Word that the city of Spokane expects to face a $10 million shortfall in its 2011 general fund budget likely has evoked little shock from taxpayers who have grown numb to similar news from all levels of government. The scenario has become agonizingly routine. Tax collections are slowing, and governments must either reduce spending or seek new revenues. States are relying heavily on federal bailouts, while the U.S. deficit simply grows. It's a bitter onion, indeed.

Peel back the layers in Spokane, however, and you'll see some noteworthy differences that put the city in a better position than many of its peers. You'll see actions taken several years ago that are bearing fruit today, reasoned strategies for dealing with the current crunch, and a proactive approach to attack an underlying structural budget deficit that has thwarted fiscal progress in good times and bad.

Unfortunately, you'll also see that far more needs to be done.

Let's start with the current problem. If the city's 2010 budget wasn't challenging enough—recall that the shortfall then was $7.5 million—revenues this year are coming in even lower than the budget's modest projections. In response, Mayor Mary Verner has ordered a hiring freeze and immediate cuts to routine spending.

That's just to try to make this year's budget work. Next year, the city is anticipating sales-tax growth of just 0.5 percent, a statutory 1 percent increase in property tax revenues, and virtually no bump from new construction. Thankfully, Verner isn't suggesting new taxes, which would be ill-timed considering the pain taxpayers already are feeling. The city, however, will be left with a shortfall of $9.8 million, given that labor costs—the biggest driver in the budget—continue to rise.

Verner wants to fill that hole by using $2 million of the city's reserves, raising $2.5 million by accelerating the planned West Plains annexation, and reducing spending by nearly $6 million. Such a scenario would eliminate 44 jobs and would include asking employees to find $1 million in savings in their benefits plan.

Take note of three important details in all of that.

First, Spokane is fortunate to have reserves from which to pull. When you imagine the cuts that would be necessary without that $2 million, you understand the need to save when tax revenues are higher than expected.

Second, notice that Verner wisely chose to start the budget process early in the year, which will spur needed dialogue both within City Hall and the community. Third, note that the city wants its employees to play a role in dealing with the shortfall, in this case by trying to slow the growth in health-care benefit costs. This is a critical goal, and one that wouldn't be even remotely possible had the city not decided several years ago to take a more precise approach to budgeting, and thereby eliminate the misleading year-end cushions that created mistrust with the employee unions during budget talks. Now, when management says there's no more money, there really is no more money.

On that subject, it's good to hear of Verner's goal of limiting benefit-cost growth to 4 percent annually. With the generous benefit packages city employees enjoy, costs have been rising far higher than that. By telling union officials what overall increase the city can afford, they can help decide how to live within the city's means, just as we in the private sector have done for years.

Notably, Verner's plan doesn't include a request that city employees forgo planned raises, or to take actual pay cuts, as many in the private sector have. Although the mayor's approach to the budget has been admirable, the less politically risky path she has chosen to take on pay illustrates how much work remains ahead if the city is ever to close its long-standing structural budget gap.