The city of Blaine is budgeting for nearly a $1 million deficit, raising concerns about potential cuts if the budget is not balanced by next year.
Blaine City Council approved the 2023 budget late last November to have an anticipated $950,000 deficit in its general fund. Inflation has required city staff salaries and wages to increase but the city’s revenue has not kept up pace, partially because of the U.S./Canada border closure, which has caused the budget to become unbalanced. The city doesn’t have the Covid-19 stimulus that helped it from dipping into its reserves previously.
The city will pay for the anticipated $1 million deficit out of its nearly $4 million reserve, city finance director Daniel Heverling said. If the city continued at this pace, it would deplete all of its reserves by about 2026, he said.
“I’m projecting for the next several years we’re going to be upside down for expenses outpacing revenues unless we find some source to bring in more revenues,” Heverling said.
The biggest increase in expenses for the city are salaries and wages, which make up over 60 percent of the general fund, Heverling said.
“We’re in a really tough scenario because inflation has gone up a lot, it’s like 8 to 9 percent for the year, but revenue hasn’t grown,” he said.
In 2022, revenue increased because of improvements in sales taxes as the U.S./Canada border opened and property taxes as development brought more people to Blaine. The gas tax, however, still hasn’t recovered from the U.S./Canada border closure, although Heverling did note its revenue was higher this January than a year ago.
While large-scale east Blaine housing projects are gearing up or already in full swing, it will take several years for people to start moving into the homes and impacting property taxes.
“It’s really 2023 and 2024 that I think are going to be the tougher years,” Heverling said. “I’m projecting that in 2025 things should start getting better again and revenues should start growing faster because we’ll have more people who have moved in and are spending more money.”
Heverling said he was managing the budget conservatively in preparation for a potential recession this year, as national predictions show.
“Budgeting is like using a crystal ball,” he said. “It’s using the best projections and the data we have at the time.”
Heverling said the city planned to use a large chunk of its reserve this year because it had enough reserves that could prevent unnecessary cuts if the finances did better than predicted. Except for increased cost of living adjustments, the city kept the 2023 budget close to the 2022 budget.
Blaine city manager Michael Harmon told councilmembers during their March 13 meeting that the budget was so far doing better than anticipated.
“Our revenues are slightly ahead of budget and our expenditures are slightly below budget,” he said. “It’s too soon to celebrate yet but we’re trending in a positive direction, which is good.”
The city will have a better idea by July whether the 2023 budget projection is accurate, and if so, what each department will need to cut to balance the budget for 2024.
Heverling said the city will prioritize increasing revenue over cuts, but the department heads will need to closely look at how to slim their expenses.
The city has about $400,000 of federal Covid-19 stimulus funds not allocated to any projects right now. Heverling anticipates using the funds, which need to be spent by the end of 2024, for other projects.
The general fund, which pays for daily government operations such as the police department and parks, is often the most difficult for municipality leaders to balance because it is reliant on tax revenues that require voter approval to increase. The city’s street fund is also having problems, as it has for several years, but the other funds are doing well, Heverling said.
The $75 million budget prioritizes economic development, parks and facilities maintenance, transportation and utility infrastructure, while slowly bringing back professional services cut at the start of the pandemic, according to city documents.
Among professional services that will be added are full-time positions for an administrative coordinator for the Community Development Services Department, a police detective, a parks and cemetery maintenance worker, facilities crew chief, building code enforcement officer, public information officer and payroll account technician for the finance department.
The city is seeing healthier revenues in some areas. Sales tax is expected to increase 20 percent and the business and occupation tax is expected to increase 27 percent from the 2022 budget. Fees and permits also increased in the general fund by 45 percent of last year’s fee and permit revenue.
The largest areas of the 2023 budget are $18.8 million in the sewer fund, $15.8 million in the electric fund, $13.8 million in the general fund and reserve and $7.7 million in the water fund. The utility funds are self-sustaining, meaning they are paid for by their respective utility bill.
The city’s property tax revenue will equal $1.4 million in 2023; the 1 percent increase from last year will only increase the revenue by $13,400.
Harmon said he plans to meet with department heads to discuss the budget and council will look at the budget in-depth later this month.
Harmon said he’s no stranger to budget issues. Fairfield, Iowa, a town of 9,000 people, had a negative general fund balance when Harmon started the job as city manager. He helped decrease expenses and increase revenues to improve the city bond rating and improve funding for emergency events.
“Unfortunately, it’s familiar territory,” he said.
The unbalanced city budget has created hesitation for some councilmembers to vote on projects such as the downtown revitalization project, which would clean up and improve the downtown core, and the tax-increment financial district (TIF), which would establish an east Blaine taxing district to pay for infrastructure in new developments. The city and developers would be responsible for the TIF debt if development is slow.
Mayor Mary Lou Steward said she’s been meeting with anyone who wants to discuss the budget as well as listening to the concerns of developers.
“We’re in a critical position right now because the border was closed for two years and so much in Blaine depended on Canadians coming across and buying gas, buying milk and supporting our mailboxes,” Steward said. “Blaine is in a very tough position right now, financially. We are monitoring the situation very carefully.”
Steward said the city is limited on general fund revenue as it doesn’t have many retail businesses.
Councilmember Garth Baldwin said he trusted Heverling’s decision to use reserve money. He said $1 million sounds like a lot, but isn’t as much when compared to the cost of city projects.
“It goes to show that we’re not out of the woods yet,” Baldwin said. “Our economy is not as strong as we need it to be.”
Councilmember Eric Davidson said he wanted to see what expenditures would be necessary for the downtown revitalization project and whether they could be done over a longer period of time.
“I don’t think we’re in dire straits but we definitely need to make sure we’re conservative with our spending and we need to spend money on the right things,” Davidson said.
Councilmember Kerena Higgins said she was looking carefully at discretionary spending such as in the downtown revitalization project.
“I’ve been really reluctant to give my wholesale approval of that, knowing some of the funds could be used better elsewhere,” Higgins said of the downtown revitalization project. “I appreciate the city reconsidering the proposal and modifying it.”
Councilmember Mike Hill said he was in favor of helping the private sector grow, through ways such as downtown zoning, so it could bring more revenue to the city for expenses that will happen regardless of development, such as the $7 million sewer project. Hill has started a coffee club every Tuesday morning at Starbucks to discuss improving the city of Blaine. Anyone is welcome to join.
“The infrastructure, whether new people come or don’t come, has to be done,” Hill said. “To get it paid for, we’re going to have to do something. We need to get businesses going downtown. We need to get homes built. If we don’t, all that’s going to happen is property taxes are going to go up and rates are going to go up.”
Councilmember Rhyan Lopez said the city had plush reserves to lean on but he was still nervous to dip into them. He’d like to see the city have three months of operating cash and believes asking for monthly budget updates is the best thing he can do right now.
Lopez also said he saw TIF and improving downtown zoning as tools that could help the city.
“It’s not low risk, but it’s lower risk than other alternatives,” he said of TIF.
Councilmember Richard May said council and staff are in constant communication to get the numbers as they develop. He added he hopes some of the budget may work itself out this year.
“This year, when we saw we were heading in the right direction but not picking up fully, we made the decision to take a ‘wait-and-see’ approach,” May said. “We’ll still absolutely maintain the reserves but will use the extra part that’s been higher.”
Harmon said the city will do its best to maintain public services, but reducing expenses will come with a reduction in services.
“It’s important for the public to understand the city has some difficult choices in front of it with regard to how we continue to provide those essential services yet maintain fiscal responsibility,” Harmon said.
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