motivated. She admitted to receiving a red light camera ticket in Lynnwood when she was a college student and being pulled over due to a tow hitch on her dad's truck. Councilmember Nand continued, a lot of people avoid driving in Lynnwood, especially people of color, because they feel it is over policed due to human police interactions. The red light ticket she received due to slowing to 2 mph but not completely stopping was $135. She requested mitigation because she did not feel she threaten public safety and was there with dozens of people who had taken time off work. A judge and prosecutor were present; the judge would state the conduct was not dangerous, but it triggered the red light camera and require payment of a $65 ticket. Comparing the revenue estimate in DP #7 of $638,400 versus the FTEs required, she feared the program would have a net impact on the budget. Councilmember Buckshnis pointed out the difference between red light cameras and speeding cameras. She supported cameras for speeding especially on Olympic View Drive. She recommended installing the school zone cameras first, figure that out, and then next year's council can consider red light cameras due to Edmonds City Council Approved Minutes October 19, 2023 Page 21 unknowns about the revenue projections. She agreed with Councilmember Nand that the red light cameras were targeting the Highway 99 area. Mr. Turley pointed out speeding cameras are not allowed. A speeding citation requires a radar gun and a police officer; cameras cannot be posted along a roadway to cite people for speeding. Mr. Taraday commented cameras for speeding are only allowed in school zones. Mr. Turley summarized school zone, red light and traffic citations are three separate, unique things. Councilmember Paine commented installing red light cameras in some locations will also allow traffic officers to go to neighborhoods like Meadowdale. Grants Councilmember Nand recalled the council previously rejected a grant writer position midyear. She found the grant writer a very interesting position, an FTE the council should give some weight and gravity to adding to staff. She is not a grant specialist but was the office manager of a non-profit while in college and did some grant writing so she has a little understanding of what this person would do. This work currently seems to be done by directors and staff members when they have time. The concern she has heard Director Tatum expressed is the City is missing out on federal grants and grants through the State Department of Commerce that the City could potentially qualify for, but no one has the time or energy to put into seeking the grants. Councilmember Nand continued, anticipating the grant writer could be a self -funding position because if successful, they could bring in more revenue than they cost City. She noted the City spends $40,000/year on the lobbyist and everyone can agreed on the value that Debora Munguia adds when she informs the City what is occurring at the state and federal level. A full time grants manager could interact with other jurisdictions and entities to build partnerships and revenue streams to fund the City's initiatives, especially when considering Edmonds as a passthrough entity that is exploring human services and getting resources to the most vulnerable and marginalized community members. As someone who was on WRIA 8's grant committee for eight years, Councilmember Buckshnis said the City needs to have its ducks in row before writing grants. Instead of an FTE, she suggested utilizing a consultant to determine if there is sufficient information to submit grants, for example for Perrinville and Shell Creeks. She preferred to test the waters with a consultant rather than a full-time position with benefits and salary. Councilmember Teitzel commented he was on the fence with this, he was concerned about the structural problems with the budget and adding salary and benefits for an FTE. However, if the council can be assured this position will bring in incrementally more grants than the City currently receives and that the incremental increase would cover the person's salary plus, it makes sense to consider the position. He was open to the position, but needed to be convinced that that would happen. Council President Tibbott asked who would calculate/estimate that. Mr. Turley answered he could. Councilmember Teitzel suggested looking at other cities that have a grant manager. Mr. Turley pointed out the discussion about the budget deficit relates to the General Fund. Even though this person reports to community services/economic development, if they get grants for Perrinville Creek and/or the Marsh, the person will be billed to Utilities so their impact to the General Fund will end up being zero. If they brought in human services or parks grants, the position would stay in the General Fund. Council President Tibbott asked Councilmember Teitzel to send that question to Mr. Turley. Councilmember Paine relayed she talked to Information Services Manager Brian Tuley who said there are information security grants he