Oct. 13, 2008

King County Budget Speech for 2009

Monday, Oct. 13, 2008

I take that as the highest compliment that can be given to a leader.

Because ladies and gentleman, leadership is simple when conventional wisdom is right. But as seismic events of today shake the very foundations of our economy, conventional wisdom has not been enough. When conventional wisdom fails us, true leadership must go beyond conventional wisdom.

Conventional wisdom has led the nation and the globe into the largest financial collapse since the Great Depression.

Conventional wisdom has watched helplessly while Lehman Brothers and Washington Mutual have disappeared forever, while Fannie Mae and Freddie Mac and AIG were taken over by the federal government and while the Dow Jones dropped 20 percent in one week and trillions of dollars of investments simply vanished.

Conventional wisdom built a National Debt Clock in New York that last week ran out of digits because no one could conceive that the federal government would run up over 10 trillion dollars of red ink.

These historic and remarkable events have buffeted the state of Washington and King County government. We face an enormous budget deficit - one that is unprecedented in King County history.

This financial emergency is fueled by a structural imbalance in how our budget is funded and it's made worse by the extreme economic conditions facing the entire country.

This impact is most strongly felt in the general fund, which represents 13% of King County's roughly 4.9 billion dollar budget. The result is a projected general fund deficit exceeding $93 million.

We are projecting additional general fund shortfalls of $40 million in 2010, and $62 million more in 2011.

The "uncomfortable truth" is - King County is at a crossroads. The next 12 months will either see us dismantle much of what we have built, or see us forge a strong new foundation for a brighter future.

The uncomfortable truth is also that in such times of crisis, the conventional wisdom of cynics and opportunists is to fix the blame, not fix the problem.

The people of King County rightly expect more from us than conventional wisdom. They expect us to fix the problem, and to fix it together. This budget meets that test. The budget I present to you today fixes the problem in both conventional and unconventional ways.

Through the hard work and leadership of our department directors and budget staff, I am proud to present you with a thoughtful, measured, fiscally responsible and balanced budget.

Not only is the general fund budget balanced, it is 15 million dollars smaller. Through innovation, efficiencies and reductions, I have trimmed the budget from $659 million in 2008 to $644 million in 2009.

But let me be very clear. This is also the most difficult budget I have undertaken in my career. As the Executive, I made tough decisions to balance, but in the budget that I present to you today, critical county services are on life support.

How we got here
Some have asked how could the deficit balloon so high? A detailed and sobering description of how we got here is included in the Executive Summary of the budget.

The short answer is that the current deficit is the direct consequence of a broken funding system for counties, one in which there is a well-documented structural imbalance between revenues and expenditures.

And we are not alone. The state legislature commissioned the Washington State Department of Community, Trade, and Economic Development (CTED) to evaluate the state of all counties. In December of last year, CTED reported to the legislature that help was needed. They found, "All counties, charter and non-charter, are fiscally distressed. It is a matter of degree."

This result confirmed the findings of the Budget Advisory Taskforce that I convened in 2002. This group of well respected economists and business leaders predicted such a financial crisis because King County:

• lacks a diversified revenue base,
• has its largest revenue source, the property tax, capped at 1% annual growth,
• and provides city level services to the over 200,000 residents in the potential annexation areas of cities but without city revenue tools.

Recognizing this structural deficit in 2002, together the Council and I buckled down. We implemented $137 million in actions over three years which cut expenses or found new revenues. And we did so in such a smart way that our conservative fiscal management was rewarded with the highest bond rating possible - AAA. Thanks to the strong fiscal partnership between the Council and the Executive Branch, we have maintained that AAA rating every year since 2005.

Over the last few years the booming economy generated enough money to create reserves to cover the structural deficit each year. During this time, we also prudently increased our General Fund investments in public health, human services and law & justice.

