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City of Seattle

July 12, 8:02 PM click here to comment > 1

Replenishing the rainy day fund for long-term budget stability

“Funding by accident.” That’s what some have called Seattle’s past practices when it came to building a healthy balance in the City’s rainy day fund. While many acknowledge the importance of maintaining a reserve of funding in case of economic downturns, to date the City had not been proactively planning for restoring or maintaining this important safety net.

As mayor, one of my highest priorities is to build a sustainable budget that can last over time. A strong, sound rainy day fund is an important part of fiscal responsibility. Under existing City policy, the only official source of funding for the rainy day fund has been when actual revenues exceeded our forecast. The policy was designed during the boom years, but a new economic reality of subdued revenue growth requires a better solution. A long-term method of filling the rainy day fund is still needed.

I’m pleased to announce that my staff and I are ready to offer a solution. On Monday, July 18th, at 10:30am, Budget Director Beth Goldberg will present my recommendations for ensuring the long-term viability of this fund. Starting in 2012, I recommend the City set aside .25% of its general revenues – those revenues from the business and occupation tax (B&O), sales tax, property tax and utility tax – and dedicate them to rebuilding the rainy day fund. In 2013 and beyond, the percentage will increase to .5% of general revenue tax receipts. For 2012, this would be approximately $1.9 million. In addition, I will recommend that we dedicate half of all fund balances in excess of forecast to the rainy day fund. Had this policy been in place already, this would have meant another $1 million contribution for year-end 2010.

The rainy day fund was established in 1999 as a means of creating a savings account during years of revenue growth that could be tapped during unexpected weakness in revenues. At the end of 2008 the fund stood at $30 million dollars. However, as the Great Recession took hold in Seattle, City revenues fell. Faced with major cuts in City services, former Mayor Greg Nickels started to spend down the City’s reserves. The City Council deserves credit for the foresight to adopt a smaller reduction in the rainy day fund than Mayor Nickels had proposed. Nonetheless, the fund was still significantly depleted.

After taking office, we closed a $67 million budget gap without raising general taxes or cutting front-line services. I also increased the rainy day fund to $11.2 million in the 2011 budget. But we need a stronger safety net for the City budget. Just as financial planners advise families to have 6-8 months of income in savings, sound financial practice suggests that governments maintain a reserve of funding in case of future economic downturns. Our existing policy sets a 5% of tax revenue maximum for the total value of the rainy day fund. The current value of the rainy day fund only represents about 1.2% of tax revenues. A sufficiently funded rainy day fund is an important source of bridge funding that can be used to help maintain important City services as the City adjusts to unexpected changes in revenues. And the new policies would mean we have a sustainable, automated, and predictable way to replenish the money we take out of the fund.

No one is saying this will be easy. It won’t be. Setting aside these funds will require additional tough choices to a budget that has already seen $107 million dollars in general fund reduction over the past three years. But just hoping the fund will replenish itself isn’t a responsible plan either.

Posted by: Mayor Mike McGinn


Comment from ann
Time July 29, 2011 at 7:03 pm

Hi McGinn,
How was the .25 percentage of rainy day funds for 2012 calculated? If the funds were currently establish at .5% annually. Furthermore, why would you drastically increase it by 50% by 2013?