Big changes to downtown Bothell, annexation and an economic recovery were three of the biggest topics Wednesday (Jan. 9), as Bothell City Manager Bob Stowe gave his annual State of the City address.

More than 100 people packed the Bothell Chamber of Commerce luncheon at Courtyard Hall in Country Village for the speech.

“You don’t have to look far into Bothell’s history to find examples of tenacity and ambition, traits that make Bothell both special and successful,” Stowe said.

That includes the present and future with the biggest ongoing construction project in the city’s history. The relocation of SR 522, or the Crossroads project, will add two blocks to the downtown business district and straighten out the busiest roadway in the city. The project is fully funded and costs $54.8 million. It is projected to be completed in the summer of 2014.

“We are now in our third year of downtown construction and watching that vision come to life,” Stowe said.

The project is part of a downtown revitalization, which began in 2005.

Along with the Crossroads project, the city has an agreement with the McMenamins brothers to build a 70 room hotel, restaurant, brewpub, movie theater and live music venue.

“A unique element of the agreement with McMenamins provides free use of the former Northshore Pool for Bothell citizens for a period of 15 years,” Stowe said.

Private investment will also account for more than 1,000 new rental units during the next few years. The city is also moving forward with plans for a new City Hall downtown.

The city has planned to invest $150 million in the various projects. All of the construction projects together are projected to generate 8,400 jobs.

The 2013-2014 budget includes $96.1 million Capital Fund infrastructure investments. The investment will leverage $650 million in private investment. The development is also designed to help with city revenue to fund services.

“Many of the projects not only address an important community need, they are also designed to provide a return on investment by stimulating private sector growth, specifically in the downtown area, that generates both one time and ongoing revenue sources for the community,” said Stowe.

Along with infrastructure improvements, the city is also proceeding to implement nine proposed King County annexations, despite a ballot measure that failed last year in neighborhoods to the north.

The city will annex those areas – a total of 1,003 acres south of the city – via an interlocal agreement later this year. Under state law, this method – which does not involve an election – is intended to be utilized for potential annexation areas for which other entities could not logically provide city services.

The King County Council still needs to execute an interlocal agreement with the city before the Bothell Council can adopt an ordinance approving the annexations, said Stowe.

Those areas will bring 6,000 new residents to Bothell by the second half of 2013.

“The area is still considered part of Bothell’s urban growth area and cities like Bothell are encouraged to provide service to these areas under the Growth Management Act,” Stowe said. “As such, Bothell is ready to consider any citizen-initiated petition for an annexation area that is self-supporting with local tax dollars, whether it comes tomorrow or 10 years from now.”

Bothell is struggling with low revenues like many other cities in the state.The General Fund, for city services, is $78.2 million.

The city set aside reserves, which totaled $7.3 million or 20 percent of the General Fund operating reserve, in 2007.

“This reserve has served the city well during the past six years,” said Stowe. “Our once healthy General Fund reserve … has been reduced to 9 percent.”

Stowe said the city has to rebuild those reserves to 15 percent by the end of 2016.

But some tough decisions had to be made with revenues down.

“Throughout the Great Recession and the economic meltdown that followed, Bothell’s commitment to providing nimble fiscal management remained strong,” Stowe said. “The city consistently reacted wisely and timely to shifting revenue forecasts and implemented course corrections as needed.”

The biggest decision for the upcoming budget came on property taxes. For the first time since 2005 the city will raise its property taxes by 1 percent. It equates to an additional $5.60 in 2013 for a homeowner whose home is assessed at $300,000.

“The Great Recession and its slow recovery have created a significant challenge and required cities across the nation to reset their expenses against the realities of a new and different economy,” Stowe said. “In addition to these challenges, the City of Bothell’s bottom line was diminished by the loss of two important revenue sources.”

The loss of a $20 per household streetlight fee and a broadband utility tax has cost the city $1 million in annual revenue.

“In this new economic era, balancing the budget is no longer a matter of determining what services we want to provide, but rather what services we can afford to provide,” Stowe said. “Our expenditures continue to rise faster than our revenues.”

As a result, the city had to make cuts, which include not filling six vacant positions: three in the fire department, two in the police department and one in the city manager’s office. A second position in the city manager’s office will be eliminated at the end of the year. Employee benefits were also reduced.