Spokane finance team warns of widening general fund gap as personnel costs outpace revenue

City of Spokane finance officials warned council members during a budget study session that the city faces a growing structural imbalance driven by rapid personnel cost growth, depleted unrestricted reserves and the loss of one-time funding sources.

"A fund's resiliency is directly related to the cash it has on hand," said Jessica Stratton, director of management and budget, as she outlined declines in the city's unappropriated fund balance after multi-year bargaining settlements drove retrospective payouts.

The finance team told the council that about $14,000,000 in transfers from other funds supported the general fund over the past three years and that many of those transfers were one-time sources — including ARPA allocations, the EMS levy and criminal justice assistance funds — that are no longer available. Jake (Jacob) Milner, a member of the finance team, summarized the projection bluntly: "Ultimately, we have a problem," saying staff project a $137,000,000 cumulative deficit between 2025 and 2030, with roughly $37,000,000 of that shortfall occurring in 2030 alone.

Officials presented recent fiscal trends to explain the gap: tax revenue grew about 3.2% on average over the prior two years (near the city's historical average of 3%), while personnel costs — which account for roughly 85% of general fund spending — increased about 9.2% on average. Excluding operating transfers, total general fund revenue rose about 4.1% over the review period, while expenses rose about 5.4%.

Council members were told that two features compounded the shortfall. First, delayed multi-year union contract settlements produced large, concentrated charges in single fiscal years that reduced unappropriated fund balance. Second, transfers from other funds that helped shore up the general fund during the pandemic were not sustainable. Matt Boston, the city chief financial officer, noted those previous transfers came from several sources and effectively "shored up the wall with non-continuous money," increasing long-term pressure.

Officials reviewed risks on the revenue and expense sides. On the revenue side, federal grant and housing funding changes were flagged: finance staff reported about $55,000,000 in federal-related expenses in 2024 and highlighted roughly $9,500,000 in HUD-related funding streams used for housing and homelessness programs. Skyler Brown, grants and contracts financial manager, told the council that the president's proposed federal budget could remove certain housing allocations that together amount to about $4,200,000 in city-related funding and that homelessness-related programs may be consolidated under ESG in the proposal, with unclear local effects.

On the expense and debt side, staff reviewed how the city's bond ratings and debt capacity affect borrowing costs. Treasury staff outlined the metrics rating agencies such as Moody's and S&P use — economy, financial performance, leverage and fixed costs — and said shifts in rating category typically change annual debt service costs by about 0.05 to 0.10 percentage points. The city currently remains within legal borrowing limits, with internal lending capacity generally near 4–5% of the investment portfolio (roughly $12,000,000 at recent levels).

Finance staff also described the city's investment strategy. The investment policy and oversight committee adopted a laddered approach in 2023 with three target buckets (short-term <1 year, moderately liquid 1–3 years, and less liquid 3–7 years) targeted at roughly 40/40/20; staff said the structure is intended to balance safety, liquidity and return while remaining maneuverable as market conditions change. The group noted the Washington State Local Government Investment Pool (LGIP) is used to park daily cash and is volatile (it ranged from about 0.09% to a peak near 5.4% in 2024), and that internal loans (SIP financing) are governed by City Charter Section 85 and are used for short-term cash needs and purchases such as vehicles or equipment.

Staff recommended prompt work on the budget outlook. The city budget office is finalizing a six-year projection and staff scheduled a follow-up budget study session for July 10. Finance staff emphasized that, assuming historical revenue growth of about 3%, either expenses must be reduced to align with that growth or the city must identify new revenue or structural policy changes to avoid reopening the structural deficit.

Council members asked for more local analysis of federal policy impacts, construction cost and tariff effects on the housing market, and additional detail on grant funding assumptions. Finance staff said they will return with updated projections and additional detail on grants and economic indicators.

The presentation closed with a reminder that the city's fiscal choices — use of reserves, borrowing, or structural spending changes — will carry trade-offs for bond ratings, service levels and long-term financial health.