Despite the economic downturn that has impacted the entire country, the municipal governments of Covington and Maple Valley are in good shape financially heading into 2009.

Covington city Manager Derek Matheson has urged conservative spending, however. And Maple Valley’s interim city manager, Christy Todd, says the city is thinking long-term and not just a year ahead by considering ways to remain financially healthy.

Officials considered the impact of the economy while developing their cities’ budgets, which are scheduled for a final vote by the respective city councils next week – Monday in Maple Valley, Tuesday in Covington.

“In this challenging economic climate,” Covington “has been incredibly fortunate compared to other cities,” Matheson said in a budget presentation at a recent council meeting. “We have attained new sources of sales tax revenue such as Home Depot, Red Robin and Costco. The utility tax is revenue is coming in at higher than estimated amounts, and our building permit activity has been relatively strong.”

Property tax for 2008 for Covington is estimated to be a little more than $2 million, Matheson said, while revenue coming in next year from the utility tax will be about $2 million. A little more than half of that will go toward paying for street, capital improvement and parks and recreation programs or projects.

“Retail sales tax revenue will get a huge boost with the addition of Costco and Home Depot,” Matheson said. “Total collections for 2009 are estimated to be $2.9 million. The largest category in sales tax revenue continues to be retail. However, construction has had the largest percentage increase in 2008.”

Covington’s parks and recreation fund will have a surplus this year and for some time to come, which “is a turnaround from several years ago,” he said. “The utility tax has allowed us to hire a new director, provide non-athletic recreation programs and support parks maintenance.”

Matheson’s recommendations for spending are conservative because “the economic future is very uncertain for the country and the city of Covington,” he said. “It would be easy to fall into the trap of trying to please people with new ongoing programs since we have some anticipated surplus. But prudent fiscal measures are more important during these times than in any other.”

Maple Valley officials are also keenly aware of the challenges of the economic downturn, as residential construction has slowed down in the past year. That has caused a small reduction in revenue from that source for the city.

“It is important to note that the city’s general fund is not in trouble in 2009,” Todd said. “The 2008 ending fund balance is projected to be about $2.6 million. This amount is 33 percent of estimated expenditures, well above the council-adopted policy which aims to keep the ending fund balance at or above 10 percent of expenditures.”

Finance officials forecast the city’s expenditures six years out “in order to give the council a budget picture that extends beyond just the budget year,” Todd said. “While the general fund is not experiencing a shortfall for 2009, it may assist the council to evaluate” the future.

Three options have presented to the Maple Valley council for long-term budget planning through 2010 and beyond:

• The first would be to reduce staff or freeze existing job vacancies – not recommended by Todd, as it would create a “severe impact on the delivery of services and the ability to keep pace with citizen and businessowner demands,” she said.

• Option two involves ways to increase cash flowing into the city coffers, such as a property tax levy lid lift, an increase in the utility tax rate, and implementation of a business and occupation tax or business license fee. “Increasing the existing utility tax on electric, gas and telephone from 2.25 percent to 3.25 percent is projected to produce an additional $290,000 annually. While no tax increase is ever without controversy, this 1 percent increase is very modest, especially in light of the fact that the city currently has the lowest telephone utility tax in the state (of those cities that impose the tax) and has one of the lowest electric and gas taxes,” Todd said. She said she is not necessarily recommending this and the other cash-flow increases.

• A third option includes waiting to purchase new city vehicles, deferring some items in the capital improvement program, and adjusting the way some funds are allocated in the city’s budget. Todd recommended adopting all of the suggestions in the third option to balance the general fund.

She also suggested that the council take time next year to evaluate “its financial policies and its goals.”

“Doing so early in the new year, and outside of the annual budget cycle, would provide the necessary time for in-depth reassessment of those policies and goals, many of which were adopted” when Maple Valley became a city in 1997, Todd said. “What worked 11 years ago may not work today or be feasible as the city continues to grow and change. Eleven years ago, the city made financial policy decisions that focused heavily on capital infrastructure funding because the need was so great and the city inherited deficiencies from the county.”