The Chehalis City Council is moving forward with its 2026 preliminary budget following the approval of the ordinance to adopt the budget on a first reading during a special meeting Monday.
Chehalis also approved a first reading of an ordinance to set the city’s property tax levies for 2026, which would include a 1% increase, if approved by the council on second reading next week.
Both measures were approved with 5-2 verdicts, as Mayor Tony Ketchum and Councilor Kevin Carns both voted against the two first reading ordinances, which are scheduled to be voted upon for a second reading on Nov. 24.
Some councilors were alarmed at a couple of figures presented by city finance director Nicholle Stanhope. In the preliminary budget, the city estimates bringing in a total of $33,544,500 compared to $31,301,600 in expenditures, finishing with an estimated fund balance of $32,503,969.
But the general fund shows a different picture. City staff estimate a $307,600 difference between expenditures and transfers out ($14,636,300) and revenues and transfers in ($14,328,700).
Stanhope told the council that the $307,600 difference is actually a “vast improvement” from where the city projected in September, as a previous estimate showed the city finishing with just $500,000 in ending cash in the general fund, compared to its current estimate of $1,164,369.
Property taxes were a sticking point for the councilors during the special meeting, as Stanhope pointed out that property taxes presented a significant change in the revenue budget.
“If you compare it to the 2025 budget, it is about an $800,000 difference to the general fund. That is because in budget amendment two, we decrease the general fund’s budget by about $400,000 for a refund,” Stanhope said. “The 2026 budget intends to levy that same ballpark, or $400,000.”
She further explained that the city took a budget reduction in 2025 for refunding “a large commercial property owner” in the city, identified as Darigold, with the intention to recoup those funds in 2026 through a one-time property tax increase.
Property taxes are the second-largest revenue source for the city and make up about 20.7% of the 2026 general fund revenues at $2,969,200, up by nearly $800,000, or 36.8%, from the 2025 amended budget. This increase in 2026 reflects the levy of prior years’ administrative refund of $363,300, doubled by the reduction in the 2025 budget for the repayment of those actual refunds.
Another significant change came from an updated assessed value evaluation by the Lewis County Assessor’s Office, which showed a drop in Chehalis’ total assessed value by over $105 million from the 2025 tax year. The evaluation is preliminary, and the assessor’s office will send updated values when they are available.
“That is including the new construction. Take out the new construction of $21 million, add the $105 million, so essentially they decreased our assessed value $126 million, if you will,” Stanhope said. “It’s no guess where the lion’s share of that decrease comes from. The large commercial property that had a value change that created this levy refund, but it was a little bit higher than I anticipated when we went into the budget workshop. The significance of that is taxpayers will have their rate increased somewhat to cover that distance between the $1.4 billion and $1.3 billion of AV.”
Using an example of a property with an assessed value of $400,000, Stanhope estimated that, if the proposed tax levies are approved, the tax impact to residents between 2025 and 2026 would be $190.32. But not all of that difference is related to the administrative refund portion, which Stanhope said amounts to $110. About $60 of the difference is attributable to the change in assessed value, and the rest is from the proposed tax increases.
Chehalis also has approximately $11,341 in banked capacity going into the 2026 tax levy year. If a jurisdiction did not take the maximum 1% increase in the past, it will have banked capacity available.
The preliminary levy values sent out by the assessor’s office to taxing districts show Chehalis with an estimated $30,320 in new construction increases and $22,993,614 in 2025 state assessed utilities. The city faces a loss because it had two levies active over the next four years: the city’s standard property tax as well as the city of Chehalis EMS levy. The administrative refund is listed as $286,589.31 for the city and $76,702.73 for Chehalis EMS for a combined total of $363,292.04.
The proposed total amount of property tax levies to be collected in 2026 are $2,376,361 for the regular levy and $592,839 for the EMS levy, combining for a collection of $2,969,201. If approved, the regular levy rate will jump 26.4% from $1.43 per $1,000 of assessed value in 2025 to $1.808 in 2026. The EMS levy would increase from $0.353 of assessed value in 2025 to $0.451 in 2026 for a 27.8% increase.
Carns expressed frustration with the assessor’s office’s valuation.
“I think the assessor’s office owes the taxpayers of Lewis County an explanation on how they could be so far off on these valuations,” he said. “Because if we had that $400,000, we would not have to take the bank capacity or the 1%. We could probably balance this budget without a property tax increase on taxpayers.”
Although property taxes represent a major source of funding for the city services, the portion of each property owner’s total tax bill allocated to the city is relatively small, according to city staff. In 2025, the total levy rate for what the city described as “a typical Chehalis resident” was $8 per $1,000 of assessed value. The city’s portion of the total tax rate, including the EMS levy, was 22.3%, or $1.783 of $1,000 of assessed value.
Stanhope explained that perhaps the biggest concern going into 2026 is the increasing cost of staff and having the revenues to sustain those increasing costs. About 55.6% of the budget is spent on staff, according to Stanhope. Chehalis will enter 2026 with one fewer full-time position, as City Manager Stacy Denham said the city previously had a planner role budgeted but was left vacant.
Additionally, the cost of providing services to Chehalis residents and businesses continues to increase, and city staff believe the 1% statutorily allowed increase in the property tax levy is necessary to maintain its current levels of services, including in law enforcement and fire.
Maintaining operating reserves at 10% of the revenue budget is the policy goal of the city council, but that percentage sits at 8.1% for the 2026 budget. Unanticipated revenues, including from potential annexation, as well as savings from vacant positions will likely change this outcome. When Carns asked what it would take to return to 10%, Stanhope explained that cutting staff or increasing revenues would be the only options.
Denham advised against cutting staff, as he described staffing levels as “bare bones.” The city has not reached the staffing levels it had since before the 2008 recession, with the exception of the police and fire departments, according to Denham.
Other changes in the preliminary budget include drops in capital expenditures, which Stanhope explained are budgeted out of the general fund sub-fund for automotive and equipment reserves, and in service costs, which were grant funded in 2025.
In order to get to the improved estimated ending cash balance, Stanhope said the city had to defer requests made by departments, including hiring additional staff and promotions for current staff.
However, the preliminary budget includes a 3% increase in cost-of-living adjustments, step increases and increases in medical and dental insurance. Reductions from staff turnover, benefit election changes and employer pension costs are included, as well.
No new impacts from potential annexation of the urban growth area are budgeted, nor are increases for permit fees and new sales taxes from potential new businesses. Further, no funding from potential grants for fire engine refurbishment is included.
The preliminary budget does not include finalized labor agreements for 2026 to 2028, as the current labor agreement is set to expire. It also does not fully include future airport development, as Stanhope noted that a new business is “going online” in December on the Chehalis-Centralia Airport property.
To view the proposed ordinances and budget figures, visit https://www.ci.chehalis.wa.us/media/41296.