But we knew this day was coming. I have said in prior years that "a potential general fund deficit looms for 2008 and beyond … and the problem is real." At the end of 2008, together with the Council, we set aside a General Fund reserve of $24.7 million to prepare for the 2009 deficit arising from the structural imbalance.

So while the projected deficits are no surprise, their magnitude is unprecedented, and underscores our particular vulnerability to national economic conditions.

Over $58 million of the estimated $93 million deficit is directly or indirectly attributable to the financial crisis gripping the nation. Sales tax revenues and interest earnings are plummeting and inflation is rising, driving our Cost Of Living Adjustment to 5.5 percent, a level not seen in decades.

The national economic woes have had a dramatic impact, but it is important to remember that these deficits can and will occur even in good economic times. This is a systemic problem that needs to be fixed statewide.

In spite of this bleak horizon, my proposed budget lays the foundation to get our budget back to fiscal health.

How did we solve the problem?
So how did we plug the 93 million dollar hole? We did it through hard work, tough choices and a combination of conventional budgeting and unconventional thinking.
Permanent General Fund Budget Reduction
To close the gap for 2009, we started in a conventional manner. We prioritized and we cut.

Executive Office Cuts
I started with my own offices. Assumed in this budget are the $3.88 million dollars in savings from my proposal to relocate all the Executive Offices from the Columbia Tower to county-owned space.

Terminating our lease for 26,000 square feet of space in the Columbia Tower and moving to smaller, cheaper and more efficient space in the Chinook and Yesler Buildings will save the general fund $2 million dollars over the next five years.

I have also cut four Executive Office staff positions and dissolved the existing Office of Business Relations and Economic Development. I have reorganized them along with key elements of the budget office into the new Office of Strategic Planning and Performance Management.

Not only will this new office allow us to implement the countywide strategic planning called for in the Council-adopted Performance and Accountability Act, it does so while saving more than $830,000 in 2009.

Together my actions save over $1.4 million dollars in the general fund for 2009. These are common sense initiatives that allow us to do more with less and I urge the Council to adopt these proposals.

Next the Executive Branch agencies underwent rigorous business planning and belt-tightening exercises to identify permanent budget reductions.

We preserved direct services and programs vital to our citizens over administration and central services. Agencies identified $38.2 million in permanent on-going cuts of less essential programs. We saved $5.7 million more by reducing overhead costs.

Employee Savings and Impacts
We turned next to our employees. As a service delivery organization, over half of King County's expenses are the salaries and benefits paid to the dedicated public servants who provide those services. We have always treated our employees with dignity and respect and provided them good pay and strong benefit packages to offset the higher salaries they could earn in the private sector.

But in these trying times, the county has no choice but to look to our work force to help shoulder the burden of our deficit problem.

We have taken the difficult step of reducing the Cost of Living Adjustment to 3% and cutting both merit and step increases for our non-union employees for 2009. This will save approximately $5.1 million in the General Fund and $5.2 million in other county funds in 2009.

Many current contracts prohibit us from imposing a similar action on our unionized employees. Nevertheless we have established an equivalent reduction target of over 8 million dollars in the general fund from our represented workers.
Conventional wisdom might say that this is an unacceptable financial decision, and that unions will not voluntarily go beyond the bounds of their contracts, even in times of crisis.

I utterly reject that notion. No one gives more or cares more than the incredible men and women in King County's labor unions. We have been actively engaged in discussions with our union representatives for months to find creative and innovative ways to reach this target. These savings are built into agency budgets and I am confident we will achieve them.

Even with these salary savings, there will be layoffs. As part of this budget proposal I have the very sad duty of eliminating nearly four hundred positions. As one example, new federal requirements for storm water and lost fees from annexations has hit our Water and Land Resources division hard, resulting in major layoffs. Releasing some of King County's most loyal, innovative and hardworking employees tears at my heart.

Letting outstanding employees go is one the most difficult decisions an Executive must make…but still it needs to be made as there is simply not enough money to preserve these jobs.