would like to pursue, but doesn't have the time to write them. There are missed opportunities for grants and she suggested asking the directors to think about programs for which grants could be written to generate General Fund revenue to supplement work that is not being done now. Edmonds City Council Approved Minutes October 19, 2023 Page 22 Lev Councilmember Buckshnis expressed support for pursuing a levy. The first step is establishing a committee or task force. The most important thing is for the council to all be on same page that a levy is needed, recalling a previous levy failed because a councilmember opposed the levy. There could be a fire or police levy. Shoreline has been successful with levies. The school district's levies have been very successful because they have a good group of people who help voters understand the need for the levy , they advertise the levy and everyone is on the same page. She summarized a levy would be simpler than the RFA although she recognized a levy was a lot of work for the finance department. Councilmember Teitzel agreed unanimous council support was needed for a levy. He asked how the council reached a decision regarding pursuing a level, whether it came to council as a business item and a vote. Mr. Taraday advised it cannot go on the ballot without council approval. Councilmember Buckshnis recalled there were councilmembers, administration and citizens on the task force for the previous levy. Mr. Taraday commented it may have started with the mayor the last time, but there is nothing preventing the council from starting the process. Council President Tibbott summarized approving a levy requires a vote of people. A levy could be part of the 2025 budget. Councilmember Chen totally agreed with this approach. He recalled the council sent a resolution to South County Fire requesting information about annexation. He asked if the council decided to do a levy, did the council need to tell South County Fire that the City was no longer interested in annexation. Councilmember Buckshnis said the resolution was just asking for information. Councilmember Nand asked if Councilmember Buckshnis was proposing an EMS levy to address the increase in the RFA contract, or would it be labor citywide. Councilmember Buckshnis answered there have been parks, street and public safety levies. She recommend one levy on the ballot not three; a public safety levy could provide funds for fire and police which was very successful in Shoreline. Councilmember Nand wondered if putting off annexation into the RFA to seek a levy would cause the RFA to provide notice to the City, relaying her understanding that their intent was to annex the entire county. Council President Tibbott pointed out action regarding the RFA would not help until 2025. Today's discussion is about the 2024 budget. Councilmember Paine expressed interest in data from the REA before making that decision. If the council does put forth a public safety levy, information from the RFA would help inform the council and administration about the budget implications. She pointed out a levy or joining the RFA would not affect the City's budget until 2025. In response to the question about the implications of requesting information from South County Fire, Councilmember Olson pointed out the proposed budget making that commitment without information is what doesn't feel right. A levy does not mean the council doesn't want to join the RFA, it just means putting another funding source in place to avoid having an ax over the council's head. Councilmember Teitzel pointed the budget as proposed assumes the City will join the RFA by 2025. To make that happen, it was his understanding it would need to go to voters by April. There are costs associated with a ballot measure and he asked if that expense was included in the 2024 budget. Mr. Turley answered a certain amount is included in the budget every year for voter registration and election costs. The RFA and levy are 2025 issues and are not part of the 2024 budget. The council will be working on the 2024 budget for the couple months; the levy and/or RFA can be considered after that. Edmonds City Council Approved Minutes October 19, 2023 Page 23 Councilmember Buckshnis pointed out the school board puts their bonds on the ballot in special elections when fewer people are voting. Councilmember Olson pointed out the strategic outlook is a page in the budget book and is part of what the council approves so the assumptions in the outlook are things the council should be buying off on. Mr. Turley answered the strategic outlook is not part of the budget ordinance. When he prepares the adopted budget, he will update the strategic outlook to reflect decisions that have been made in the meantime, but the 2024 budget ordinance is only related to that year. Council President Tibbott thanked staff and councilmembers for attending today's special meeting. 6. ADJOURN With no further business, the council meeting was adjourned at 5:03 p.m. cs:- - SCOTT PASSEY, Ct CLERK Edmonds City Council Approved Minutes October 19, 2023 Page 24