A Town - 2017 Budget Edition

By Laurie Gere, Mayor

T

his budget report is intended to provide Anacortes citizens with clear information that will enhance their understanding of the City’s finances. The 2017-2018 biennial budget focuses on implementing City Council’s goals of enhancing public safety, encouraging economic development, and increasing infrastructure investments. The budget is the blueprint for the allocation of the City’s available resources to the various programs that will move our community toward the achievement of these goals.

City Council adopted the budget, which establishes the direction for all City government programs and services for the coming biennium. I continuously evaluate City revenue and expenditures with a view of maintaining a strong fiscal position while providing quality municipal services. In line with the 2016 Comprehensive Plan, the City seeks to support a dynamic and robust local economy with

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balanced and sustainable growth that will create jobs and improve the tax base within the community. The City supports our public safety departments and provides staff with the tools and resources needed. We seek to continuously maintain and improve our public infrastructure and facilities. The budget includes several internal infrastructure improvements including an electronic content management system and a new City website deployment. We are committed to developing and maintaining a professional, highly qualified, highly trained and service oriented workforce.

Our employees are the heart of Anacortes and their hard work is behind all the City’s success stories. We employ sound business practices that are efficient, effective, and responsive to the delivery of City services.

The budget works so that we can, within our means, invest in much needed infrastructure improvements and economic growth.

The last 3 years we have focused on our infrastructure, our pavement replacement program, and capital facility upgrades and maintenance. Last year we completed a total overlay pavement of D Avenue and

32nd Street. We also did a slurry seal project on Skyline streets.

This new budget continues to fund road, facilities, water, sewer, and stormwater systems’ repair and maintenance. I am aware of the additional burden the new rates have put on the community, but just like a house, we must make repairs and replace aging equipment, plumbing, and electrical systems.

These improvements will keep Anacortes functioning for decades to come.

In 2018, the budget includes a purchase of vehicle extrication equipment for the Fire/EMS department and an electronic content management system.

These items are in the 2018 budget because it is my expectation that the city not rely on reserves for ongoing operational expenses.

The resources supported by this budget give City Council and me the ability to continue working collaboratively with staff and the community to fully implement the 2016 Comprehensive Plan, to formalize development and design standards and to update the inconsistent municipal and building codes.

In addition, open transparent communication and training opportunities were also funded.

In conclusion, I am committed to living within our means. The budget continues our commitment to balance fiscal responsibility with meeting City Council and community priorities. It reflects my expectation to maintain and improve our infrastructure. The budget is a financial roadmap for our City and represents our continued commitment to prudent fiscal management, effective service delivery, and quality of life for our residents.

As Always Respectfully Yours,

Laurie Gere, Mayor

You ask, where does the money go? Here are a 2017 budgeted few projects: • Guemes Chan nel Trail • 32nd and D Av enue Roundabo ut Design • Oakes Ave/Sa n Juan Passage Blvd. Roundabo ut Design • 2017 Overlay Central Business District - 2nd to 11th Street • Storm Pond Re storation • 2017 Heart La ke Road Cape Se al – city limits to H Avenue • March Point Ro ad Shoulder Wid ening • 2017 Slurry Se al project – Was hington Blvd, Sh and Marine Heig annon Point Road hts , • Waterline Impr ovements – for preparation of 20 overlay of M and 18 of pavement K Avenues • Sewer Manho le Replacement and Pipe Repair • 3M Gallon Wat er Tank Replacem ent Design and construction to permit work with begin in 2017 • Bicycle Blvd/N eighborhood Gree nway • Fiber – Constr uction of a dark fiber telemetry sy connecting the W stem with NoaN astewater pump et station, Water Re Water Pump Stat servoir, and ion. Construction will begin in 20 17 • Depot Master Plan – Redevelo pm ent and better co marina and dow nnection to the ntown.

In this publication we explain budget basics and present them in a way we hope you will find engaging. Our cover of this budget edition of A-Town is Our Town illustrates that although budgets are numbers and charts, what they are really about are services provided to people by people.

The budget helps decide what kinds of services we at the City are able to provide.

Each dollar generally represents a project completed or a service provided and those projects and services have positive impacts on people’s lives.

Our employees appreciate that many of them are supported by tax dollars and work hard to maximize the return on your investment.

We at the City appreciate that partnership with our community and hope this publication explains a bit about our budget and what we all get out of it.

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The Basics of Governmental Finance You may have heard the term General Fund, or Governmental Fund, or Enterprise Fund, but may not know exactly what they mean or represent. Likewise, most are familiar with, or have heard of various taxes that are paid, but may not have a full understanding of what they are.

The State Auditor’s Office requires that cities in Washington use Governmental accounting, which requires establishment of separate funds for various departments or activities. For example the Parks and Recreation, Library, and Road Maintenance departments, as well as others, all have their own funds they operate out of. Think of a fund as its own business: it has its own revenues, expenditures, assets, and liabilities. The most well-known fund is the General Fund, and every municipal government has a General fund. The General Fund is in place for the general support of the City, so its monies can be transferred into other funds to support their operations, or pay directly for any activities of the City.

At the City of Anacortes, the Police and Fire departments are the largest departments in the General Fund; but all of the administrative departments reside in the General fund as well, such as the Legislative, Executive, Judicial, Legal, Finance and Human Resource departments.

The largest revenues streams of the General Fund are also the largest tax revenues of the City: Property Tax, Sales Tax, and Utility Tax. The City’s Property Tax levy is assessed against all taxable properties within the City Limits. There are a

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few properties exempt from property taxes, primarily Government owned properties, and there are also a few exemptions for some nonprofit organizations and some citizens who meet certain criteria. The Skagit County Assessor’s Office has some excellent material on these exemptions, as well as other Property tax information at www. skagitcounty.net.

