After public hearings and a first reading of the 2024 budget and 2024 property tax levy increase by the Chehalis City Council earlier this month, the council approved both on second readings during its regular meeting Monday, Nov. 27.
The vote was 4-2 in favor, with Councilors Kevin Carns and Daryl Lund voting in opposition. No changes were made to either the budget or the tax levy increase since the first readings, according to Chehalis Finance Director Chun Saul.
As for the 2024 budget, $12,918,625 is earmarked for general fund revenue, an increase of $554,360, or 5.4%, from the 2023 amended budget. Expenditures are expected to total $13,915,064.
Given that expenditures outweigh revenue, the city has a deficit of $996,439, which will be made up for by the 2024 budget’s beginning fund balance of $2,040,983.
Additionally, the council also approved a utility tax increase for water, sewer and stormwater services for local businesses by a vote of 4-2, with Carns and Lund once again opposing the increase.
Prior to the vote, utility taxes had not been changed by the city since an ordinance passed in 1992, which set the tax rate at 6% for water and sewer and 0% for stormwater. Now that the proposed tax increase has been passed on first reading, water’s tax rate will rise from 6% to 10%, sewer from 6% to 14% and stormwater from 0% to 10%.
These tax increases will be imposed on the utility providers themselves, not Chehalis residents, according to the ordinance.
The ordinance is scheduled for its second reading during the next Chehalis City Council meeting scheduled for Dec. 11 at 5 p.m., at Chehalis City Hall. If approved on second reading, the tax increases will go into effect on Feb. 1, 2024.
Chehalis City Manager Jill Anderson said the need for the utility tax increase was to compensate for projected losses of budget revenue the city will be facing through 2027.
“One of the ways the city could increase its revenue is to bring its utility tax more in line with neighboring agencies, specifically Centralia,” Anderson said.
While the tax increase is only being imposed on utility providers, Anderson acknowledged the increase could lead to a rise in service costs as well.
“However, without the additional revenues or cutting services to a certain level, as early as 2025 the general fund may not have (a beginning) fund balance at all,” she added.
While the budget deficit this year was nearly $1 million, according to budget projections the deficit is expected to be around $1.4 million each year from 2025 to 2027.
Anderson said the reason for the projected increase in the budget deficit — aside from inflation — is that the city has been working to get quality of service back up to where they were before the 2008 recession.
“We have raised the service level back to where it was in 2008,” Anderson said. “... Over 50% of the budget goes to police and fire. In order to maintain operational integrity, you either have to reduce staff and you have to reduce police and fire, or you have to raise revenues.”
While the proposed tax utility increase won’t be able to generate enough revenue to fully make up for the projected budget deficit, it will give city staff time to research other new possible revenue sources, Saul added.
The proposed increase would generate an estimated $626,000 in revenue next year, Saul said.
Chehalis Mayor Pro-Tem Bob Spahr voiced his support for the tax increase.
“It’s something that we can do now that is going to be there in the next couple of years to help us balance these budgets,” Spahr said. “We’ve just seen a heck of an inflationary year, and I don’t think that’s going to end too soon.”
Both Carns and Lund still opposed the tax increases. After the meeting, Lund explained he understood the need to generate more revenue, but felt there were other options the city was failing to explore.
“We’ve been pushing for years to expand the city limits so we can share the burden with everyone,” Lund said. “By expanding our city limits, there’s extra sales tax and property tax, and we have not done that.”
He added the city should have annexed its urban growth area (UGA) already. He also believes the rate increases that might follow tax increases could make utilities unaffordable for some in the city.
In an email to The Chronicle, Carns said he recognized the importance of the city’s police and fire departments and the need to properly pay them. He agreed with Lund that the city should annex its UGA.
“Recruiting and retaining high-quality officers is challenging, especially in light of the current anti-police policies emerging from Olympia … To address this fiscal challenge, I propose presenting a public safety levy to the voters next August,” Carns said. “Additionally, I believe expediting the inevitable annexation of the south UGA is crucial in tackling the long-term issues our community faces.”
He added the city should refrain from expanding its own staff until the projected budget deficits are reconciled and he wants the voters to play a central role in deciding the level of services the city provides.
