The Chehalis City Council held a public hearing and approved the city’s 2025 budget on first reading by a vote of 6-1, with Councilor Kevin Carns opposing the move, during a meeting Monday, Oct. 28.

As per state law, municipalities such as Chehalis are required to submit balanced budgets, and though the Chehalis budget will be balanced next year, some on the council took issue with how  it was finalized — by tapping into the city’s general fund reserves and other emergency funds.

Chehalis Finance Director Nicholle Stanhope said reserve funds were needed as in the past few months, while the Chehalis Finance Committee has been drafting the 2025 budget, many departments made cuts but the budget was still not balanced.

“Our revenues are not currently meeting the needs of the costs of services. I think that’s no surprise to anybody,” Stanhope said. “In 2024, that same story held true and, again, probably no surprise, the 2025 budget was not balanced.”

Stanhope said, despite departments reducing discretionary spending, the cost of insurance along with supplies, fuel and outside services are still being hit hard by inflation.

Additionally, per collective bargaining agreements, city employees received a cost-of-living pay increase along with employer-paid health insurance.

Even without adding any new staff positions and cutting discretionary spending to the tune of 7%, or $1,114,077, a total of $1,181,720 in the general fund reserves still had to be used to balance the city’s 2025 budget, along with extra transfers from other funds.

In 2025, general fund expenditures are expected to total $14,860,152, with 52% of that going to the Chehalis fire and police departments, 12% to the parks department, 8% for the streets department, 8% for planning and building, 5% for administration costs, 4% for recreation, 3% for the municipal court, 3% for the finance department, 2% to the firefighters’ and police officers’ retirement and benefits and the remaining 3% for other expenses.

General fund revenues for the 2025 budget are expected to total $13,941,700, with 47.2% coming from sales and use taxes, 18.4% coming from property taxes, 17.7% from utility business taxes, 7.7% from licensing and permitting fees, 3.5% from incoming transfers, 2.8% from intergovernmental revenue, 0.7% from fines and penalties, 0.4% from other taxes and 1.6% from miscellaneous sources.

Given that expenditures outweigh revenue, the city has a general fund deficit of $918,452, which was balanced using the reserve funds.

Last year, the city had a budget deficit of $996,439, which was balanced by the 2024 budget beginning funds of $2,040,983.

The ending general fund balance for Chehalis’ 2025 budget is projected to be $263,268.

Along with the general fund, the city has 26 other funds total. In 2025, all 27 of these funds will have a combined beginning balance of $27,334,785.

Citywide expenditures across all funds are expected to total $31,548,384 with revenues anticipated at $29,024,900 — leaving the ending balance for all budgets combined next year at $24,811,301.

Stanhope said the budget was missing a lot of grant revenue that she anticipated will be awarded but didn’t include as official approval hasn’t been given yet.

Chehalis Mayor Tony Ketchum expressed displeasure with the budget as he was under the impression a utility tax increase, which was approved at the end of 2023 and went into effect this year, should have generated more revenue. 

“We were told to raise the utility tax, and that tax would offset the salary increases we just gave for all the contract people. That’s what we were told,” Ketchum said.

He added there was another $1.3 million in excess budget funds the council set aside earlier this year and wondered if that money had any impact at all. 

“I’m just trying to grasp why we’re needing so much money when we were told we had almost $2 million coming to us to offset a bad budget coming in 2025,” Ketchum said.

Stanhope, who just started as the city’s finance director in April, said she understood Ketchum’s confusion, but that inflation is still pushing expenditures to far outpace revenues.

“My own perception coming in is, ‘We just put that money aside, and here we are already tapping into it a few short months later.’ That was the first conversation we had with the budget committee,” Stanhope said.

She said one additional issue was sales tax revenue had not been increasing as expected. This forced the finance committee to transfer $400,000 from the city’s sales tax revenue stabilization fund along with the reserve funds to help balance the budget.

“The use of that $400,000, we actually meet the criteria the very first year going into the next budget for the use of that. Sales tax (revenue) is not increasing at a minimum of 2% going into 2025,” Stanhope said.

Chehalis City Councilor Robert Spahr asked about getting state assistance to better pursue online sales tax revenue, which Chehalis has been losing out on for online sales based out of the city.

Property tax

During the meeting, the council also voted 6-1 to approve an annual 1% increase to property taxes along with using 100% of its banked property tax authority — approximately $247,000. This will increase the property tax levy collected in 2025.

Both the 2025 general property tax levy and EMS levy are expected to total $2,531,336.01. In 2024, the property tax rate in Chehalis will be $1.26 per $1,000 of assessed property value, and it will rise to $1.40 per $1,000 in 2025.

Carns was again the sole opposition, and he explained why he would not support the proposed 2025 budget or property tax increase.

“I was not able to participate in the budget committee process like I would have liked to. The mayor and I actually talked about this. A lot of this I probably should have interjected during the process, but this is unsustainable,” Carns said. “This is completely unsustainable. Expenditures exceeding revenues means we’re spending more than we make. Interfund transfers are a Band-Aid, and Band-Aids fall off eventually, and we don’t have a reserve fund left to raid again.”

Aside from his council duties, Carns has been busy this election year working for Causeway Solutions as manager of political strategy and insight for Washington state Republican candidates.

While he supported pursuing more tax revenue, he also proposed making more cuts internally.

“It’s not the answer anybody wants. It’s not the answer I want to propose. But we cannot continue this trajectory,” Carns added.

As for what cuts could be made, that will need to be determined after recommendations by the budget committee. Ketchum added city staffing levels still have not returned to where they were prior to the last time personnel cuts were made following the 2008 recession.

For more information on the city’s proposed 2025 budget, go to page seven of the council’s agenda report online at https://tinyurl.com/5n74fher. Information on the property tax is on page 13.

Both the proposed budget and property tax increase will undergo another public hearing and final reading at the next Chehalis City Council meeting on Tuesday, Nov. 12, at 5 p.m. inside Chehalis City Hall, located at 350 N. Market Blvd. in downtown Chehalis.