Healthy reserve fund built since 2016 at Spokane City Hall is preventing layoffs during pandemic

As the economy continued to rebound after the Great Recession, in recent years Councilwoman Candace Mumm told anyone who would listen that it was crucial for the city to pour money into its reserves.

In 2020, she can say “I told you so.”

The coronavirus pandemic brought a fiscal storm to Spokane’s doorstep, and city leaders are glad they built up a rainy day fund before it struck.

“It has prepared us to survive COVID,” said Mumm, who chairs the council’s Finance and Administration Committee. “If we hadn’t done this, I don’t even want to think where we would be right now.”

The city has leaned on the use of reserves to trudge through 2020 without any layoffs or furloughs of city employees. Although the administration of Mayor Nadine Woodward quickly curtailed spending and froze most new hiring, the city was not forced to lay off employees or make drastic reductions in city services.

By the end of 2020, the city projects to draw about $14 million from its reserves.

As the economic forecast shows signs of improving, Mumm believes the city’s spending plan for 2021 might also avoid steep cuts, but without having to dip into reserves to balance the budget.

The coronavirus pandemic has thrown the budgets of governments across the country into disarray, both in 2020 and as they plan ahead for the upcoming year, after once-reliable sources of revenue fell by the wayside in March.

But after making it a priority to save during economic good times, Spokane leaders expressed confidence in the city’s reserve balance to help weather the economic drop.

It’s unclear how much the city will have to rely on its reserves as it plans for the 2021 budget. Woodward’s preliminary budget is due to the City Council on Oct. 5, which will kick-start that conversation between the mayor and council.

“Every strategy is on the table at this point, and that includes dipping into reserves,” said city spokesman Brian Coddington, even if only “to keep services at a level the community expects.” Still, he added, the city will have to remain financially prudent and avoid draining its reserves.

The city has already leaned on the use of its three main reserve accounts to help navigate the fiscal stress of 2020, in which it is expected to fall $8.5 million short of its original revenue projections.

The city began the year with $47.6 million in reserves – each with its own purpose and restrictions for use – but by the end of the year that balance is projected to sit at $33.6 million. That projection is tenuous, as it assumes the use of $8 million to settle labor contracts under negotiation with the Spokane Police Guild and the Spokane Firefighters Union.

“This is not to prejudge any negotiation that’s ongoing at this time, it’s just to give context of where we might go,” city CFO Tonya Wallace told the council’s Finance and Administration Committee this month.

But the city is not leaning only on its piggy bank to make it through 2020.

Already, it has limited new hires and taken other cost-containment measures that total $6.6 million. Other costs it’s absorbed as a result of the pandemic, such as the purchase of personal protective equipment, can be reimbursed through federal and state coronavirus aid.

Still, a rainy day fund gives the city stability, and its health is no accident.

As it entered 2016, the city had about $17.1 million in general fund reserves. By 2020, it had about $47.5 million.

When Mumm became chairwoman of the Finance Committee, she said “our reserves needed some attention.” With support from the administration of former Mayor David Condon and former CFO Gavin Cooley, Mumm helped develop a policy to roll unspent money into the city’s reserves with specific purposes and restrictions at the end of every fiscal year.

“The city had been operating without these reserves for quite some time, so I came back and passed an ordinance that spelled out what the priorities were for council,” Mumm said.

In the months leading up to the pandemic, the city finally met its goal for reserves.

“It’s put the city in much greater financial footing to be able to be the most flexible in accommodating the reduction in revenues” during the coronavirus pandemic, Coddington said.

Not only has a reserves policy helped the city avoid making drastic cuts, Mumm said the city’s reserve policies help improve its bond rating, allowing the city to borrow at lower interest rates and save the taxpayers money.

Now, the council is considering an even stronger reserve policy.

“What this does is really position Spokane, on the municipal landscape, to a much stronger position when we go back for future bonds,” Mumm said.