Property taxes are expressed in thousands of dollars of assessed property value. The County Assessor sets the levy rate based on the City’s budget request compared against the total assessed value of the City. The City’s budget request is limited to a 1% increase per year (or the rate of inflation, whichever is less), plus the value of any new construction added to the City’s tax roll for the year. In the case of the City of Anacortes, in 2016, the total budget requested by the City was $4,777,878; the total City assessed value was $2,802,600,923. Dividing the total City assessed value by the budget request results in a rate of 1.7048 per $1,000 of assessed value. So, for example, if you own a home with an assessed value of $400,000, your bill for the City portion of property taxes would be 400 x 1.7048 = $681.92.

Most properties have multiple taxing districts assessing taxes against them, but the methodology is the same for each of them. More detail can be seen on property tax distribution chart included in this edition.

Sales tax is another large tax revenue stream for the City, and most nonfood items, and most services, are subject to sales tax.

The sales tax rate in the City of Anacortes is 8.5%, meaning taxable sales made within the city limits are charged 8.5% of the total taxable bill.

That tax is collected by the vendor, and remitted to the State. The State then distributes those sales tax revenues back to the taxing districts for which it has collected them. A detailed breakdown of where the sales tax revenues go can be seen on the sales tax distribution chart. It is noteworthy that the 1% local share of the sales tax is split between the City and Skagit County, the City getting .85 of the 1%, and the county getting .15. Total sales tax collected by the City in 2016 was $3,945,850.

The third largest tax revenue stream the City receives is Utility Tax which totaled $3,495,221 in 2016.

This is a tax that is assessed against both public and privately owned utilities, the utilities then generally pass the tax on to their customers.

Large utility customers contribute significantly to General Fund revenue through utility taxes; the two refineries on March Point (outside the city limits) paid over $705,000 of utility tax in 2016. The City assesses 7% utility tax on water, sewer, and storm sewer utilities, and 6% utility tax on natural gas, electric, telephone, and cell phone utilities.

The Solid Waste utility incurs a 12% utility tax. Studies show that large solid waste trucks cause up to 600 times the impact on roads compared to an average vehicle; the higher tax rate on the solid waste utility was approved by City Council to direct additional revenues directly to the street maintenance overlay program.

Financial Picture

By Steve Hoglund, Finance Director 2016 saw the City’s financial picture strengthen in a number of areas over 2015 levels. One of the City’s most important revenue streams is also one of its most volatile: sales tax. As the economy strengthens and weakens, sales tax revenue for the City increases and decreases.

Sales tax is a general revenue, in that it is not restricted for certain purposes, and can be used for the general support of the city. Sales tax is therefore deposited to the General Fund, which supports the general operations of the City (not including the utilities, which support themselves through user fees), the largest use of which is Public Safety (the Police, Fire, and Emergency Medical Services departments).

Other Accomplishments Fiscal year 2015 was actually the first year that sales tax got back to prerecession levels following the long recovery from the 2008 recession.

2015 sales tax revenue was $3,623,465 compared to $3,614,139 in 2007 (figures not adjusted for inflation).

In 2016 sales tax was $3,945,850, an 8.9% increase over 2015. The continued strengthening of sales tax for the city was led by new residential construction, vehicle sales, and the hospitality industry. Commercial construction also contributed to the sales tax receipts of 2016, which was led by the Anacortes School District High School construction project.

The strong real estate market in Anacortes provided additional benefits to the City than just sales tax. When a house is initially constructed it generates sales tax

for the City. When a house is subsequently sold and repurchased, that transaction generates Real Estate Excise Tax (REET) that goes to the City. The use of REET is generally restricted to Public Works projects, such as new park construction, street maintenance, and new road construction. When you see a street or parks project in Anacortes, it is likely being funded, at least in part,

by REET. Economic indicators for the next fiscal period indicate continued moderate growth, which is how the City has prepared its 2017/2018 budget.

A major accomplishment for the City this year was adopting a biennial (2-year) budget for the first time in City history. Discussion on converting to a biennial budget started in early 2016, and City Council adopted Ordinance 2973 on March 21, 2016 establishing a 2-year budget.

Traditionally the annual budget process starts in the summer and ends in late fall when the budget ordinance is adopted. With a 2-year budget, state law requires the City perform a mid-biennial review and modification of the budget. In the fall of 2017 the City will perform that review, which will include public notice and public comment on any proposed budget modifications, but the full budget process won’t be required.

The biennial budget is expected to promote more long term visioning, and departmental strategic planning in the budget process. The current biennial period runs Jan. 1, 2017 through Dec. 31, 2018.

In 2016 the City also adopted a comprehensive fund balance policy

(via Ordinance 2995 on Nov. 21, 2016). This provides a written policy to safeguard the City’s general cash reserves, specifying amounts that must be maintained in reserve, under which circumstances those funds can be spent, and how they will be repaid if they are spent. The City’s fund balance policy requires enough cash be set aside in the General Fund cash reserves to equate to 20% of the adopted expenditure budget for the General Fund, Parks and Recreation, Cemetery, Library, Road Maintenance, Washington Park, and Emergency Medical Services. For 2016 that cash reserve requirement was $4,225,522.

Also in 2016, City Council approved an operating transfer of $2.2 million from the General Fund to the City’s Equipment Rental replacement reserve account. The ER fund acts as a leasing agent for the City, effectively leasing vehicles and equipment to the departments that use those vehicles.

