Seattle trims budget, freezes hiring; falling tax revenues spur Schell's decision

Reacting to a stormy economy and a dramatic fall in city tax revenues, Seattle Mayor Paul Schell yesterday offered a new budget forecast as gloomy as a Seattle winter and ordered a citywide hiring freeze and a $3 million budget cut.

The moves were spurred by the latest numbers from the city's budget office showing revenues falling dramatically from projections made last November.

Overall city tax revenues this year are down $6.3 million from the November forecast, according to the city budget office. The biggest decreases came in sales and business and occupation (B&O) taxes, down a combined $12 million this year and expected to shrink an additional $16 million next year.

That was offset in part by increased collections from utility taxes on natural gas and electricity, which jumped this year by $5.6 million. However, the City Council has already committed much of that revenue — generated by rate increases at City Light and other utilities — to conservation programs and subsidies for low- income, elderly ratepayers.

The falloff in tax collections is striking when set against the huge increases driven by the hot economy of the past few years. Combined sales-tax and B&O collections, for example, jumped $16 million last year from 1999. Property-tax collections climbed more than $11 million over the same period, and other taxes also grew.

That helped push the city's general-fund budget to $609 million this year, up from $482 million in 1998. The city also added about 900 employees during that time.

Schell has been fond of saying that during the first three-plus years of his time in office, the city "fixed the roof while the sun was shining" — using record tax revenues generated by economic good times to increase spending on everything from road maintenance to homeless shelters.

"Now the sun is behind the clouds, and we need to tighten our belts," Schell said.

"The higher the peak, the lower the valley," said City Councilwoman Jan Drago, who chairs the council's finance and budget committee, at a briefing on the city's worsening economic situation.

The canyon could get even deeper, city officials warned, if voters approve Tim Eyman's latest tax-whacking measure, Initiative 747, which would cap property-tax increases at 1 percent a year unless voters approved a higher rate. That would slice Seattle's budget by about $8 million next year.

While not calling for layoffs, Schell ordered city departments to stop filling vacancies, with the exception of uniformed police- and fire-department positions.

Departments can ask the mayor's office for exceptions, but Schell said there would be a "strong bias" against such requests.

The hiring freeze is part of an effort to reduce departmental budgets by $3 million in the final three months of 2001.

Schell also ordered departments to conduct a six-month review to determine which services might be eliminated if the need arose.

Yesterday's actions followed an earlier edict by Schell that froze bonus pay for city managers and ordered department heads not to seek more money in the current budget cycle. Schell will submit a revised 2001 budget and a 2002 proposal to the City Council on Sept. 24.

City Attorney Mark Sidran, one of Schell's main rivals in the mayor's bid for re-election, has lately made criticism of the city's financial management a staple of his campaign speeches, arguing that an "unsustainable bow wave" of city spending would force the next mayor to cut the budget.

In particular, Sidran has objected to the city granting cost-of-living pay increases equal to 100 percent of growth in the consumer price index (CPI).

The city had routinely pegged those increases to 90 percent of the CPI, but during Schell's term the city agreed to the higher employee raises, which amounted to 3.9 percent this year.

However, in exchange for the bigger raises, unions representing about 4,500 city workers agreed to cap health-care cost increases at 6 percent a year, according to Mike Schoeppach, director of labor relations for the city.

That has saved the city about $1 million a year, about the same as the cost of the higher city raises, he said.

Seattle Times staff reporter Beth Kaiman contributed to this report. Jim Brunner can be reached at 206-464-5628 or jbrunner@seattletimes.com.