The City of Centralia is looking at a roughly $2 million funding shortfall and faces two paths to a balanced budget: staffing cuts or new taxes.
The Centralia City Council convened a public-facing, hour-and-a-half budget workshop Tuesday evening where no decisions were made, and yet the options appear to be clear.
The main takeaway from the meeting? The city must either increase taxes or institute new taxes — or cut staffing.
“We're either going to have to generate revenue, and government speak for generating revenue is taxes, or we're going to have to make significant cuts to an already lean budget,” Centralia Deputy Mayor Kelly Smith Johnston said.
A final decision on exactly how to balance the budget is yet to come. The city’s only options for cutting staff, according to City Manager Michael Thomas, would be in the local police department or the city parks department.
The two departments are the largest expenses in the general fund, representing 53% and 10% of planned spending, respectively. Given the council's recent commitments to hiring additional officers, parks seems the more likely option.
Options for additional tax revenue were not discussed during the meeting. The city, during its previous two-year budget process in 2024, considered a local business and occupation tax; however, the council ultimately decided against implementing the move.
During the meeting, city staff proposed a preliminary budget of around $161.3 million, but the shortfall is narrower in scope. The predicted shortfall impacts specifically the city’s general fund, which represents less than a quarter of the city’s entire budget. Roughly three quarters of the budget is related to local utilities, which operate similar to a business, relying on rates to provide operating funds.
City staff expect the city will need to spend roughly $33 million from the general fund over the next two years to keep operations running smoothly. That proposal already includes some cuts, such as eliminating the city’s vacant deputy city manager position and forgoing hiring seasonal maintenance staff, among others.
At the same time, the city expects to take in roughly $31 million in revenue between taxes, fees, service charges and state and federal funding.
According to Thomas and other city staff, the city’s tax revenues, including the sales tax, have increased recently by as much as 23%, but cost increases have outpaced those revenues at 26%, putting the city in a difficult spot.
The largest increases stem from rising insurance rates and material costs and one expense that is plaguing both residents and local governments — high fuel costs.
According to Centralia Finance Director Bret Brodersen, fuel costs have blown the city’s previous estimates out of the water.
“By the end of September, virtually every department in the city has spent their fuel budget for the year, and so we're trying to balance that out with savings,” Brodersen said.
The Centralia City Light budget could also be in trouble, but was presented as balanced on Tuesday evening. That budget relies on the city’s ability to resume operation of its small hydroelectric dam in Yelm, which has been closed due to a sinkhole.
“It's a gamble,” Thomas told council. “I think it's a smart one. I think this will work. But if it doesn't, we're going to be in a pinch in the City Light budget, and that is something that you need to be aware of as council.”
During the meeting, high-level city staff including both Thomas and Centralia Community Development Director Emil Pierson made the case for avoiding major cuts, citing relatively unchanged staffing levels over the last 20 years.
“I've been here 20 years. I've got a lot of history for the city and have seen where we've cut, sliced and diced, and where there's no way to cut more,” Pierson said. “There really isn't.”
Thomas referred to the need for a new revenue source for the city as “inevitable,” arguing that the city will face a similar choice in the next budget cycle even if it makes cuts now.
“Whether it's this year or the next biennium, we're going to need a long-term, stable, sustainable, growing revenue source for the city for us to continue to do any of the projects that this community wants us to do,” Thomas said. “We will need a revenue source, and unfortunately, that means at some point there will be taxes.”
According to Thomas, the city used all of the financial resources it could to balance the budget in its previous budget cycle, leaving it little to no emergency options this time around. For example, the city already used its full banked property tax hike capacity in the previous cycle.
While the city technically has just over $9 million in the general fund reserves, most of that money is already committed to specific expenses. Its actual unallocated reserves sit at less than $700,000.
For previous reporting on the city’s efforts to balance its budget, visit https://tinyurl.com/38haufs6.