Departments pay for their vehicles through monthly payments to the ER Fund to pay the operating costs of the fund (such as staff, supplies, and fuel) and to set aside money towards the future replacement of their vehicles.

During the recession, the replacement charges were cut in an effort to reduce budgetary pressure on the operating funds. Now that revenues have returned to healthy levels, the ER replacement reserves are being fully funded on an annual basis. The one time transfer gets the replacement fund back to a healthy level.

After the fund balance policy reserves, and the ER Fund transfer, the City still maintains over $3.2 million in spendable cash reserves.

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The Storm Water Utility. That’s the part of the Public Works Department that maintains the storm drains at the end of our streets, right? Correct. But they do so much more than just maintain the cascading river of water that flows down our streets as a result of the ever-present rain. Take a moment, reader, to acquaint yourself with the great work the Storm Water Utility is doing, understand the rate increase that will happen this year, and get to know this very important, dare we say interesting, utility in the Public Works Department.

First thing’s first – the City Council will be reviewing the first rate increase the Storm Water Utility has seen in many years later this year. Much like birthdays, it’s something that happens every year whether we want it to or not. The good news is there are many awesome projects this increase will continue to fund that you may not know about.

The Public Works Department has a partnership with the Anacortes High School Green Club – an organization comprised of students dedicated to finding environmentally friendly solutions to pollution problems. Recently the Club created a rain garden to filter out harmful waste from rainwater before it reaches the Sound. They documented the process and created an impressive video - https://vimeo. com/158579753.

Revenue and support from the Storm Water Utility helped fund the project as well as the making of the video. Not only are we proud to support these students in their endeavors, but this partnership aids in our requirement from the Clean Water Act to engage in public outreach and education. The club is currently looking into how to test for laundry detergent pollution in the storm drain system, as well as creating videos about picking up after pets, the use of lawn fertilizers and pesticides, and the effect of car washes on water depletion. Impressive!

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In addition to this partnership, a rate increase to the monthly bill will go towards the following maintenance: • Catch basin maintenance • Ditch maintenance • Pipeline maintenance • Detention pond maintenance • Street sweeping • Water quality improvements • Clean Water Act compliance • Drainage plan review & inspection • Capital projects • Administrative requirements These projects may not be as exciting as documentaries about rain gardens, but ever so necessary in keeping our city from floating away.

As our city grows in population, the demand on the system grows requiring it to expand. Keeping up with the scheduled maintenance and repairs in all areas are imperative to pollution prevention, clean water, and drainage control. Your money contributes to all these things.

Educating residents about the utilities included in the Anacortes Public Works Department and their roles in keeping our city functioning and beautiful is part of our job. We encourage a constant discourse with the public and publish these articles as a way of continuing the conversation. Please feel free to contact us with questions or comments at 360-293-1919 or coa.publicworks@cityofanacortes.org

Compare the streets of Anacortes to other cities our size and you may come to the conclusion that our streets could use some attention. In fact, according to the pavement rating system, Anacortes streets have a PCI rating of 64, which is considerably below the average for similar sized cities. This study prompted the City Council to authorize $1.1M to be dedicated to street repairs annually.

The plan, formulated through research and learning from previous projects, is to concentrate on our most heavily used streets, then work our way to residential streets. We have shared plans and progress on several parts of this project that happened in 2016 – D Avenue, 32nd Street, and the Skyline neighborhood. This year we plan on repaving Commercial Avenue from 2nd Street to 11th Street. There has been no date set, but rest assured there will be plenty of notice before any work starts. Commercial Avenue is not the only work we will be completing this year. We will also be doing more slurry seal in the Skyline neighborhood, and a cape seal application on Heart Lake Road. Cape seal is a two part application for road repair - the 1st layer is a chip seal - a layer of asphalt emulsion with a layer of fine aggregate to seal the road and add some strength the 2nd layer is a slurry seal.

The funds for this comprehensive street repair project come from a combination of property tax revenue, REET, solid waste funding, and vehicle license fees. We are the only city in the county that diverts solid waste funds into pavement overlays.

We’ve determined that one trip by one solid waste truck is equal to one trip by 10,000 cars. The frequency of the waste trucks traveling on the streets wears on the roads. By slightly raising the solid waste rates several years ago, we were able to divert some funds to the road maintenance projects.

And there you have it. That’s the latest and greatest news on street repair in our fair city. Be on the lookout for public hearings, repair schedules and notices of upcoming work, and best of all, improved roads in the next year. We’ll supply news and updates on our website as well as on our social media outlets. Follow and like us on Facebook, Instagram and Twitter. We encourage an open dialogue about anything we put out for public consumption. Feel free to contact us at coa.publicworks@cityofanacortes.org or 360.293.1919. https://twitter.com/anacortesworks https://www.instagram.com/anacortesworks https://www.facebook.com/AnacortesPublicWorks Budget Issue

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It arrives like an unwelcomed guest, but we accept it nevertheless. The water bill.

Every month it shows up in our mailboxes. We pay it, because we’re Anacortes residents, and we take pride and responsibility in our city. We do our part and contribute to a utility that makes our lives easier, our drinking water cleaner, and our water system work better.

Each year our utility bill increases slightly. You may not notice, but indeed it does. Or maybe you do notice, and you dislike it. Either way, it’s a necessity. Without the small increase our lives wouldn’t be so easy, our drinking water wouldn’t be so clean and our water system wouldn’t work so well. The utility wouldn’t be sustainable.