I will notify affected employees tomorrow, October 14th about the layoffs. They will be employed with the County until the end of this year, and we will do everything in our power to find different jobs in King County for all those who want them.

Make no mistake: these cuts hurt and I do not make them lightly. These cuts will affect our criminal justice system including our Sheriff's Deputies, courts, prosecutors, and jails. And these cuts also affect our public health system which serves our children, our frail and elderly, our citizens who are most at risk for HIV, tuberculosis, and abuse, and those who use our public health clinics.

Life Boat
Even with the cuts I outlined, we still had further to go. I was presented with closing down the 39 local county parks left in the urban unincorporated area and either making unconscionable cuts to public health or immoral cuts to human services that were not "mandated" by state law.

These cuts would irreparably harm those who truly have no where else to turn. As I agonized over these cuts, I decided instead to do something completely unconventional.

I created a second six month budget to temporarily preserve our most critical services that directly impact the health, safety, and well-being of residents in our community until June 30th, 2009.

When I confided this concept to Dan Satterberg, he thoughtfully named it "the lifeboat strategy", stating "this gives these programs a chance to be saved." The term was so appropriate that with Dan's permission, we adopted it.

Over 21 million dollars of annual programs have been placed in the lifeboat and fully funded for the first six months with 10.5 million dollars in reserves. The lifeboat provides a temporary safe harbor for our most critical public health and human services programs that would otherwise have been cut.

This strategy allows the County to continue to provide these services for the first half of 2009 while we work with the Governor and legislative leadership during the 2009 Legislative Session to craft a solution - a solution that will provide King County and all counties with the flexibility and revenue options required to sustain these services.

The lifeboat is a lifeline but it is not a solution. We have funded this lifeline with all remaining non-emergency reserve funds - which were just enough to fund these programs for the first six months.

But in the short term, this strategy preserves services for public safety and public health. And, it also protects our most vulnerable: our children, our seniors and those most in need.
The lifeline strategy buys us time to continue working with legislators to create a solution in Olympia this spring. If we are successful, King County will preserve these critical services. If the state does not grant us a structural solution, the programs in the lifeboat will expire on June 30th of 2009.

The $10.5 million in programs to which we will extend this lifeline include:

• $4.9 million for Law, Safety and Justice Agencies,
• $4.7 million for Health and Human Services agencies,
• $0.9 million for General Government Agencies, and
• $0.3 million for Physical Environment agencies.

In almost every case the lifeline has allowed me to limit the severity of cuts in criminal justice, public health and human services to less than my original target reductions.

For example, the lifeboat allows me to keep open the Evergreen Pool, and fund our Agriculture and Forestry programs.

This lifeboat preserves the Adult Drug Diversion Court and Mental Health Court so people with mental illnesses and drug addictions can get treatment and find a safe haven.

The lifeboat protects the Domestic Violence and Sexual Assault Prevention Program so women and men do not have to live in fear from violence and abuse.

The lifeboat keeps the doors open at the White Center Family Planning Clinic, Northshore Clinic, and funds the Child health care program so our society's most vulnerable receive the medical attention they so rightfully deserve.

The lifeboat saves program services in the Medical Examiner's office and education and treatment for tuberculosis, STD's, other immunizations programs to prevent widespread epidemics in our communities.

And finally, the lifeboat keeps the winter homeless shelter and other housing programs open so those without shelter can find a safe place from the cold and a shoulder to lean on during tough times.

I want to extend my heartfelt thanks to Bob Cowan, my Budget Director and to the entire Budget Office for their exceptional work in designing and implementing this complicated but necessary strategy in the midst of one of the most difficult budgets we have ever faced.

The lifeboat is an innovative, unconventional tool that gives us time to seek state solutions. But this critical lifeline will expire and these programs will be eliminated on June 30, 2009. It is imperative that we are successful in securing the needed flexibility and revenue tools in Olympia.

