The city’s first-quarter balance sheet shows progress towards establishing reserves, but the estimated low end-of-year 2011 balance has council worried that more borrowing will be needed to pay the bills at the end of the year.

Using the first-quarter balance sheet, the city administration estimates there will be approximately $589,000 in the unrestricted general fund at the end of the year.

In the fall of 2010, the council agreed to a goal of $1.5 million, on average, of unrestricted general funds, which is called the general fund stability reserve.

“I am concerned that we are far below $1.5 million. We have that goal to keep us on track,” said Councilor Bob Scales. “Our work isn’t done yet, we still need to be vigilant in looking at our account balances.”

The council and city administration will continue to scrutinize city finances this year after 2011’s first quarter of shows a $490,000 total revenue shortfall in tax-supported funds.

The city balance sheet is also dependent on some $800,000 in Winslow Way-related federal and state grants that may have a significant impact on end-of-the-year balances, depending on when the funds are received by the city.

Finance Director Ellen Schroer said the city has no reason not to believe that the $800,000 will actually be received by the city by the end of 2011. If that doesn’t occur, however, poor timing may make it difficult for the city to pay bills at the beginning of 2012.

In both 2009 and 2010, the city had to borrow from the utilities to pay the $600,000 insurance bill due at the beginning of each year.

The decision last fall to maintain a general fund stability balance of $1.5 million, while also establishing emergency reserves, was to ensure that the city would not have to borrow from funds like the utilities to pay day-to-day city bills. If the $800,000 is received, the city will have a balance of nearly $1.4 million.

Councilor Barry Peters isn’t concerned about the $589,000 figure because he feels the city’s accounting procedures will take care of the timing issue. Because the monies are inter-governmental – from the state and federal governments – the city can use its accounting procedures to claim the money regardless of the exact date it will show up in city coffers.

“That $800,000 number can quite properly be accounted for as received – it’s just a timing issue and so the real number is $1.4 million,” said Peters. “Even in our audited financial statements it will show as received because that’s our accounting method.”

Councilors Bill Knobloch and Scales worry that the city isn’t allowing itself enough breathing room, especially with expensive contingencies like the roads, winter weather and beach mains.

Mayor Kirsten Hytopolous said that the council agreed it would need at least $1 million at its disposal to ensure that the council wouldn’t have to borrow money from either the utilities or the emergency reserves to pay bills.

“We are operating on a fine edge considering the budget,” said Knobloch. “Let’s not mislead ourselves.”

The budget at a glance

• The emergency reserve is $349,000 towards its 2011 $500,000 target; $30,000 of its $400,000 contingency reserve; and the general fund stability reserve currently holds approximately $1.2 million, though that number will remain in flux.

• The emergency reserve will be funded through property sale proceeds and the contingency reserve will reach its 2011 target of $400,000 through planned monthly transfers and larger transfers in May and November.

• The Washington State Ferry settlement of $2 million has acquired $1,200 in interest as of March. The council has yet to decide how that money will be in spent, but it remains in the general fund until such time.

• The city’s budget for tax-supported departments is 65 percent personnel expenses, according to the city memo, but does state that additional litigation expenses incurred for labor negotiations could increase personnel expenses. The city is in the midst of a grievance and unfair labor practice complaint with the International Association of Machinists and Aerospace Workers union.

• General fund tax receipts are estimated to be about 1 percent or $160,000 less that the total budgeted for the first quarter due to lower sales and utility tax receipts.

• The island-wide sales tax in March 2011 was down by about $10,000 compared with March 2010.

• The Real Estate Excise Tax revenue rose 25 percent compared with first Q1 2010 at $240,000, but is still less than half of 2007 levels.

• Building and Development Service revenue increased by 5 percent over the prior year as all permits and fees came in higher than anticipated.

• The city hopes to hire an additional parking enforcement officer in mid-late May, which will increase parking fine revenue.

• The forecast for 2011 tax-supported revenues is down $490,000, or 3 percent.

• Operating expenses are close to the budget with 24 percent of the total budget three months into the year.