So, how is the money distributed when there is an increase? Why is the increase necessary? How does this increase make our water system more sustainable? These are all great questions. And we have answers. The City Council approves the rate increase based on continued maintenance and what work needs to happen within the utility. The rate increase and the monthly bill you pay can only go to improve the water utility. It’s not shared with other utilities, or to any other city projects.

In the case of this year’s increase the money will go toward replacing our 3 million gallon water tank project – replacing it with two smaller tanks - and replacing 80% of our water lines.

We have 37 miles of aging water line within Anacortes city limits that is more than 60 years old.

You could rightfully assume that anything 60 years old that is used by an increasing number of citizens each year needs some repair and/or replacement.

https://twitter.com/anacortesworks https://www.instagram.com/anacortesworks https://www.facebook.com/AnacortesPublicWorks

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With this being the case, you can understand how even a small increase greatly impacts the Public Works Department’s ability to maintain and improve the utility.

While the water bill is not the mail you look for in your mailbox, understanding where the money is going and why the minor yearly increases are important makes paying it feel better. So maybe next time you open that bill, smile and know that your money is making a difference.

For more information on the increase you are always welcome to contact the Public Works Department at 360.293.1919 or coa.publicworks@ cityofanacortes.org. We also encourage you to follow us on Facebook, Twitter and Instagram for timely updates of repairs, projects or newsworthy events.

At 500 T Avenue, there is a large gray warehouse that serves an important purpose for our city. It’s the Waste Water Treatment Plant, though you’d never know it unless it was pointed out to you. There is no odor, no mess, no indication, other than the exterior signage, of what is happening inside. The process that’s taking place at the plant is one of the cleanest in the state, which prompts us to ask, can waste water be clean water?

Maybe we should back up and examine the waste water treatment process first. The purpose of the plant is to remove contaminates from water, primarily, household waste, before it is released into the Sound. Simply explained, pipes from households and businesses take water to the treatment plant. It goes through several treatment stages, cleaning it up. At our particular plant, there are tiny microbes that eat the sewage, versus chemically treating the sewage. When the microbes have eaten all they can, the sewage water resembles sludge. The sludge is transported to an incinerator to burn. The water that remains is cleaned to a level where it is not harmful to plant or animal life and released into the Guemes Channel.

Did you know the Waste Water plant now uses less electricity than when it was first constructed 25 years ago? Thanks to a huge effort at energy conservation and streamlining of process by our dedicated staff.

Did you know on February 18, 2017 our Waste Water Plant will be 25 years old!?

Can handle 4.5 million gallons of wastewater per day, but on the average treats around 2 million gallons per day.

Traditionally, waste water treatment plants have a land-based application for the sludge at the end of the process. Farmers use it as fertilizer, so it’s actually a useful material. However, it can be a costly and time consuming process. Our waste water plant in Anacortes decided years ago to incinerate our sludge, which, believe it or not, is an environmentally friendly way of getting rid of it. Our plant is only one of five waste water plants in the state to use an incinerating system.

We continue to look for ways to make this process even cleaner, researching new technologies or systems that will help us do so.

With a $1-Million-dollar investment from our Waste Water Utility Reserve account the facility installed a new scrubbing system that eliminates all the harmful air particles you could imagine – for instance, mercury, lead, chromium. The scrubbing system looks for one part per billion and removes it for cleaner exhaust in the air. Talk about a tough job. When the scrubber is done, the air is actually clean. Cleaner than it’s ever been. Clean enough to surpass EPA standards.

Working at the Waste Water Treatment Plant is definitely on the list of “dirty jobs, but someone has to do it.” But, thanks to the Plant staff in partnership with the City Council and Public Works Department, and a shared vision for making our city greener any way we can, we are able to proudly proclaim that indeed, our waste water is clean.

Interested in learning more about our clean waste water process? Give us a call or an email – 360.293.1919, coa. publicworks@cityofanacortes.org

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A significant piece of the City of Anacortes, budget comes from property taxes and that is one of the most discussed taxes that the City uses as a revenue source.

Property taxes are generally levied on each piece of privately held property inside the City limits at a collective rate of approximately 1% of the value of the property. This is frequently referred to as millage and is sometimes best understood in the context of dollars per $1,000 of assessed value. The City of Anacortes collects approximately $1.87 per $1,000 of valuation on a property. A portion of the total property tax

collected goes to each of the entities as spelled out in the chart below.

In Washington, property tax increases are not based on the increasing value of properties. They are based on a properties percentage value of the total tax levy each year. Each year’s levy may be increased by no more than 1%, unless the public votes for a greater increase or the jurisdiction uses banked capacity.

The City of Anacortes receives $750.92 of the total $3962 collected in property taxes on a $400,000 home.

$1.57 per $1,000 value 16% of total property tax

$1.88 per $1,000 value 19% of total property tax

$3.01 per $1,000 value 30% of total property tax

$2.15 per $1,000 value 22% of total property tax

$0.06 per $1,000 value 1% of total property tax

$0.09 per $1,000 value 1% of total property tax

$0.13 per $1,000 value 1% of total property tax

$0.66 per $1,000 value 7% of total property tax

$0.37 per $1,000 value 4% of total property tax All percentages are approximate

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14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

PROPERTY TAX 3,575,277

3,798,313 3,970,369 4,111,993

4,203,823 4,267,697 4,356,950 4,438,208 4,532,661

4,642,472

4,777,878

UTILITY TAXES

2,360,688

2,335,776 2,763,849 2,979,712

2,886,837 2,787,862 3,025,413 3,242,925 3,438,718

3,460,633

3,495,221

SALES TAX

3,326,743

3,614,139 3,313,625 2,588,960

2,873,742 3,190,763 3,073,886 3,398,084 3,438,686

3,623,465

3,945,850

REET

1,291,964

1,033,749

685,190

241,354

569,474

483,831

276,670

629,549

849,946

1,121,744

1,310,919

224,989

252,121

247,672

229,320

217,565

233,914

231,966

273,580

322,375

365,078

386,002

LODGING TAX

The City of Anacortes has 5 major tax funding sources, those include the following: Property Taxes which are collected on each piece of privately held property inside the City limits. The City receives about 19% of the total property tax collected. Utility Taxes, which are a portion of the taxes you pay on your utility bills like Electricity, Natural Gas, Phone, TV, Water, Sewer, Garbage, etc. goes to the City of Anacortes.

