The San Juan Islands were not immune to the effects of the great recession of the early 2000s. After years of carefully balanced budgeting, the county is slowly returning to its pre-recession glory.
County Councilman Rick Hughes, Auditor Milene Henley and County Manager Mike Thomas gave a presentation on the county’s finances during a meeting at the Orcas Senior Center on Feb. 16.
“We’re in good financial shape for an absolutely uncertain world,” said Thomas.
The presentation – which celebrates the successes of 2016 and outlines plans for 2017 – was given to county employees on Feb. 2. In a move to demonstrate its move toward greater transparency, Thomas, Hughes and Henley decided to share the information with the community as well.
“We want to be the best county in the state of Washington,” said Hughes. “Because of our unique geographic area and our mixture of population, we seem to do everything different than everyone else does. It gives us an opportunity to show the rest of the state how we can think out of the box to solve problems and issues in our community.”
A look back at 2016
Thomas highlighted strides the county made this past year such as becoming the first Leave No Trace county in the state, installing solar powered lights at the fairgrounds, assisting in the construction of the new Exchange building on Orcas and conducting a hazardous waste removal initiative. He said the county purchased two electrical vehicles, increased county-wide childhood vaccinations, instituted a new website and constructed a new dispatch center over the last year.
“The council chewed through a lot of issues, which was great,” said Thomas, adding that council held 65 meetings and passed 67 pieces of legislation in 2016. “[Council] got a lot of things done.”
The financial history of San Juan County
Henley presented the past, present and future of the county’s finances. As to be expected, the county saw a decrease in revenue in 2009 due to the recession but has been gradually building back up since then.
“Revenue was hurting for a few years,” she said.
Henley added that staffing with the county saw a “dramatic reduction” in the years of 2009 and 2010, but has also been seeing a slow increase since then. Revenue saw a slight increase in 2010 due to a levy lift that was voted in by the community in November 2009. This allowed the county to put some funds into reserves.
“In 2011 we also adopted the second ¼ percent real estate excise tax,” said Henley. “It was a critical move at that time. The revenue from this source had dropped so low we were unable to meet our loan obligations on the existing fund.”
This second excise tax brought existing tax up from ¼ percent to ½ percent on the transfer tax on a sale of property. Funding acquired via this method can only be used for capital projects.
In 2013, the county stopped shifting money from the road fund, which although allowed by state law was not ultimately benefiting the county.
“The county had been doing that, not excessively but about $400,000 a year for several years. The road fund was being depleted also,” said Henley. “We realized that’s not the way to fund the general fund, so we weaned ourselves off of that over three years.”
Henley also referenced the outsourcing of solid waste and a 15-year debt reduction loan intended to pay off the solid waste debt the county had procured that it paid off in just three years. She then turned her focus to the present.
The 2016 budget
“We received 109 percent of the budget, so we came in 9 percent over budget in sales tax. The sales tax has been very good to us lately,” said Henley.
Thirty-five percent of the county’s revenue comes from sales tax and another 35 percent comes from property tax.
“Overall, in the general fund, we ended out the year 3 percent almost 3 1/2 percent under budget,” she said.
In 2016, San Juan County came at 96 percent of its expenditure budget.
“That’s what we want,” said Henley. “Legally the county cannot exceed it expenditure budget … we typically come in at 96 to 98 percent budget.”
Seventy-one percent of the current expenditure budget goes to county employee wages and benefits.
The restricted revenue, the expenditure funds not included in the general fund, which includes the land bank and county public works to name a few, came in at 85 percent of the budget in 2016, according to Henley. She added that coming in so far under budget is normal. Henley referenced a small fund called the criminal justice fund that provides money for the sheriff’s office to invest in new vehicles every year.
“All of our funds have been recovering,” said Henley. “Council has been strictly adhering to reserve policies, so we are building reserves, we are building cash.”
She added that 70 percent of the county’s reserve funding is a cushion for the land bank to maintain properties they own in case the public ceases to fund it. Henley said the county is almost back down to its 2004 level of debt at this point.
“We’re under $12 million total debt for the county. Some debt is good,” added Hughes. “You never want to get to zero debt, but you also don’t want to have too much.”
County revenue sources
As Henley stated previously, property tax revenue accounts for approximately ⅓ of the county revenue. She said it is stable and predictable but is limited to growth.
“Sales tax is a more significant revenue source to San Juan County than it is to most counties,” said Henley. “That is because in most counties they have more than one incorporated town.”
Only 15 percent of the sales tax from purchases in Friday Harbor goes to the county. Usually, counties don’t get as much sales tax as San Juan does.
“Our dependence on sales tax is somewhat unique,” said Henley.
She added that sales tax is highly dependent on weather and when the weather is bad sales tax income tends to decline.
Henley said grant revenue is the second largest source of revenue for the county, however, due to recent national administration changes whether that source will remain is very unpredictable.
“Our real estate excise tax has been growing, and that has been enabling us to catch up on capital maintenance, which has been deferred or neglected during the bad times,” said Henley. “It’s also provided a source for some new projects such as the ORS exchange building and the new parks building on San Juan.”
Where we’re going
“I do believe that we should continue to maintain our reserves because this is what we put in place to protect us from a dramatic drop in the future,” said Henley. “We want to maintain our financial flexibility. Developing a long-term strategic plan … and be careful not to over-commit.”
The future of San Juan County
Challenges facing the county’s ability to recruit new hires are housing and wages.
