The Port Townsend City Council has adopted a $36.7 million budget for the fiscal year ending Dec. 31, 2019.

During its regular meeting Nov. 19, the council voted 6-1 in favor of the budget. Robert Gray, Position 4, cast the sole no vote, stating he was concerned because the projected expenses, totaling $36,689,350, exceed the projected revenues of $34,940,280. The difference will be paid for through reserve funding.

“I see some red flags in the budget,” Gray said before the vote. “Two out of the last three years … our projected expenses are exceeding our projected revenues. That is an unbalanced budget. Now, we do meet the law for requiring a balanced budget because we use reserves. Our overall fund balance, which is something we are required to report on, has been decreasing.”

In 2018, the city’s fund balance was about $12 million, down from $14 million in 2017. For 2019, it will be about $10 million, Gray said.

“As stated in the budget, street funds, library funds, water/sewer funds and storm and engineering funds are projected to draw on cash reserves next year,” he said. “That cannot continue. Something has to give.”

Gray noted that half of the city council reserve, or $40,000, is now allocated to debt. He also pointed to $20 million in debt the city will be paying off over the next several years.

“We will have the highest payments required on that debt in history,” he said. “Compared to 2008, the payment on that debt was $650,000 a year. Next year, it will be $1.7 million for four years. (After that), it will be $1.6 million for another nine years, and then $1.3 million for four years after that.”

Gray said he does not believe the economy can support that level of debt.

“Look at where the payments for that debt come from,” he said. “We are going to spend all of our REET (real estate excise tax) to put on that debt. Now, REET can be used for parks, it could be reused for a dog park, it could be used for the library, it could be used for streets, it could be used for sidewalks. We don’t have any for that. We have to put it on the debt. $125,000 on the debt comes from LTAC (Lodging Tax Advisory Committee), which seems a bit unusual to me.”

Gray warned that such a high debt load could force the council to cut existing programs in the future.

“I just think if we don’t get this under control, what we are going to be facing are cuts,” Gray said. “There are going to be cuts in programs; there are going to be cuts, I believe, in staff. We’ve got to figure out a way to increase revenues.”

Defense of investment costs

Michelle Sandoval, Position 1, said the city is investing money in order to make money.

“I think the city has been very focused on … creating more revenue, and that is why so much money has been spent on infrastructure,” she said before the vote. “We cannot expect business owners to build buildings and start businesses unless there is a place to do that with roads, sewer, water, sidewalks. That is what all of Rainer Street is about. That is what downtown Water Street and the enhancements are about.”

Sandoval said using REET and LTAC funds for infrastructure projects also is a responsible allocation of monies.

“In terms of using lodging tax, part of our revenue that comes in, and tourism is a good portion of what happens, is why the lodging tax is used, because, in fact, there has been a philosophy that, rather than just spending it on marketing – which is what a lot of cities do – we need to make sure we can handle the tourists and that they have a good time,” she said.

“That means making sure that they have clean streets with the kind of Big Belly trash cans that we have. That they have sidewalks that are wide enough for them to walk on and that they are not dangerous. That they have restrooms, that they have benches. That is why the lodging tax contributes to the capital improvements, because not only does the tourist person get to enjoy it, but in fact the locals do, too. I think it is a win-win that way.”

Sandoval said she understood Gray’s concerns, but she’s confident the city is heading in the right direction financially.

“Except perhaps (for) blowing up $10,000 worth of fireworks (during Fourth of July celebrations), we haven’t been spending the money in a frivolous fashion,” she said. “We are investing for the long run.”