A portion of the Sales Tax you pay when you shop inside the City limits of Anacortes goes to the City of

Anacortes. Of the 8.5% sales tax, the City gets .85% of that. Whenever properties are bought or sold (with the exception of new construction) there is a Real Estate Excise Tax of .5% that goes into the Cities revenues. The final significant tax revenue collected by the City of Anacortes is the Lodging Tax which is collected at hotels, bed and breakfasts, campgrounds etc. at a rate of 4% which is used to market the City as a tourism destination and help put on events like the Arts Festival, etc.

The top 6 sales tax producers in 2016 were Food & Drinking Establishments. . . . . . . . . . 8%

Boat Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4%

New Construction Single Family Homes . . . 6%

Supermarkets, non food . . . . . . . . . . . . . . . . . 4%

Used Cars Sales. . . . . . . . . . . . . . . . . . . . . . . . . 5%

New Car Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 3%

Looking back, our 2016 tax revenue outpaced the prior year revenues by 5.32%. The community benefited from the strong real estate market with an increase of 16.8% in real estate excise tax that benefits road construction, parks, and other public works projects. Sales tax and utility tax trended upward and were driven primarily

from residential construction, hospitality businesses, vehicle sales and marine trades. 2016 Sales tax increased 8.9% over 2015 sales tax revenue.

Midyear 2016, the School District’s building projects began infusing sales tax as part of the multiyear renovation program.

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Fines and Forfeitures $211,188 0.80 % of Governmental Budget Other Revenue $211,188 0.80 % of Governmental Budget Traffic tickets, etc.

Licenses and Permits $964,145 3.64 % of Governmental Budget Building permits, etc.

Other Taxes $1,671,775 6.31 % of Governmental Budget Liquor and leasehold taxes, etc.

Grants and Interlocal $1,671,775 6.20 % of Governmental Budget Grants from outside agencies, etc.

Charge for Services $3,292,518 12.43 % of Governmental Budget Ambulance fees collected, etc.

Transfers In $3,177,747 11.99 % of Governmental Budget Real estate excise tax, lodging tax, etc Utility Tax $4,101,917 15.48 % of Governmental Budget

Jail $657,713 2.48 % of Governmental Budget New jail tax that gets passed on to County REET $1,134,666 4.28 % of Governmental Budget Sales Tax $4,145,338 15.65 % of Governmental Budget Property Tax $5,313,813 20.06 % of Governmental Budget

General Government Revenue The City of Anacortes essentially has two different kinds of budgets. One group are the utility funds that operate solely on the rates they charge for their products/services.

These utility funds include water, wastewater, sanitation (weekly garbage collection) and storm water. Separate from those funds is the

Public Safety $10,611,278 39.99 % of Governmental Expenses *Police and Fire Culture and Recreation $3,995,727 15.06 % of Governmental Expenses *Parks, Recreation, Library, Museum General Government $3,908,585 14.73 % of Governmental Expenses *Finance, IT, Human Resources Transportation $2,901,918 10.94 % of Governmental Expenses *Public works

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general government budget that includes all tax and fee supported functions of the City.

The two graphs on this page give an overall idea of the revenues and expenditures for the general government budget.

Economic Development $1,356,111 5.11 % of Governmental Expenses *Planning

Judicial $640,698 2.41 % of Governmental Expenses *Municipal Court

Inter-fund $1,893,946 7.14 % of Governmental Expenses *Transfers between departments Debt Service $762,790 2.87 % of Governmental Expenses *Library and public safety bonds

Physical Environment $337,872 1.27 % of Governmental Expenses *Cemetery Social Services $124,500 0.47 % of Governmental Expenses *Payments to agencies providing social services *Examples of Expenditures

Total City Budget A 60+ million dollar budget can be pretty unwieldy. This page offers a fairly simple look at two aspects of it. The one chart demonstrates what are essentially the two types of budgets contained within the budget.

One is mostly tax/fee supported (Governmental Budget) and the other (Utilities Budget) are the rate supported budgets comprised of the Water, Sewer, Garbage and Storm-water funds. You can see that the utility funds make up approximately 56% of the Cities budget in any given year.

The chart showing the various funds that the City operates out of

Total City

should give you a pretty good idea of what dollars are spent on. The yellow highlighted funds are the rate supported utility funds. The chart certainly doesn’t answer all the questions you might have about the City budget but does give you a quick reference for where the dollars go within the overall budget.

Obviously the General Fund represents a fairly significant expenditure fund within the City.

