COEUR d’ALENE — Mayor Jim Hammond said Monday that the city’s financial situation “is not sustainable” and officials will have to sit down and determine a better way to move forward.

“This is a call to arms, so to speak, that we need to all look at what is sustainable for this city and what isn’t and what can we afford and what we can’t,” he said during a workshop with city staff and the City Council.

City Administrator Troy Tymesen also sounded a fiscal warning.

"Our cash flow is not sufficient at this point in time to carry on general operations,” he said.

The council, in a 5-1 vote with Dan Gookin voting no, approved city staff preparing a 2023-24 budget of $130.5 million that includes money from the fund balance and a 3% increase from property taxes for a public hearing Sept. 5.

During the two-hour workshop in the Library Community Room, there was much discussion on property taxes. According to a city chart presented Monday, a 3% “property tax increase” would generate $767,514.

“Even with the 3%, you’re taking over $1 million from your fund balance,” said Comptroller Vonnie Jensen.

The fund balance is projected to be $11.9 million on Sept. 30, 2023, which is 21% of the budgeted expenses. Without the 3% from property taxes, it is projected to fall to $9.5 million, 16% of budgeted expenses, by Sept. 30, 2024, according to a city chart

According to a city chart on its property tax history, it took property tax increases of 2.5% in 2017, and 3% in 2020 and 2023. The other years, since 2014, it did not take the allowable 3% increase in property taxes.

Councilman Dan English supported taking the 3%, which he said he considered “pretty modest.”

He said past councils, in not taking the allowable 3%, contributed to the city's current financial situation.

Jensen said 85% of the city’s budget goes to personnel.

The city’s cost of living adjustments for personnel in 2024 will be $1.4 million, with a 3% increase for firefighters, 4.5% for police and 5% for the Lake City Employees Association.

Last year, COLA increases totaled $2.5 million, with 6% for firefighters, 8% for police and 5% for LCEA.

“The council agreed to all those increases,” Jensen said.

Councilwoman Kiki Miller said the city should consider not filling some positions until it can afford them.

"I think that’s something we really need to look at,” she said.

Hammond pointed out that while there were requests for additional positions, the budget included no new hires.

"We’re making due,” he said.

Miller supported taking 3% in property taxes to balance the budget.

“I don’t think we have any choice,” she said.

Gookin argued that the council could do better at looking for ways to reduce spending.

“I think we should always try hard to represent the taxpayer and consider them," he said.

Tymesen said it's already a lean budget. The city cut services and supplies by $167,000.

“I just want to be clear with you on the creativity Vonnie and her team and the directors have done. We twisted this thing every which way," he said.

Gookin said he believes the city is in a sound financial position.

“I think we’re doing really well, and I would like to give a break to the taxpayer," he said.

It was pointed out many city residential property owners may see property taxes decline due to lower property assessments and because Idaho property taxpayers will receive about $300 million in relief from the state this fall.

A proposal by Gookin to use annexation fee funds of about $500,000 to offset the proposed budget increase through property taxes and seconded by Christie Wood was voted down, with Amy Evans, English, Woody McEvers and Miller saying no.

Jensen said annexation fees are historically used for one-time expenses, such as a dump truck, not for ongoing expenses.

It was reported at the meeting that the $4.5 million expansion of the police department being funded by the American Rescue Plans Act was projected at $1.5 million over budget, and a proposed $1 million expansion of the Streets and Engineering Department was tentatively projected at $1.8 million.

McEvers suggested the city put the brakes on the expansion of the police station and the remodeling of the street and engineering building, which would save about $2 million and help it survive the budget woes.

“We would just be kicking the can down the road,” Hammond said.

“That’s kind of what we’re trying to do,” McEvers said.

Councilwoman Christie Wood said she would be willing to eliminate capital projects to help the budget, but Tymesen said that would not affect the city’s cash flow, as capital projects are dedicated dollars and can’t be shifted to other areas.

He said that delaying planned projects would only lead to higher costs later on.

“You have a lot of things going on in this financial plan. This is not a simple, little financial plan,” he said.

The budget includes $21.8 million for the police department; $13.6 million for the fire department; $7.2 million for streets; $3 million for the parks department; and $5.4 million combined for municipal services, the finance department and the legal department.

The revenue includes $27.5 million in property tax revenue — an increase of $990,162 over the previous year.

“This increase includes estimated new growth of $226,424 and a 3% increase over taxes levied this fiscal year of $767,514,” a city report states.

City administrators previously said the declining levy rate due to the city’s rising valuation is part of the problem in reducing new growth revenue.

The city received $864,245 in new growth in 2016-17. But for fiscal year 2023-24, new growth is projected to generate only $224,239.

Hammond noted the Legislature limited how much cities receive from new growth.

"I’ll never understand why the Legislature thought that was of value for taxpayers," he said.

Hammond said the city needs to maintain its fund balance and can't rely on one-time funds for the budget. He said it will have to look at the 2024-25 budget earlier, "so we don't get in this pickle again."