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Wednesday, July 1, 2020

City of Bellingham forecasts a $9.6 million deficit for 2020’s budget

Bellingham City Councilmember Pinky Vargas stated that these forecasts “seem a little optimistic.”

An illustration of Bellingham City council. // Illustration by Rachel Alexander

By Seth Stevens

This is a follow-up piece for a story published May 4, regarding the city of Bellingham’s 2021-22 budgeting process. For more information, read the story here.

The Bellingham City Council unanimously approved redirecting over $2.1 million in funds from 2020’s general fund budget to be placed in the city reserves on Monday, May 18, in an effort to be more prepared for the impending economic recession.

With new data emerging, Bellingham’s Finance Department is forecasting a 9% shortfall in revenues for the general fund, which equates to about a $7.6 million shortfall in collected revenues for 2020. 

Bellingham’s general fund budget is responsible for funding 13 different city departments, with the four largest being police, fire, parks and recreation, and libraries. 

The general fund’s top four revenue streams are business and occupation taxes, utility taxes, sales tax and property taxes. 

Sales tax equates for 18% of the general fund revenues and is expecting a significant reduction, but it is hard to say exactly by how much. Bellingham Deputy Finance Director Forrest Longman explained that the best way to get an estimate of how much sales tax revenues will be affected is to look at unemployment data for Whatcom County. 

The city is forecasting a 41% drop in construction tax revenues, a 39% drop in accommodation and food service tax revenues and a 28% drop in retail trade tax revenues. Combined, these categories are responsible for 77% of all sales tax collected by the city of Bellingham. 

According to census data, retail sales nationwide were down 21% year-over-year for the month of April. Longman believes that Bellingham’s numbers may be worse due to Washington’s more restrictive stay-at-home orders. 

The director of Economic Development for the Port of Bellingham, Don Goldberg, explained that a significant portion of our sales tax revenue comes from Canadian travelers. 

The U.S.-Canada border has been closed to nonessential travel since March 21. This closure was originally set to expire April 21, but was  extended to May 21. It was recently announced that the border will remain closed until June 21, with the option to extend the closure further. 

Data for how much sales tax Bellingham actually collected for April will not be available until late May or early June, making it difficult to watch spending for 2020, as well as to oversee the 2021-22 biennial budgeting process. 

The new 2020 budget also took into account an estimated 5% savings on salaries from city employees. This estimated savings is due to hiring restrictions that have been put in place by the city in an effort to reduce new spending, unless it is deemed essential. Bellingham Mayor Seth Fleetwood previously has stressed the need to make sure that any new city employee hires fit in with the budgeting processes goal to “ensure long-term financial stability for the city.” 

Bellingham City Councilmember Pinky Vargas stated that these forecasts “seem a little optimistic,” since they do not take into account a potential second wave of COVID-19 outbreaks in Whatcom County. Vargas continued by stating, “Obviously we are going to have to reassess when things happen. I think that things are not going to recover fast.” 

Longman explained that these forecasts take into account a significant decline in March, but not a peak until April. The model predicts a slow recovery in most sectors over the summer with further recovery in the late fall. Longman spoke on the possibility of how a second wave of infections would affect this forecast by stating, “If that happens, it will all dramatically change.”

“It makes it very difficult to create a reliable forecast when we have a constantly changing environment,” Longman stated. He explained that it is also a challenge due to data wait times. 

According to Longman, Bellingham has done a good job at saving money in the reserves for a potential crisis such as this. This new forecast estimates that Bellingham’s operating expenses will be in excess of this year’s budget by about $9.6 million, reducing the city’s unrestricted reserves to just under $6.9 million for the end of 2020. 

The Bellingham Finance Department expects to have a full economic forecast that shows the impact that COVID-19 will take on 2021’s budget later this fall.

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