Here are a few items that run through that

Budget Expenses

GENERAL FUND PARKS & RECREATION FUND GRANDVIEW CEMETERY FUND PUBLIC LIBRARY FUND STREET MAINTENANCE FUND ARTERIAL STREET CONSTRUCTION ANACORTES TBD #1 WASHINGTON PARK FUND PARKS CAPITAL IMPROVEMENT AMBULANCE SERVICE FUND ACFL MANAGEMENT FUND TOURISM FUND DEBT SERVICE MGMT CAPITAL IMPROVEMENT FUND EQUIPMENT RENTAL FUND FIREMEN'S PENSION FUND WATER FUND SEWER FUND STORM DRAINAGE FUND SANITATION FUND TOTAL

fund: Police, Fire, Finance, IT, HR, Building, Museum, etc. all operate out of the general fund.

Governmental Budget 44%

Utilities Budget 56%

2017 Revenues/ 2018 Revenues/ Expenditures Expenditures 13,999,284 1,658,199 221,125 1,397,138 2,184,013 654,177 299,056 262,603 115,000 3,226,474 27,866 290,812 762,790 1,434,890 1,827,819 34,000 19,060,026 8,399,035 1,627,765 3,432,267 60,914,337

14,541,227 1,679,515 225,128 1,413,174 2,229,823 467,975 299,056 255,918 125,000 3,368,319 28,213 257,843 771,420 1,590,556 1,915,366 34,000 21,460,488 5,543,091 1,128,491 3,391,155 60,725,757 Budget Issue

2017 ATOT 13

SINGLE-FAMILY RESIDENCE PERMITS

2011 2012 2013 2014 2015 2016

40 43 86 98 85 97

OVERALL PERMITS

2011 2012 2013 2014 2015 2016

409 451 492 477 599 601

BUILDING PERMITS

2008 2009 2010 2011 2012 2013 2014 2015 2016 14 ATOT

$272,668 $237,003 $202,027 $211,274 $286,949 $446,305 $548,143 $539,179 $643,480

Budget Issue

2017

Largely spurred by a revival in residential construction and a major renovation/construction project at Anacortes High School, the City’s income from building permits hit a record high of $643,480 in 2016. However, there was an arduous 11-year climb to this high point: The previous record of $588,345 was set in the pre-recession year 2005. The low point between these highs was $202,027 collected in 2010 – one of five straight years when revenues dipped below $300,000.

“When building permits drop off, it’s because the economy is slowing, and fewer existing homes are being sold, and fewer new houses are being built. So there is a ripple effect in loss of general revenues consisting of both building permits and sales tax from the new homes, and loss of real estate excise tax (REET) from existing home sales,” said City Finance Director Steve Hoglund.

REET pays for the majority of our public works projects, including street overlays, new road construction, sidewalk repair and replacement, and park construction and improvements. Sales tax and building revenues support all General Fund activities, including public safety and administrative staff. During the downturn Anacortes had few direct layoffs, but a significant number of positions were left unfilled

through attrition, including in building, engineering, public safety, parks and museum.

Impact fees, which form a portion of the cost of building permits, are mandated by the Growth Management Act to fund projects that balance the impacts of growth: Road, parks, and fire impact fees, and utility hookup fees. The hookup fees are increased based on the Consumer Price Index.

The Anacortes High School project, estimated at $90 million, started enhancing the City’s sales tax revenues in late 2016. At least a 2-year project, it should benefit the City through fiscal year 2018. Assuming that all $90 million is taxable, the city would receive .85 percent or $765,000 in sales tax revenue over the life of the project, Hoglund said. Sales tax is unrestricted General Fund revenues, so the benefits are far-reaching, providing one-time funding for more street work, a piece of equipment, etc.

Hoglund said the City held off on buying the Enterprise Content Management System (ECMS), which the City will use to scan, record, file, and track documents electronically, until 2018, as it fits better with the one-time revenues from the school project.

Back in June, 2016, we shared how unexciting the water tank repair and replacement would be, because if the Public Utilities Department is doing their job right, no one notices. The important part was that our current 3 million gallon water tank would be replaced with two smaller 1.5 million gallon tanks at the Whistle Lake facility and Anacortes residents wouldn’t see any interruption in their service. Newsworthy, but unexciting.

Right? Well, guess what, Anacortes? The project is scheduled and going out to potential contractors for bids, and it’s still not exciting.

Make no mistake. This project is very exciting to everyone in the Public Works Department. The team is eager to get moving on progress for our city. It’s a smart plan to have two tanks, so if one needs to be repaired, cleaned or inspected, there is a backup, and we’re never offline with our water service. It was a great moment when the plans and specifications were approved by the City Council.

But, we understand that this doesn’t thrill everyone.

Nevertheless, we want to always make sure Anacortes residents are up-to-date and informed of the progress of repair and replacement projects happening with their utility dollars.

This is the first major work to the water storage tank since the 1970s. It is the major component to our system and feeds our entire city, so we view it with utmost importance. The city is anticipating bids to be received, and a crew selected for the project in the next few months. If all goes according to plan, construction will begin late this summer, and will take approximately one year to complete.

There will, of course, be updates, public notices, public meetings and plenty of communication between the Public Works Department and the residents of the Whistle Lake area before any ground is broken. As we’ve mentioned before, no one anticipates interruption in water services, but we want to prepare households nearby.

And there you have it, Anacortes residents.

The best news is that which is informative, yet unexciting. Because that means Public Works is doing their job, keeping utilities working and running smoothly. If you find this information as exciting as we do, let us know! We encourage communication. Contact us at coa.publicworks@ cityofanacortes.org or 360.293.1919.

The first tank will go east (left) of the existing reservoir. The second will go on the same concrete pad as the original once it is removed.

Budget Issue

2017 ATOT 15

Jeff Beltramini, an Engineering Technician in the City’s Engineering Department since 2008, is currently working on the City’s waterline replacement projects. His outstanding and diligent performance, his eagerness and steadfastness, and his exceptional customer service led Mayor Gere to honor him recently with a Mayor’s Award of Merit.

