City of Vancouver finances said to be ‘very stable’

The city of Vancouver is on better financial footing now than in the last 10 years, putting it in a good position to weather a mild economic recession that’s expected next year, according to city finance staff.

After the brutal job and service cuts of the Great Recession, achieving this level of stability hasn’t been easy — and there’s still more hard work to be done to close a $7.2 million budget gap that’s forecast for 2022, Deputy Finance Director Natasha Ramras said this week.

But although the city’s financial picture appears “very stable” for the next six years and no service cuts are in sight, the city isn’t at a point where it can add employees unless it finds new revenue sources to pay for them, said Ramras, who recently provided the city council with a financial snapshot in preparation for this fall’s 2017-18 budget adoption.

The city’s 2015-16 current operating and capital budget is $1.07 billion. The general, street and fire fund’s two-year budget is $391 million, fueled primarily by property tax, sales tax and utility tax and consumed mostly by personnel costs.

Here’s the good news: From 2013 to 2015, sales tax revenues shot up 32 percent, driven by a surge in automobile sales and a construction boom. The city also has a new revenue stream — marijuana excise taxes, which city staff tentatively predict could tally $500,000 annually after the initial $790,500 windfall this year that’s providing the money to hire six more police officers. Housing prices and sales have been robust and consumer retail activity has been good.

Also, the city has managed to lowered its employee health insurance costs through union negotiations, higher deductible plans and self-insurance.

“It’s a more positive snapshot of the expenditures and revenues than what we’ve had in the past,” Ramras said.

Here’s the not-so-great news: A small recession in 2017 is expected to result in sales tax revenues dropping by 7.2 percent. In total, city revenues are predicted to fall 1.5 percent during the downturn, which is likely to happen for a variety of factors globally and nationally, Chief Financial Officer Lloyd Tyler said. Among them: prices for commodities, such oil, have fallen significantly. China is in a manufacturing recession, and manufacturing in the United States has been relatively weak, he said.

The city’s total revenues are expected to grow by 1.3 to 2.2 percent annually after the 2017 drop.

Revenues from natural gas tax, cable franchise fees and telephone taxes are on a gradual decline. Natural gas tax revenues are falling due to energy conservation devices and declining commodity prices, and technological advances are causing people to switch from landline phones and cable TV to mobile phones and Internet video, Lloyd and Ramras said.

If the situation isn’t addressed, the city anticipates a $7.2 million funding gap in 2022 due to expenditures outpacing revenues by a little more than 1 percent annually, Ramras said. The gap potentially could be bridged, in part, if the city increases parking rates and utility taxes (which would rise in conjunction with utility rates), she said. On the plus side, the projected funding gap is about $3 million smaller than it’s been in past budget cycles looking ahead six years.

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Chief Financial Officer Lloyd Tyler said the city has learned lessons from the hardships, staff and service cuts of the Great Recession, which economists say officially lasted from November 2007 until June 2009 (even though evidence of recovery was scant for another couple of years).

Staffing has shrunk considerably. In 2008, 1,216 people worked for the city, 407 of whom were public safety uniformed staff (includes fire and police) and 217 were utility workers. During the recession, the city cut 20 percent of staff. Today, there are 993 employees, of whom 388 are public safety uniformed staff and 217 are utility workers. (Utilities have a separate revenue stream.) The total city employee count hasn’t been that low since 1999, and as a result, service has declined in areas of park and street maintenance and police protection, Ramras said.

The city took a hard look at its financial policies to see what was working well, what could be updated and how to implement those things when budgeting and making financial decisions, Tyler said. One major change was establishing four more reserve funds, in addition to the general reserve fund the city already had in place for catastrophic emergencies. The revenue stabilization reserve is intended to sustain the city through an economic slowdown or a reduction in state funding, providing additional flexibility.

Another change is the city’s “pay as you go” policy, which entails setting aside money every year to pay for an upcoming project rather than borrowing money for a project and paying down the debt slowly, Ramras said.

Even during the Great Recession, how the city handled its finances attracted the attention of Standard & Poors, which upgraded Vancouver’s credit rating in 2010 and again in early 2015, Tyler said.

“That’s a good external indication of what the city is trying to do, not only with its financial policies, but with its practical financial management on a day-to-day basis,” he said.