Marysville officials are beginning the 2022 budget process and Finance Director Brad Lutz is offering some advice.
“I did encourage our staff to look at capital needs— what do we need to do,” Lutz told the city’s finance committee Monday night.
Lutz explained that Marysville is likely going to exceed revenue expectations, specifically income tax revenue, for the year.
During the meeting, Lutz reported that through June, income tax receipts were nearly $12.9 million, about $2.8 million, or 28.1%, above the same time last year.
“This is the one that surprised us a bit,” Lutz said.
He explained that last month the year to date gap was about 27%. He said he had anticipated that as the year went on, the gap between this year’s collections and last year’s would “shrink.”
“The gap grew,” Lutz said.
He said the city is already at more than 65% of projected income tax revenue and he sees no way the city will not hit the $19.7 million projection.
The finance director said the city’s top 10 tax withholding businesses are “mostly positive.” Those businesses have paid $4.33 million in taxes this year, an increase of 8% over last year. Lutz said the large businesses “are not what’s telling the story of our income tax increase.”
He said smaller businesses that file one net profit report, rather than withholdings, are up 230% over last year and account for about $1.08 million of the city’s increase.
“This tells us our businesses, small or large, are doing very well,” Lutz said.
He said the tax department is still going through the net profit filings. The finance director said this year the city had 21,104 individual tax returns filed, 717, or 3.5%, above last year.
He said that increase is likely a result of several things including more city residents and increased awareness and enforcement efforts. Lutz said unlike Marysville, other cities saw a decrease in filings and an increase in delinquencies.
“Like a lot of things COVID-related, it didn’t hit the City of Marysville the way it did other areas.”
Overall, Lutz called them “good looking numbers.”
“I wish they told me more of a story,” Lutz said. “The story is still being written.”
He said he does not know yet if this is money the city will be able to count on in the future. He said it would likely take a couple years of the increased revenue before officials should feel comfortable planning on it.
“What can we bank on? Is this the new normal?” Lutz asked.
He answered that it was “probably not.”
Lutz said that rather than increase the operational baseline, he thinks the city should treat the money like one-time revenue and use it for one-time expenses like capital improvements or purchases.
Lutz specifically mentioned paving additional streets in the city or buying equipment and vehicles.
“We always struggle with finding money for more roads and that would be a responsible use,” Lutz said.
He said that by increasing the spending when it is available, it helps the city weather a year when revenue is not as positive.
In addition to planning uses for the increased income tax revenue, city officials are also looking at how to spend about $2.5 million from the American Rescue Plan. Lutz said he recently completed the application for the first half of the money.
“We are still very much in the planning stage for what to do with these,” Lutz said of the payments.
He said that money does not need to be spent this year, though there are restrictions on how and when it can be spent.
He said department heads and executive staff members have started the process of entering non-payroll budget requests for next year. He said that process should be complete in the next week.
“Budget-wise, we will hopefully see some modest increases in non-payroll items,” Lutz said.
He said he expects next year’s budget, excluding capital projects, will be about 3% above this year’s budget.
The finance director said payroll is “pretty well set, a little more straight forward.”
He said those numbers are set by council as part of the personnel budget requests and collective bargaining agreements.