With mixed public opinion about whether or not the city of Mercer Island needs additional revenues, the City Council will continue to evaluate how to address its financial challenges through the beginning of the summer.

On May 15, the council reviewed the recommendation from the Community Advisory Group (CAG) to raise property taxes approximately $254 in 2019 for a median-value $1.2 million property, with this additional levy amount increasing by 5 percent each year and terminating after six years. About 74 percent of the group recommended that the issue should be taken to public vote in November.

The council will kick off its deliberations of a potential levy lid lift at a public hearing rescheduled to occur during its June 19 meeting.

City Manager Julie Underwood and Finance Director Chip Corder have told the council that the city will soon experience budget deficits due to a “structural imbalance” between expenditures and revenues. Mercer Island has to raise taxes, or cut services, to balance its budget, they said.

Not all community members agree. Six members of the CAG authored a “minority report,” urging the city to adopt a cost containment plan, use some of its reserves and put off a potential tax increase until 2020. Some noted that property taxes in Mercer Island went up 18 percent this year to fund schools and transit.

The subgroup also referenced a 2016 Washington State Audit for Mercer Island that stated that over $19 million of the $40 million held in reserves by the city was discretionary.

Corder “confirmed the ability to apply city reserves to the budget situation, and has subsequently included some of the reserve funds into a revised budget,” according to the subgroup.

Corder said that the city recognizes the effects of tax fatigue, and knows its timing isn’t ideal. To offset a larger property tax increase, he also proposed a small increase of the city’s B&O tax and retaining the utility tax increase originally adopted to augment the city’s legal budget as it dealt with transportation lawsuits last year.

He said that large cuts to city staff aren’t possible without a reduction of city services. In a recent citizen survey, 74 percent of Islanders said they were satisfied or very satisfied with the level of service provided by the city. However, Islanders surveyed were also evenly split on the possibility of a tax increase.

The CAG “carefully considered the impacts of cutting costs and services, potential for forecast error, impacts of delaying this request to the voters, and a potential Real Estate Excise Tax (REET – a real estate excise (sales) tax) as a revenue enhancing solution,” according to the majority opinion. The CAG ultimately “rejected the REET and did not identify acceptable cost-cutting options that can be implemented in the short term without cutting services.”

The subgroup claims that the deficit forecast could be eliminated if the city implements a 5 percent cost reduction in the city budget of $65 million, but does not identify where specific cuts would come from.

The most likely departments are Parks and Recreation and Youth and Family Services (YFS). Underwood suggested funding the city’s YFS mental health counselors, which are stationed in each school on Mercer Island, through the 2018-2019 school year, because the city and district are on different budget cycles.

Community members and the Mercer Island School Board have suggested that the council place a stand-alone levy on the ballot for mental health counselors. The council and school board discussed the counselors at their joint meeting on May 17, with both claiming that the program is a “priority.”

The council has also previously discussed putting a capital levy on the ballot, though 81 percent of the CAG rejected that option, recognizing that “political realities make asking for both the operating and capital levy increase at the same time unwise.”

The council will also discuss the city budget at its upcoming mini planning session in June.

See www.mercergov.org/FinancialChallenges for more.