Unlike neighboring local governments, many of which are facing structural deficits as they seek to balance their budgets, Chehalis appears to be in a good spot headed into 2027.
Expected revenues are being boosted largely by the city's recent annexation.
Officials expect the city to take in roughly $2.3 million more than it plans to spend for the year across all funds.
The City of Chehalis released a copy of its 2027 preliminary budget to the public on Monday, showing a relatively rosy budget outlook for the year, especially when compared with those of Lewis County and the City of Centralia.
That outlook appears to be the result of healthy reserves, cutting expenses and increased tax revenues from the city’s recent annexation. Property tax revenue alone is expected to increase by 50%, or nearly $1.5 million.
“For the most part, we’re actually looking really good,” Chehalis Finance Director Sally Saxton told the council in September. “The change in the overall fund balance overall citywide collectively from the beginning of the year to the end of the year, we’re looking at $1.8 million of increase, even with all that we are requesting.”
Reserves across all city funds are expected to increase by more than $2 million. At the same time, the city’s general fund balance is expected to shrink by around $1 million as the city uses reserves from that account to help cover costs to maintain services and extend them into newly annexed areas.
City staff still expects to finish the year with healthy general fund reserves of around $2.4 million, which is equivalent to 14% of the year's general fund revenue and above the 10% recommended by the state. The general fund is sitting at $3.4 million heading into 2027.
Chehalis City Manager Stacy Denham and Saxton presented an earlier version of the proposed budget to the Chehalis City Council in late September. The two officials told the council that annexation was top of mind when fielding requests from city departments.
“The main focus of what we’re trying to do for 2027 is to make sure that we provide our quality services that the city provides to our residents and our businesses, that we are able to extend that out to the new annexed area,” Saxton said.
Denham later emphasized that the city was deferring some departmental requests by a year or two to wait until the city has a better idea of how revenue and expenditures will look after the annexation. Some of those delayed expenses include vehicle purchases and maintenance and a roof replacement.
According to Saxton, while annexation involves new tax revenue, it also will require the city to hire additional staff to provide the same level of services across a larger area and to more residents. Nowhere was that example more clear than when reviewing budget requests by the Chehalis Fire Department, which was granted all of its requests, including at least four new full-time staff positions.
Both the city’s police and community development departments also were granted at least one additional full-time staff position each.
The department was also granted a $100,000 request intended to go toward outfitting a temporary or permanent South End Chehalis Fire Station. The Chehalis City Council has yet to officially purchase any property to support a south end station. The council has not publicly disclosed any decisions about the process. It has held multiple executive sessions in recent months related to an unspecified real estate acquisition, which could hint at progress on that front.
Annexation is both a source of extra spending and additional revenue in the preliminary budget. The annexation of the city's urban growth area, which was finalized over the summer, is expected to increase revenue from two of the city’s three largest tax sources: property taxes and sales taxes.
Sales tax is the city’s largest tax revenue source and accounts for 43.7% of the revenue headed to the general fund in the 2027 budget. The estimated revenue from the tax, which assumes revenue from last year will remain relatively stable and accounts for annexation, is expected to be 9.7% higher in 2027 when compared to 2026. Annexation presumably brings more businesses into the city that might conduct business subject to sales tax.
Property tax revenue is the city’s second largest tax revenue source and accounts for 26.8% of the preliminary 2027 budget general fund revenue. The city predicts property tax revenue will have the biggest percent increase among tax revenues from 2026 to 2027, and that increase is driven largely by annexation.
According to the preliminary budget, annexed property will account for a roughly $1.65 million increase in property tax revenues. The preliminary budget also included other revenue increases, including the allowable annual 1% property tax rate increase, new construction and revenue for an administrative refund linked to a large property tax refund. The council will still need to vote to approve both the budget and the property tax increases.
Utility tax revenue is the only revenue source of the three largest that is expected to go down next year, but by less than 2%. The utility tax makes up about 17% of general fund revenue for the 2027 budget.
On the same day that the preliminary budget was released, the Chehalis City Council convened for a minutes-long special meeting to set public hearing dates for discussing and approving the 2027 budget and related tax revenue options. The public will have two options to weigh in on the proposed budget and revenue options before final approval.
According to the resolution passed to set those dates, the first hearing will take place at or after 5 p.m. on Monday, Nov. 9, and the second is scheduled for the same time two weeks later on Monday, Nov. 23. Both meeting dates will coincide with the Chehalis City Council’s twice-monthly Monday meeting.
To take a look at the city’s preliminary budget, visit https://tinyurl.com/awpm7fwb.
