POST FALLS - The Post Falls City Council is open to a tax hike.

The council on Wednesday unanimously authorized staff to finish crafting the next proposed city budget based on a 2 or 3 percent tax hike.

The council made the decision after hearing staff testify about how the city is falling behind wages of other jurisdictions in the area, employees are seeking greener pastures and how re-training or re-certifying new employees is more costly in the long run than a salary increase.

The council will hold a public hearing on the budget on Aug. 16 at 6 p.m. and make a final decision on a tax hike afterward.

Staff said declining revenue - the city's General Fund budget has shrunk by $2.7 million over the

past two years - also doesn't make it possible to keep up with increasing material and energy costs, maintain current levels of service as hoped for by residents and keep pace with long-term vehicle and facility replacement funds.

"We cannot continue on the current path that we are on where the command is to provide current service levels without addressing the revenue side of the equation," said Eric Keck, city administrator.

If the council decides to increase taxes the allowable 3 percent under law, it would mean an $11.76 increase per year for the owner of a $150,000 home.

A 3 percent tax hike would generate about $240,000 in revenue for the city. The funds would give all employees nearly a 3 percent raise if that's all the money is used for, but with other needs such a scenario is iffy.

Raises were a theme at the workshop. Post Falls has had a hiring and salary freeze for the past two years.

A wastewater operator who was making $29,000 annually recently left for a job that pays more at BNSF Railway. Four police officers have notified their supervisors that they are interviewing at other agencies that pay more.

Human resources director Teresa Benner said better offers are becoming a common theme at employee exit interviews. She said that, while it's not feasible to keep pace with the wages of some cities such as Spokane, she believes Post Falls is getting to the "tipping point" of falling behind comparable cities in the region and state.

Finance director Shelly Enderud said it can cost as much as or double an employee's annual salary to train or certify a new employee, based on staff time, advertising costs, education and other factors.

"If the city wants to maintain people, it needs to remain competitive (with salaries)," Enderud said.

Council member Skip Hissong said the positions of concern with regard to raises need to be addressed first before the council can offer across-the-board raises.

"I'd hope that we target what we think is the biggest liability," he said. "I think we have to look at the high-risk jobs, then move on to the others."

When council member Linda Wilhelm said giving raises to some employees and not others may lead to morale issues, Hissong said, "That's called life and financial reality. I'm not saying don't give anything to anybody else, but if (police) have four people ready to walk, that's a problem."

Council member Betty Ann Henderson said she went into the budget workshop believing a tax hike should not happen with the recession, but she came out of it believing it's justified based on city staff's arguments.

"The general public needs to be educated on this as well," she said.

Enderud said the city has also fallen behind on its vehicle and facility replacement funds, which doesn't bode well for long-term planning and future city leaders.

The council's blessing of a tax increase doesn't mean it will happen. The council told staff to build a budget around a hike two years ago, but pulled back after some residents opposed the proposal at the hearing.

"If you don't want a tax increase, what are you comfortable with living without?" council member Kerri Thoreson said. "That's something the whole community needs to answer."

In other business, the council approved spending $232,000 in one-time expenditures, including replacing three police cars and other equipment. The money is the balance of an $852,000 rebate from the East Post Falls Urban Renewal District received three years ago.