Tacoma faces revenue shortfall as council heads into budget season. How big is the hit?

Tacoma’s budget is “structurally imbalanced,” creating a difficult budget season ahead, according to the city’s budget officer.

Tacoma has a deficit of $23.7 million, and the recurring revenues the city expects to receive year-over-year are not covering its expenses, budget officer Katie Johnston said in an interview Monday. The deficit equates to about 4% of the city’s projected expenses.

Council will receive an update on the revenue forecast next month and a proposal of the biennium budget on Oct. 4.

The city is challenged by inflation that is at a 40-year high, one-time federal funding that helped address issues — like the housing crisis — is drying up, the risk of a recession and continued pressures on city services.

The city receives revenue in its general fund through four major taxes. Sales and business taxes, which bring in about $146 million and $115 million respectively, grow with economic activity in the city and decrease during periods of economic downturn. Johnston said necessary and desired services increase during economic downturns, but revenues to pay for those services decrease in downturns. Property taxes and utility taxes are capped on how much they can grow.

The city also has a sales tax that raises money for a dedicated fund for affordable housing that brings in almost $14 million dollars in the biennium, and for mental health and chemical dependency that totals almost $14 million as well.

Over the last 10 years, the city’s residential population has grown by 10%, Johnston said.

“If our revenues can barely keep up with our existing service, then we don’t really have the ability to expand our services to deal with that growth in our population,” Johnston said.

The city has a baseline budget that has the current ongoing services that projects costs and revenues. In this year’s biennium budget proposal, the office has included the costs of repairing and replacing city facilities, instead of deferred maintenance, which can lead to bigger expenditures in the future.

For items like housing that are top concerns but have a high price tag, city manager Elizabeth Pauli said departments can use their strategic plans to continue making smaller advancements without needing to take as big of a bite.

She said during every budget process, city departments evaluate their programs to see if they are performing as needed and look to shift expenses or go after grants.

Tacoma still has about half, $30.5 million, of the American Rescue Plan Act money it received, which will be used over the course of four to six years. It invested in affordable housing and homelessness. Johnston said the problem with one-time funding is a lot of housing needs have long-term costs associated with them.

“We have to be really thoughtful about how we’re spending these resources and doing so so we don’t set up permanent supportive housing locations if we don’t have the dollars to ultimately help offset some of their operating costs in the long run,” Johnston said. “That’s been a balance for our City Council and city manager to think about. how do we use these dollars to address urgent emergent needs in our community that don’t create unsustainable commitments in the long run?”

Johnston said the budget office ensures there is some flexibility in the financial planning process. She said it is difficult to look across many different service areas and try to weigh: “Are we going to be moving far enough in this service delivery area in the next two years or should we put more resources into this other area?”

One example is the Tacoma Police Department’s violent crime reduction plan. The second and third phases have a budget component across different departments, not just Tacoma Police Department. In order to decrease crime, the police department will look to partners to help, like code enforcement and public works. Pauli said some programs might already exist that will help to deter crime. She said the city has reserves that can help pay for the two phases. Those departments can also look at putting programs on hold.

“All of those options are going to be available,” she said.

The budget office staff continuously does outreach through engaging City Council members on their strategic priorities and surveying the community. The city also is hosting a virtual Balancing Act workshop at 5:30 p.m. Wednesday, an online tool that allows Tacomans to play with budget scenarios by making increases or decreases to service levels as they try to balance the city’s general fund budget.

Pauli said Balancing Act can add context and understanding to the city’s budget; like your own budget, income comes in and expenses go out.

Using the Balancing Act tool is also another way to engage in the budget process, Johnston said.