Puyallup officials expect to face a $5 million annual budget shortfall in 2011 and again in 2012, which could require them to lay off anywhere between 50 and 94 of the city’s 300 employees if they don’t raise revenue or cut elsewhere, the city’s finance director told the City Council Tuesday night.
If the city were to address the $5 million annual shortfall through layoffs alone, about 50 employees would have to be let go starting in July, Finance Director Cliff Craig said at a council study session to set budget priorities. If the city waits to address budget problems until January 2011, cutting 94 positions would be necessary to close the $5 million gap, he said.
To avoid mass layoffs, Puyallup City Council members told staff at Tuesday’s study session to start looking at other cost-saving measures, including offering a buyout package to retirement-eligible employees and reducing City Hall office hours.
Council members said they weren’t yet ready to discuss implementing a new business and occupation tax, which would apply to businesses’ gross receipts.
As proposed, the 0.1 percent tax would bring the city about $2.6 million in new revenue per year, Craig estimated – enough to cover half the projected annual shortfall.
But council members said they wanted to discuss the proposed B&O tax with local business owners before turning to it as a solution for the city’s budget problems, fearing it could hurt economic development.
“I am concerned that this is an answer that could be so destructive to our local business community,” Councilman Rick Hansen said. “They might go somewhere else based solely on this.”
Eroding tax revenues are the main cause Craig identified of the projected shortfalls during the next two years. The city also is facing a $545,000 shortfall this year based on projections for revenues through the end of 2010, he said.
The council’s decisions at Tuesday’s study session were to direct staff how to prepare the city’s proposed 2011-2012 biennial budget. The council won’t finalize the budget until October.
Among the cost-cutting options city council members favored pursuing:
-Creating an “early retirement incentive package” that would offer retirement-eligible employees three years of city health benefits if they leave the city voluntarily. For each employee that opts for the buyout plan, the city could save $75,000 per year, Craig said.
-Scheduling an employee furlough day that would close city offices one day a month, or shortening employee work days. This could save between $800,000 and $1 million annually, Craig said.
-Decreasing the value of merit pay increases so that it would take employees longer to progress to the maximum pay level in their position. Doing so could save the city $125,000 annually, Craig said.
-Redesigning the city’s employee health care plan or discontinuing the city’s self-insurance program. Craig estimated doing so might be able to save the city about $900,000 per year, plus a possible one-time savings of $800,000.
The suggested measures will need to be discussed with various city employee unions before being included in the city’s proposed 2010-2011 budget, Interim City Manager Ralph Dannenberg said.
After negotiations, city staff will return to the council with a proposed budget that includes some combination of the various cost-cutting options, Dannenberg said.
Council members tabled consideration of the proposed business and occupation tax until staff could conduct more outreach with local business.
In reality, a combination of cuts and a tax increase will probably be necessary for the city to bridge the $5 million per year shortfall it faces in the coming years, Councilman Don Malloy said. Using only one method to fill the gap would be impractical, he said.
“We’re not going to say, ‘Let’s raise $5 million in taxes’—that’s unacceptable,” Malloy said. “Saying, ‘Let’s lay off 50 people—that’s unacceptable. We’re really faced with a dilemma.”