Spokane finance staff warn of widening budget gap; 6-year forecast projects roughly $52 million shortfall in 2031

Spokane budget analysts told the City Council study session that the city faces a fast‑growing structural deficit driven by slow revenue growth and escalating personnel costs. Jacob Miller, a budget analyst, presented the 6‑year general fund forecast and said, “the 2031 annual deficit is forecasted to be over 50,000,000. Around 52 exactly.” The forecast also shows a cumulative shortfall of more than $200 million over the projection window. City staff warned reserves and unappropriated fund balance could be exhausted by the end of 2027 if current trends continue. The forecast frames the problem as a combination of weak sales tax growth, limited property tax capacity and rising compensation and benefits. Jake (Jacob) Miller told the council the forecast assumes no property tax levy lift beyond state limits and no new city sales taxes; it also assumes the city will revert utility tax rates back down in 2027 as previously planned. Sales tax projections used by staff are conservative – they show near‑zero growth for 2025 and modest gains thereafter. Why it matters: sales tax is Spokane’s most volatile major revenue. Staff said national economic conditions—high interest rates, moderating but not‑target inflation and falling consumer confidence—are already putting downward pressure on local sales tax receipts and therefore on the general fund. Supporting details presented at the session included: the city’s sales tax year‑to‑date retail growth at roughly 1.98 percent and health care growth at 38.63 percent; an overall year‑to‑date sales tax change that budget staff said is slightly negative (about 0.41 percent below 2024 year‑to‑date at the time of the presentation); and an explicit scenario analysis showing that constraining total cost of compensation increases to about 3 percent annually would still leave a multi‑million dollar deficit by 2031. Staff outlined options the council will need to consider: negotiating lower total compensation growth in future labor contracts; identifying new revenue sources (grants, voter‑approved taxes or fees); selling or repurposing city assets; and programmatic reductions or changes in service levels. Jacob Miller said the forecast is meant to inform “realistic service levels with and without additional funding” and to help set bargaining expectations. City leaders framed the presentation as a warning and a call to action. Mayor Brown told the council at the outset that this was “the not good news session” and that the city still has time to act. Budget staff stressed that many cost drivers are contractual (signed union agreements reached during the pandemic) and that those agreements will require alignment with sustainable revenue growth going forward. The forecast also flagged specific pressure points that will be the subject of follow‑up work: rising jail/detention charges allocated from the county, increasing overtime and staffing cost pressures in public safety departments, and uncertainty in federal and state grant funding levels. Council next steps and staff direction: staff said they are building a granular programmatic expenditure chart to support department‑level conversations and planned further analysis of revenue and expense options; the presentation invited council direction on priorities for revenue measures, potential service reductions and timing for policy responses. Less urgent background: staff noted assumptions used in the model (0.4 percent annual population growth from planning; a national inflation midpoint of 2 percent in the long run) and listed risks: sales tax volatility, slow new construction (which limits property tax growth), uncertain intergovernmental revenues and sensitivity of interest earnings to federal rates. The council did not take formal action at the session. Staff left the council with a set of analytical tools and requested direction on policy and timing for possible revenue proposals, contract negotiations and program reductions.