“Your tireless efforts to coordinate with business owners, keeping them informed of the schedule, addressing their concerns, accommodating their needs, produced a successful outcome with very little impact to our businesses and residents of our community. You serve as a role model for professionalism, dedication, flexibility, and customer service,” the Mayor said in her proclamation.

Beltramini is a 1986 Anacortes High School graduate. He worked as a commercial fisherman in Alaska until joining the City of Anacortes as a Street and Sewer Maintenance worker in 1999.

He later moved over to the Water Department as a maintenance worker, and then to the Engineering Department. “’It is very satisfying to be a part of a project from the development to completion stages as the designer, project manager and inspector. I really enjoy my job and all the challenges that come with it and feel very fortunate to work for and in the community I grew up in,” he said.

16 ATOT

Budget Issue

2017

Jeff is married to Jennie, a former Anacortes School District teacher who now works for a national non-profit, Student Achievement Partners. They have three children: Daughter Macy (12) and sons Parker (10) and Austin (4). Together, they enjoy traveling, camping and watching sports, especially the Mariners. He said he enjoys coaching youth, and is privileged to coach both his sons’ Little League teams. In addition, he enjoys training for and competing in triathlons, mountain biking or cyclocross races.

Nicole Johnston, the City’s Recreation Coordinator, is the cheerful face you see at the desk of the Anacortes Parks & Recreation Department in City Hall. Her job is to provide recreation opportunities for the youth and adults of Anacortes, primarily special events, youth sports and enrichment classes for young kids.

“Our department and community are lucky to have Nicole working for us. Anyone who has participated in one of the numerous programs that Nicole has started or runs knows how hard she works, how much she cares and how well organized the activities she offers are. Her work speaks volumes for her commitment to and involvement in our community,” said Anacortes Parks & Recreation Director Gary Robinson.

“She’s really upbeat,” added Lea DeVere, Assistant Director at the Anacortes Senior Activity Center.

DeVere said Nicole’s activities, especially parades of small students, are a big hit at the Center.

Nicole appreciates being part of a tight-knit team at Parks & Rec, where everyone pitches in to enroll participants, run programs and do whatever needs to be done. Last year they all dropped everything to help during the fire at Little Cranberry Lake. “It’s actually pretty special,” she said.

Nicole has worked for the City for 15 years. She came here directly after graduating from Central Washington University. She and her husband Josh, a teacher at Anacortes High School, have children Grace (10) and Emmit (8).

Today, her life centers around family activities. “They are the reason some of these programs exist,” she said.

“Like most families I know, I’m in the trenches right now,” she said, laughing emphasizing that that is a great thing. “I’m committed to hockey, swimming, lacrosse, volleyball .... If I’m doing something for fun, it’s probably with my family, and most likely outdoors.”

Budget Issue

2017 ATOT 17

Fiscally speaking, establishing a city from scratch is no simple matter, as can be seen by the Mayor’s financial report of 1891, when the City’s expenditures were $27,416.14, and revenues were a meager $1,635.14.

The deficit was a quirk of timing. Because Anacortes (incorporated May 19, 1891) was not fully operational by a June 1 deadline, the City was unable to levy taxes its first year on real estate and personal property. In May, Anacortes’ assessed valuation was estimated at $5.1 million. However, 1891’s boom quickly burst, and by January 1892 the County Board of Equalization had reduced the City’s assessed valuation by 20 percent to $4.1 million.

The information was included in Mayor W.H. Johnson’s annual message – the first by a City mayor – which, along with the annual report of the City Clerk, was presented at the first City Council meeting of 1892. The reports were published in the Anacortes American edition of Jan. 13, 1892.

Today, as Mayor Laurie Gere presents Anacortes’ 125th budget/financial message, the City’s total assessed valuation approaches $3 billion. In the City’s first biennial budget, expenditures, which are less than income, are $60,914,337 in 2017 and $60,725,757 in 2018.

Although the City had almost no revenue in 1891, it spent $5,246 to buy property and build a City Hall/Police/Fire building and another $900 to furnish it; $3,122 to buy Fire Department apparatus, and $7,056 to plan and complete street and sidewalk improvements. Another $4,892 was used to maintain the Fire Department, Police Department, City Clerk, City Attorney, Health Department and City Treasurer, and to pay for public printing and other incidental expenses. Mayor Johnson reported that the total indebtedness carried over from 1891 was $25,551 – less than half the amount of indebtedness allowed by law at that time.

But by today’s standards, this debt ratio was nothing for Mayor Johnson to brag about – City Finance Director Steve Hoglund said the amount is quite high. If we had the same debt

Photos: Anacortes Museum Collection. Anacortes’s first public building, a combination City Hall, fire station, police station and jail, was built in 1891, the year the city was incorporated. That year the City also outfitted the Fire Department, built roads and incurred other costs. Because the city was unable to legally collect a property tax levy until 1892, this spending created a debt of $25,551, which took many years to pay off.

18 ATOT

Budget Issue

2017

level as in 1892, the City would owe over $14 million in general debt. The City ended fiscal year 2016 with $495,000 in General debt against taxable property of $2.8 billion, which is .02 percent – only two-hundredths of a percent.

Mayor Johnson reported a better financial outlook for 1892.

In its first full year, the City expected to bring in $52,960 from several sources: a general property tax levy of 10 mills ($40,960), fees for liquor licenses ($8,000), and fees for special licenses, fines and a poll tax ($4,000).But it took a long time for the City to recover from its first debts.