Emergency Reserves
We spent nearly all of our one time reserves to fund the lifeboat. But we have left intact the sacred six percent General Fund undesignated fund balance and the Rainy Day Fund of $15 million. These reserves are now our only line of defense for catastrophic earthquakes, pandemic flu or further global recession.

Just as importantly, these reserves also protect our AAA bond rating.

In an unprecedented era when the states of California and Massachusetts must ask the federal government for loans because no banks or investors will give them credit, our AAA credit rating is no longer a luxury, but a necessity that keeps us first in line to get the credit we need to survive. I know the Council understands how critical these accounts are and will maintain our long partnership of fiscal discipline and resist the temptation to use these funds.

Saving Parks
As with the lifeboat, we have taken an unconventional approach to saving King County's 39 Urban Growth Area parks. We have removed them from the general fund but I have proposed re-purposing the remaining Annexation Initiative reserve amount of $7.7 million to keep these parks open from 2009-2011.

Saving these parks promotes healthy and safer urban communities by providing our citizens with places to gather and play. It also allows us to preserve these parks with the hope that they will soon be transferred as part of future annexations.

Using the Annexation Initiative money to maintain these parks demonstrates King County's commitment to annex all remaining urban areas into surrounding cities.

Most importantly, saving these parks maintains faith with the voters of King County who overwhelmingly passed our two parks levies last year. But I must be clear, without solutions from Olympia, these Annexation funds will be exhausted and these parks will close in 2012.

Investing in the Future
King County is far more than just its general fund. This budget also fully meets our regional responsibilities in transit, wastewater, solid waste, mental health and flood control.

Our general fund challenges have not stopped us from investing in the long term future of the county and meeting our infrastructure needs.

Investment in that infrastructure is the foundation for our long term economic stability, our personal health and our quality of life. We must invest in the continuous process of rebuilding in order to secure a bright future for future generations.

The budget I present to you today does just that. It calls for a 2009 Capital Improvement Program of $1.2 billion dollars. The projects in my proposed budget will help safeguard our water quality, improve transit and key transportation corridors and help build a better economy and quality of life for our children and grandchildren.

This $1.2 billion includes:

• $167 million to continue the improvements in our wastewater treatment system, including the construction of the Brightwater Treatment Plant;
• $75 million to continue the program to replace, improve and upgrade our solid waste facilities,
• $53 million to protect our groundwater and to invest in flood control projects to protect our aerospace industry and our retail and agricultural centers;
• $68 million to improve our roadways, including moving forward on the Novelty Hill Road project;
• $43 million for capital improvements and property acquisitions to support our parks, recreation facilities and trail programs;
• $33 million invested in the new Ferry District;
• and a biennial capital budget of $542 million for our Metro Transit system for new buses and full funding of the expansions promised in Transit Now.

Seek Solutions Together
Madame Chair, members of the Council, elected officials of King County: You have before you a thoughtful, restrained and disciplined budget. What happens next is up to you.

Public cynicism and distrust of businesses and governments are at record highs - both locally and nationally. For many citizens -- businesses and governments simply aren't working for them. People are losing faith in the fundamental institutions of our nation.

Many expect that we will engage in political infighting over this budget. If we do, we will only affirm the cynicism people feel about government.

Three days ago, Crosscut called me a "formidable foe against conventional wisdom". And I am. I believe that we in King County are better than that. We all must listen to our better angels and fix the problems, not the blame.

Over the past several months, my staff and I have briefed Governor Gregoire and legislative leaders on budget impacts on public safety, health and other core services. They are open to solutions that will help solve our problems but their message has been clear. We must be united.

Last year, I asked all members of the County Council and every official in King County to join me in Olympia to secure the tools we need. I ask you all again. The stakes are too high for us not to have shared goals and a common purpose.

"The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew and act anew." - Abraham Lincoln

Thank you.

Related information

• Budget news release
• Budget briefs and planning
• 2009 Executive Proposed Budget—Summary (PDF)
• Budget web site
• Performance measures