Snohomish County hit by budget slowdown

Near Mill Creek, the ubiquitous signs that lead drivers to new housing developments tell the story of Snohomish County's slowing economy.

"Major price reduction" says a placard for Sunrise Court, a luxury 12-home subdivision with wrought-iron balconies, mahogany floors and three-car garages. Three-bedroom homes that listed for $889,000 when they were completed in July are now being offered for $849,000.

The lower prices brought in three buyers in the past two weeks, a relief for builder David Black, owner of D. Mitchell Homes of Bothell. From January through mid-April, he said, none of the houses sold.

Just two years ago, this county of low unemployment and a booming aerospace industry boasted one of the hottest economies in the nation. Now county officials project a budget shortfall in 2008 of almost $4 million, largely because of the downturn in the housing market and the decline in investment income.

Applications to build new subdivisions have fallen from a high of 139 in the first quarter of 2006 to just 23 this year. With prices falling and fewer homes being sold, real-estate taxes are projected to bring in $4.4 million less revenue than last year.

Compared to King County, which is forecasting a $20 million shortfall in 2008 and $60 million in 2009, Snohomish County is in relatively good financial shape. The projected deficit of $3.7 million is less than 2 percent of the county's $210 million general fund budget.

The county's return on investments is projected to be down about $2 million this year, according to budget projections released last week. The county planned for a return of nearly 6 percent, but is seeing only about a 2 percent gain, a result of interest-rate reductions by the Federal Reserve Board. Jail revenues have declined about $800,000 and sales-tax revenue is down by about 1 percent.

County Executive Aaron Reardon said the county anticipated the slowing economy last summer and has been working to bring spending in line with projected income and to increase the county's cash reserves.

"We anticipated it, we prepared for it, it's not a surprise," Reardon said.

But the changed fiscal outlook is pitting Reardon, who easily won a second term in November, against the Snohomish County Council, with four of its members being fellow Democrats.

Reardon said he plans to propose a 1 percent property-tax rollback in 2009. That follows another 1 percent cut this year. Democrats on the council say they question continuing to cut taxes as county revenues decline.

"We'd see a real problem in providing services," said County Council Chairman Dave Somers. "Sheriff's deputies, jail guards, roads and parks are all funded with property taxes."

Reardon also criticized the council for approving the addition of three new staff analysts in late April and the money to remodel council offices to accommodate them.

The council's lone Republican, John Koster, agreed with Reardon and voted against the additional analysts.

"This isn't a bottomless pit," he said last week.

Other council members said only one analyst has been added to council staff since 1987. They compared the current five policy analysts to the 22 on council staff in King County and said they need resources independent of Reardon, particularly in the areas of transportation and land-use issues.

"We're woefully understaffed," Somers said.

Brian Sullivan, the council finance chairman, said the county hasn't raised taxes for the past five years and is facing increasing challenges to keep up with the rate of inflation, particularly in labor and health costs.

"I have strong concerns about our ability to meet our financial obligations," Sullivan said.

The housing market in Snohomish County is unlikely to turn around soon. There's currently a surplus of buildable lots and a large stock of available homes. But unemployment in the county remains low — 4.3 percent — and housing is still generally less expensive than in King County.

Black, the builder, was encouraged enough by the three recent sales at Sunrise Court to raise by $20,000 the price of one of the homes he'd lowered just a few weeks ago.

"If a builder is flexible and willing to negotiate, they can be successful in this market," he said.

Lynn Thompson: 206-464-8305 or lthompson@seattletimes.com