Eight years later, in January, 1900, Mayor R.P. Thomas submitted a woeful Mayor’s Message to the City Council. He reported that the City started the new year with outstanding general fund warrants of $59,738 plus interest of $47,790 – at 10 percent accrued interest per year, a staggering total of 80 percent.

When cash on hand and delinquent taxes due to the city were figured in, he said the City was left with a deficit of $80,703 “which it is the duty of your body to consider and to devise means to gradually liquidate.”

In 1909, City Clerk M.C. Baker was required by a new state law to publish an Estimate of Expenses, which appeared in the Anacortes American on Sept. 30. This simple budget estimated expenditures of $30,600 (including $3,600 to the indebtedness fund, with no total indebtedness mentioned). Estimated receipts were to be $26,896 – including $9,000 from saloon licenses and $12,395 for taxes on real and personal property. It is interesting to note that saloon licenses brought in nearly three-quarters as much revenue as property taxes. By comparison, in 2016 the City’s property tax levy was $4,777,878, and business license fees were $67,902, only 1.4 percent of the levy.

By 1915 the City budget included a full $21,384 just for its indebtedness fund, with a specific 6 mill tax dedicated to the debt. This was in addition to the 10 mill direct taxation and a 1 mill tax for the Library Fund – a total of 17 mills. In 1915, the City offered a balanced budget, with an anticipated $63,788 in expenses and $65,710 in receipts. The 1915 budget was also the first City budget to be recorded using a typewriter.

Once through its growing pains, Anacortes matured into the stable and fiscally responsible City we enjoy today. Mayor Gere and the City Council are proud to lead Anacortes into its 126th year with a balanced budget that strongly supports public safety, economic development, and increased infrastructure investments.

Budget Summary The City’s 2017/2018 Biennial Budget, is a financial roadmap for the City of Anacortes that totals $60,914,337 in 2017 and $60,725,757 in 2018. It is a balanced budget that reflects our commitment to maintain our infrastructure and our intent to provide quality services and amenities to our residents while being conscientious of our financial position and in compliance with RCW 35A.34.

The 2017 budget increases our level of service and requires an increase of $5.1 million from the adopted 2016 budget of $53,839,256 representing a 13% increase. The cost of health insurance benefits continues to outpace CPI in spite of plan design changes the City has implemented to lower the cost of health insurance. The 2017/2018 budget contains an additional 1 FTE in the Information Systems budget for support of the increased demand on the department, a .5 FTE in the Library for customer service, and 1 FTE in the parks and recreation department for a parks maintenance employee. These additional positions will allow those departments to achieve the strategic goals of the Mayor and Council.

This budget contains fully funded Equipment Rental and Replacement (ER&R) charges for operations and provides for fully funded replacement charges.

This was accomplished with City Council’s consent for a one time transfer of $2.2 million from general fund reserves. This transfer from reserves replenished the ER&R account without impacting our level of service. This provides adequate funding for replacement of vehicles

and will provide consistency and predictability in budgeting.

During tougher economic times it was common for municipalities to underfund ER&R accounts to reduce expenditure requirements; however, this approach creates a funding shortage in future years.

The 2018 budget includes one-time purchases for vehicle extrication equipment for the Fire/ EMS department and an electronic content management system. These items are included in 2018 because it is my expectation that the City not rely on reserves for ongoing operational expenses.

The 2017 governmental operating fund budget totals $26,567,425 and receives 64% of its funding from taxes that can only grow in a strong economy.

General taxes fund the operation of police, fire, ambulance service, administrative services, municipal court, legal, planning, community and economic development, parks and recreation, library, museum and street maintenance.

In 2016 the majority of our revenue streams outpaced prior year revenues for the same period.

Building activity continues to be busy, with year to date revenue increases up 21.5%. Sales tax and utility tax have both seen increases over the prior year, of 8.9% and 1% respectively. This is the City’s seventh consecutive year of sales tax growth. The increases are being driven primarily from residential construction, hospitality businesses, vehicle sales and marine trades.

Midyear 2016, the School District’s building projects started to infuse

sales tax as part of the multiyear renovation program.

Property taxes are the City’s single largest governmental revenue stream. We have worked hard to develop a budget with a high level of service to the community that operates within the parameters of Initiative 747, which limits annual property tax increases to 1%, or the Implicit Price Deflator (IPD), whichever is less. The approved budget utilizes a 1% property tax increase in revenue projections, however, the IPD published on September 30, 2016, was less than 1%, so a resolution was brought forward illustrating substantial need to be adopted by City Council to allow us to increase property taxes by the full 1%. Anacortes remains one of the lowest taxing cities in Skagit County with a 2016 general millage of $1.70 per $1000 of assessed value, generating a 2016 property tax levy of $4,777,878.

The proposed budget retains cash reserves of $7 million in the General Fund. This is in addition to the $2.2 million transfer into the ER&R fund.

The City is careful to evaluate Economic trends, and stay nimble in case of an economic downturn the City would have the ability to navigate such an event. We have strong reserves, excellent bond ratings and are committed to pay as we go. Our final General Obligation Bond will be paid in full in 2018, this was for our Public Safety buildings and in 2020 our UTGO bond for the Library will be paid in full. Our future is bright and our infrastructure is being rebuilt.

Budget Issue

2017 ATOT 19

C I T Y

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A-Town is Our Town April 29, 2017 Spring/Summer regular edition of A-Town covering activities, events, city news and more.

August 19, 2017 Fall regular edition of the A-Town publication covering activites, events, city news and more.

December 9, 2017 Winter regular edition of the A-Town publication covering activites, events, city news and more.