Local government budget squeeze continues

If local government revenues increase roughly the same as the statewide forecast, there will probably still be some difficulty in balancing budgets for next year.

If local government revenues increase roughly the same as the statewide forecast, there will probably still be some difficulty in balancing budgets for next year.

The recent state revenue forecast wiped out much of the cushion legislators thought would exist between spending and revenue in the 2011-13 biennial budget.

Even though the state revenue forecast is lower than before, it still calls for annual revenue increases during the coming two years in the range of 4.6 percent to 7 percent.

At least at the beginning of the county’s budget process, such large increases aren’t being factored into the projected county sales tax revenues.

This is probably a good idea, since there are some signs that economic growth may be slowing.

Sales tax revenues can be expected to grow very little, if at all, when the economy slumps.

Through May of this year, the county’s sales tax revenue has increased by about 5 percent compared to the same period last year.

It wouldn’t take much improvement in the local economy to cause a greater increase, but even a small slowdown could have the opposite effect and drag revenues down.

Property taxes collected by the county and all other taxing districts — with two exceptions in South Kitsap — will grow a little whether the economy slows or not.

Levy amounts can be increased each year by 1 percent in addition to the amounts collected because of new construction or annexations.

Since the construction industry is still in a slump, there is little reason to expect much additional levy revenue from new construction.

The two exceptions in South Kitsap are the South Kitsap Fire and Rescue levy for emergency medical services and the Bremerton Port District levy to pay for the Bremerton marina expansion.

Both are at their maximum allowable tax rates now, so the expected decline in total assessed value of taxable property will cause revenue from these two levies to decline again in 2012.

County government won’t be facing this decline in property tax revenue, since the current tax rate is nowhere near the maximum allowed.  The tax rate can rise to collect the 1 percent levy increase our commissioners can impose.

But even with no decline in county property tax revenue and a possible sales tax revenue increase in the neighborhood of 5 percent next year, the county’s budget squeeze will continue.

The economy has been growing since the end of the recession, but the level of economic activity is far below what it had been prior to the recession.

Revenues won’t return to previous levels for quite a while yet, so the county probably won’t soon get any budgetary breathing room.

Unless there are significant changes in personnel compensation policies, small tax revenue increases can be expected to be spent largely on pay and benefits.

Even without a cost-of-living ad-justment to keep up with inflation, “step” and longevity pay increases typically cause the payroll cost to rise each year.

Add the increase in the cost of medical insurance premiums the county pays as one of its employee benefits, and the total cost of paying county employees can rise significantly even when the number of employees stays the same.

The county isn’t alone in facing this problem of rising compensation costs, so each year in which revenue stays below pre-recession levels presents local government entities with the problem of cutting something.

Getting spending down to the post-recession revenue level and keeping it there when employee pay and benefits costs rise will be a continuing problem under existing policies.

When local governments need significant revenue increases each year just to keep up with employee compensation something has to give.

Population increases may cause government to hire more employees and thus spend more, but this doesn’t appear to be a significant part of the budget squeeze most local government entities now face.

Revenues may increase this year and next, but not enough to make anyone’s budget decisions easier.

Bob Meadows is a Port Orchard resident.