“We have a lot of wage pressure – because off island both the private and public sector markets have been really strong,” said Thomas. “One of the experiences we have is when a position comes open – Milene mentioned nursing or engineering or planning – they stay open for a really long period of time.”
Thomas said the county is aware that for some departments, several employees will be eligible for retirement in one to five years so the county is trying to find people who can fill those positions. Whether they’re existing employees who can be trained into that job or that they can reach out to students hoping to get kids interested in that career path.
Thomas also expressed concern over the unknown future of receiving grants. He said that the county’s health department relies on grants for 50 percent of its funding and that the sheriff’s department is heavily funded by grants.
“If those grants dry up or change in some way there are some hard decisions to be made. We are very worried about that,” said Thomas.
Healthcare has also been a concern for the county, said Thomas, adding that over the past few years premiums have risen at percentages into the double digits. One benefit the county council was able to secure for county employees this past year is access to the Public Employees Benefit Board Program.
“This is the first year we’re eligible to be in that pool,” said Thomas. “What I expect is that it’s not going to cost less for the plans, but what I’m hoping is that the growth is single digits as opposed to double digits that we’ve had on our own.”
Hughes said that even if the county chooses to not accept the PEBB plan, it at least has the option.
2017 initiatives
Thomas identified themes that have been set forth to guide the county this year. The first goal is to energize urban growth areas – this includes street planning, capital and stormwater improvements for Eastsound and Lopez Village. The next goal was to update the comprehensive plan.
“It’s a big task, it involves all the county departments, it’s not just a planning document; you’ve got facilities, you’ve got housing, you’ve got transportation – they’re all chapters or elements of the comp plan,” said Thomas. “Pretty much everyone in the organization is going to work on that comp plan.”
Hughes asked the meeting’s attendees if they were aware of what the comprehensive plan was.
“Two things that guide us in council are the budget and the comprehensive plan,” said Hughes. “It’s our vision for what our community to be … it’s our one document that provides the policy and the budget provides the money to enact the policy.”
Thomas also said the county is looking at how it handles licenses and permit requests and will be implementing a new software system to help that process.
“The goal is to make this an easier process to get through the permit cycle,” said Hughes. “We’re hoping that automation will help that.”
Long-Term Evolution improvements done throughout the islands by Rock Island and T-mobile will also ultimately change the way the county permitting system operates, said Thomas. Hopefully, the ability to connect to mobile data will expedite handling times for several processes that currently require extensive paperwork.
Thomas also referenced the implementation of several transportation projects, focusing primarily on the Deer Harbor Bridge replacement. Hughes said he was impressed with the way that County Engineer Colin Huntemer spent a year working with residents in Deer Harbor to design a bridge that is both functional and pleases the community.
“I think the county has come a long way in the last couple years from how we interact with the community and we’re not perfect now – nor will we probably ever be – but we’re trying to make inroads on finding the best way to reach out to folks,” said Hughes. “Let them know what’s going on and try to get as much as we can in feedback into the projects we do that will affect their lives.”
Legislative agenda
“One of the things that council has done a good job and staff has done a good job at is going out to – whether it’s to legislature or to different associations that we interact with – and trying to affect change that helps the county,” said Thomas, noting Hughes’ success in legislature allowing road funds to be used for marine facilities. “But we really want to be active outside of the county and be engaged and try to make change that’s to our benefit.”
Partnerships
Thomas stressed the importance of community partnerships, in particular, the potential of a public-private partnership between the county and a private contractor willing to construct affordable housing on county-owned property. Additionally, he said that the county parks department has been in talks with the state and national park regarding partnerships as well.
“The visitorship here continues to grow dramatically, it puts pressure on our park system and the national park and the state park,” said Thomas.
He said roads and trail quality are a concern that was brought up by the national park.
“So we’re looking at what can we do to help them improve those,” said Thomas.
The county and local parks are also considering conducting a demand study to know how to accommodate visitors – researching how many people come to the parks, what they do, how long they do it, how much they spend, et cetera.
Business recruitment
“We’re always trying to do that. We need more family-wage jobs,” said Thomas. “A lot of those were lost, of course, over the course of the last five years.”
Vacation rentals
Orcas Islander and Chairman of the San Juan County Democrats David Turnoy questioned the county’s stance on vacation rentals. He said it appears like the county is losing affordable housing to vacation rentals and that it could recoup more money from the rentals, using that to fund affordable housing projects.
“I think [vacation rentals] are one of the problems (causing the affordable housing crisis) but I don’t necessarily think it’s the biggest problem, but that’s just my opinion on this,” said Hughes. “This isn’t going to fix the problem or the issue, but it’s a starting point to give us a baseline to figure out where we need to be going.”
The $100,000 that was provided toward resolving the affordable housing problem by the Lodging Tax Advisory Committee is – as dictated by state law – required to be used toward capital facilities or a promotional cause. That means that those funds are only allowed to be used for the purchase of or creating short-term housing to assist in the housing of seasonal tourist workers.
In conclusion
“Every organization needs a goal, why don’t we just be the best county there ever was? Just gives us something to drive forward to,” said Thomas. Characteristics that would make a county the best would include, according to Thomas, financial stability, good communications internally and externally, legislative advocacy, external advocacy and internal and external customer service.
“We are a unique community. There’s nothing normal about what we do. We want to have the solutions where other people come to us,” said Hughes. “If we can encourage our staff to really want to achieve the best they can be, I think it will help all of us and it gives us standing in the state. Which is really important. I think we have a really good opportunity to be a leadership county in the state of Washington.”
