Federal Way City Hall. File photo

Federal Way City Hall. File photo

City of Federal Way prepares for financial impact of COVID-19

The city could see a potential revenue loss of up to $4.2 million, officials say.

The financial impact of the current global health crisis on Federal Way will not be known until May, according to city officials, who say the revenue shortfall could be up to $4.2 million.

As the COVID-19 outbreak swept King County throughout March and into April, hundreds of businesses in Federal Way were mandated to close their doors or restrict operations.

“While we don’t know exactly what it is now, it’s like a wave looming in the future,” said Mayor Jim Ferrell of the economic impact on the city.

Right now, seeing the magnitude of the city’s revenue loss is difficult, Ferrell said. The city is operating on a projected revenue budget of $109.3 million.

The revenue numbers for March will not be available until May, which is a typical timeline for any tax reports, Ferrell said.

If social distancing and business restrictions are lifted by May 4, the city could see a potential revenue loss of $1.4 million to $4.2 million for the one and a half months of disruption that began mid-March.

Earlier in April, Ferrell sent a letter to Washington’s Congress members in support of a bill that would provide funding for communities with less than 500,000 in population that have been negatively affected by the COVID-19 crisis.

The Coronavirus Community Relief Act would provide stabilization funds for these mid-sized local communities, and Federal Way needs such funding, the letter states. The city has made humanitarian efforts to ease food insecurity, shelter, and rent stability for those who have become unemployed, according to the letter.

“At this time we are absorbing the direct and indirect costs of the effects of this public health emergency on our citizens and businesses,” Ferrell wrote. “This funding will help our city continue to provide the essential services that our residents rely on, including public safety.”

Ferrell said the city was in “great condition” because of fiscal decisions made by finance director Ade Ariwoola and the Federal Way City Council leading up to the wave of the unknown.

Aside from a structurally balanced budget where Federal Way’s ongoing revenue matches ongoing expenses, the city’s decision to leave the regionally-owned SCORE (South Correctional Entity) jail is proving to be a beneficial move.

“[That] decision is really going to help us now,” he said, calling the savings “somewhat of a cushion.”

By exiting the interlocal agreement for the jail, Federal Way will save about $2.1 million annually. While the city planned to use the additional savings for hiring new employees and adjusting salaries, “we will likely not realize those savings because of the loss of revenue,” Ferrell said.

As a result, the city decided to hold off on salary adjustments that were originally scheduled for March. The city also implemented a hiring freeze and current job vacancies will remain vacant. City officials are examining all discretionary spending and placing holds where necessary, according to Ferrell.

There are six vacancies in the Federal Way Police Department, but the city’s hiring freeze does not apply to the police force, Ferrell said.

Federal Way may be in a better financial position than neighboring cities because the city also has an emergency $1 million “rainy day” fund, which may only be used to bridge a revenue shortage, and creating two revenue streams by separating the utility tax reserve from the general fund, Ariwoola said.

In addition, the city council and Ferrell authorized a utility tax on water and sewer services in 2018. The case was heard in Supreme Court earlier this year and the city is awaiting a final decision. If the city wins the case, Federal Way will receive an additional $1 million per year along with the funds retroactively accumulated. The city has not yet budgeted this amount, Ariwoola said.

The city may also have the benefit of the 2019 fund balance carryover of about $600,000 and with council approval, the use of the $1.5 million individual reserves of the Federal Way Community Center and Dumas Bay Centre, he added.

Federal Way is running a “fiscally prudent” operation at the city amid this pandemic, Ferrell said. Finance director, Ariwoola, will be providing a financial report at every city council meeting for the foreseeable future.

On April 29, the mayor made the decision to lay off nine full-time employees of the Federal Way Community Center. The layoffs will go into effect at the end of business on April 30, according to Tyler Hemstreet, communications coordinator for the mayor’s office. The city also terminated 131 temporary employees. Of the remaining staff across the city, no employees are receiving hazard pay.

If on the low end of the estimated loss, it will hardly be felt, Ferrell said, noting that the city is bracing for the worst of the impacts.

“We’re talking about people’s jobs and our service to the community,” Ferrell said. “We’re keeping a very close eye on this … The most important thing a government does is provide for its people.”

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