The City Council received 2010 budget preview at the Monday meeting from Finance Director Tony McCarthy with a mix of bad and not-so bad news.

In the not-so bad category, the city’s general fund budget shortfall would have been $735,000, but with the annexation of Maple Ridge Highlands the number fell to $220,000.

The annexation is projected to bring in about $479,000 from property and utility taxes as well as other taxes and fees.

The finance director said the number was “manageable” and a city’s directors meeting will address cuts to make up the shortfall.

“We are trying to work on 2010 to protect us in 2011,” McCarthy said.

City Manager David Johnston said, “We are in a lot better shape than our peer cities in the state.”

Johnston is correct based on reporter Steve Hunter’s article in the Sept. 5 edition of the Kent Reporter.

Hunter wrote: “Kent Mayor Suzette Cook plans to propose $3.1 million in jobs and service cuts when she presents her 2010 preliminary budget next month to the City Council. Jobs are on the chopping block.”

The reasons behind Maple Valleys’s drop in funds points directly at the nationwide recession, and specifically the drop in home building in the area.

McCarthy noted in his report single family home building permits are expected to be about 70 this year. He said in the last 10 years the city has averaged 250 single family home building permits.

He pointed out in the report building a home means money comes to the city from several sources: the building permit, transportation impact fees, park fees, sales tax from the construction activity, increase property tax values, real estate excise tax or REET when the home is sold, utility fees when the new homeowner connects to services and more sales tax from homeowners shopping locally.

The REET fund for the city has been in free fall since 2006 according to McCarthy. In 2006 the fund brought in $1,896,000 and the 2009 forecast is $525,000.

McCarthy said the most important financial issue facing the city will come in the next couple of years. The Maple Ridge Highlands annexation helped the city’s budget in 2010, but the city’s policy of maintaining a fund balance of more than 10 percent of expenditures leaves little wiggle room if the economy does not rebound.

If an economic rebound does not materialize, the City Council will be facing some hard choices to keep the fund balance from falling into negative numbers.

Some of the choices include staff cuts, although McCarthy’s report notes city staff is currently “below its 2006 level.”

Other options are property tax lid lifts, increase utility tax rates, passing a business and occupation tax and approving a business license fee.

McCarthy stated in the report, “The easiest to implement change would be an increase in utility tax.”

Jumping the tax on electric, gas and telephones from 2.25 percent to 3.25 percent would produce $300,000 annually for the city. Covington’s utility tax, by comparison, is 5.5 percent, which was passed by that City Council in November 2007.

Any tax increase measure will need to be approved by the City Council.