*Editor’s note: A previous article on May 14 reported an incomplete figure for the projected biennial budget deficit. While the city’s General Fund — a large portion of the total budget — is a projected $5.9 million in the red, the city’s overall deficit is closer to an estimated $12 million.

City Council voices advocating for a tax hike rose to a chorus at a special study session to examine the budget May 29.

Presenting at the second of three study sessions on planning the 2009-2010 biennial budget, city finance director Tracey Dunlap told the Council it faces some tough choices ahead. Now approaching the mid-point for planning the upcoming budget, she said the city’s sales-tax revenue is shrinking, operating costs are rising and structural imbalances in the budget are beginning to show. The gloomy outlook could force a different approach by the Council compared to years past — raising taxes.

“Now we get into the meat of the information on the revenue tools, the reserve and policy tools,” Dunlap said as she reviewed strategies for balancing the budget, including cutting or ending services and hiking taxes and fees.

The meeting opened with a review of the city’s financial reserves and a tax-burden study. Finance officials estimated the total value of the city’s investment portfolio at $105.5 million. But Council members agreed they were interested in using only about $2 million — set aside in a “rainy day” fund — to help offset the shortfall.

Before they could review a proposal to update a tax burden study, Mayor Jim Lauinger floated a proposal to trim the Council’s salaries by 10 percent “to set the tone to what we think is probably a very similar type of cut to the budget.”

Council members currently make $1,100 a month (the mayor makes $1,400), not including a $300 monthly “benefit” allowance.

“That is the spirit I think we ought to move to,” Lauinger said. “We understand, we see the figures and we’re willing to lead first.”

Councilwomen Joan McBride and Mary-Alyce Burleigh objected.

“I don’t want to send a message to the working people in Kirkland that we’re going to cut their salaries,” McBride said.

The city budgeted approximately $318,347,000 in spending for 2007-08. Among strategies to reduce costs for the next two years, Dunlap said the city could reorganize funds dedicated to recreation and make changes to the way it operates its fleet of vehicles. But substantial savings, she said, would come from cutting costs in services.

“We do need to probably find out what our voters are thinking relative to funding a group of benefits that they have, that are probably going to go away,” Lauinger said.

At one point in the meeting, the mayor held up a sheet with “one-time expenses,” heavily marked in yellow highlighter, which authorize funding for graffiti removal, the city’s lobbyist in Olympia and fireworks to celebrate the 4th of July.

“This sheet here … is not included in the projected (deficit). We need to get the message across, folks, that the $6 million is only part of the problem,” he said.

The overall deficit is the result of a $5.9 million gap in the General Fund combined with $6 million for “one-time” expenses, funding for the new NORCOM 911 call system, public safety overtime expenses and shortfalls in sales tax revenues. Lauinger said the total income-to-expenses gap is closer to $12 million.

He called the expected deficit a “record.”

In response, the Council began to discuss a framework of service cuts and tax increases.

“We are going to raise taxes, there’s no question about that,” Councilman Bob Sternoff said.

Potential tax increases are divided between those that can be approved at the Council’s discretion and measures requiring voter backing. The group supported lifting the city’s utility and business taxes and fees, which are among those that need only a Council vote. Only 2 percent of the city’s revenue comes from business taxes. The highest fee a business can currently pay, regardless of size, is $2,600.

“It’s obvious from day one that this (tax) was not equitable,” McBride said.

The Council also said it was interested in putting property and utility tax increases on the November ballot.

Dunlap also said higher utility taxes can promote conservation, calling it a long-term benefit.

By way of comparison, Kirkland’s utility-tax rate of 7.5 percent is in line with other local cities, but far below Vancouver’s (Wash.) 17 percent or Spokane’s 18 percent.

“I’m interested in hearing from the public in their vote (on this),” Greenway said.

In wrapping up, the Council directed City Manager David Ramsay to return to the next meeting with suggestions on what programs and needs should be reduced or eliminated. The Council will conclude its budget study sessions with a final meeting June 5.